A-shares' Dragon Year Debut: Will the New Market Trend Be AI or Consumption?
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The Spring Festival holiday has ended, and next week the A-share market will finally welcome its first trading day of the lunar new year. Investors are undoubtedly gearing up to embrace the new year's fresh opportunities.
Before the holiday, three consecutive days of gains in the A-share market helped revive market sentiment. Meanwhile, the Hong Kong stock market, which resumed trading earlier, celebrated its 'auspicious start' with three straight days of gains. Over the last three trading days, the Hang Seng Index rose nearly 4%, while the Hang Seng Tech Index surged by 7%, exuding an atmosphere of vigor and vitality.
As we look forward to the coordinated movements of the A-share and Hong Kong markets tomorrow, where will the new main market trend emerge? During the Spring Festival holiday when A-shares were closed, global markets generally performed well, with stock indices in multiple markets rising worldwide. The most notable performers were the Nikkei and Hang Seng indices.
The Nikkei 225 index gained 4.31% over the past four trading days, reaching an intraday high of 38,865.06 points at one point - just "one step away" from its historical peak of 38,957.44 points.
During the long holiday, Chinese assets saw across-the-board gains. The Nasdaq Golden Dragon Index continued its pre-holiday upward trend, recording a cumulative increase of 4.31% last week. On the 16th, the FTSE China A50 futures surged 1.35%, hitting a new high in over two months. Historical experience shows that the performance of overseas markets during the Lunar New Year holiday often impacts the opening of A-shares after the holiday. Compared to the Lunar New Year period in January last year, the accumulated market sentiment before the holiday is similarly expected to continue. Additionally, due to the lower valuation of H-shares compared to A-shares and the significant AH share price gap, H-shares may price in earlier than A-shares.
The difference from last year's market conditions lies in the intensive regulatory signals boosting market confidence before the holiday: changes in the leadership of the China Securities Regulatory Commission (CSRC), strengthened regulatory measures for margin trading and securities lending businesses, and the handling of several illegal cases during the holiday. These measures are expected to enhance the investability of A-shares.
Secondly, the most market-noticed consumption data during the holiday showcased 'standout performances,' with film and tourism consumption both surpassing previous peaks. According to data from Lighthouse Professional Edition, as of February 17, the 2024 Chinese New Year holiday (February 10-17) achieved a total box office revenue (including pre-sales) of 8.033 billion yuan, with 164 million admissions and 3.9414 million screenings. This surpassed the 2021 Spring Festival holiday period, setting new records in China's film history for total box office, total admissions, and total screenings during the Spring Festival season.
In terms of tourism, calculations by the Ministry of Culture and Tourism Data Center show that during the 8-day Spring Festival holiday, domestic tourism trips nationwide reached 474 million, a year-on-year increase of 34.3%, and a 19.0% growth compared to the same period in 2019 on a comparable basis. Total domestic tourism spending amounted to 632.687 billion yuan, up 47.3% year-on-year and 7.7% compared to 2019. Cross-border tourism recorded approximately 6.83 million trips, including about 3.6 million outbound trips and approximately 3.23 million inbound trips.
Overseas tourism has also entered a fast lane of recovery. According to Qunar data, more people chose to travel by air on the second day of the Lunar New Year this year than those returning home on the 29th day of the lunar month. With the continuous expansion of the 'visa-free circle,' outbound travel has become increasingly convenient. During the Spring Festival holiday, Chinese tourists visited 115 countries worldwide, with international hotel bookings increasing by 4.7 times and international flight bookings surging by 14 times compared to last year. Alipay data shows that spending by overseas tourists in China during the Spring Festival increased by 500% year-on-year.
These robust figures indicate a strong recovery in Spring Festival consumption, which will not only boost the economy in the first quarter but also suggests a more optimistic outlook for demand-side expectations. This trend has already been reflected in the Hong Kong stock market in recent days and may be replicated in the A-share market next week. Before the Chinese New Year, the consumer sector in A-shares continued to bottom out at relatively low valuations. Sectors like new energy vehicles, pharmaceuticals, and liquor, which experienced deep adjustments over the past two years, still present some oversold rebound opportunities after the holiday. However, if the macroeconomic outlook remains unchanged, despite positive data that may not be sufficient to reverse expectations, certain consumer sectors might experience a high opening followed by a decline on the first trading day.
Of course, with the new year comes new opportunities. Trading prospects aren't limited to the consumer sector alone. The most explosive sector next week may already be emerging.
Last year, OpenAI's global sensation marked the beginning of the AI revolution. Now, it has taken another step forward in AIGC (AI-generated content). Last week, OpenAI released its first video generation model, Sora. Using this model, 60-second videos can be generated from user-input natural language, marking the first breakthrough into short-form video creation duration from the previous 5-15 second limitation. It not only supports generating videos from images but can also stitch together completely different videos into one seamless output.
While top visual effects teams might manually achieve 80-90% quality results, Sora can now directly deliver 60-70% quality. The remaining 30-40% improvement potential represents vast creative space and innovation opportunities, waiting for imaginative minds to explore and commercialize. Although last week's US CPI and PPI data failed to meet market expectations for continued cooling - leading to more conservative forecasts for the timing and frequency of Fed rate cuts this year - this hasn't stopped the 'Magnificent Seven' US tech stocks from continuing their record-breaking rally. These seven tech giants, which hold significant weight in the Nasdaq and S&P 500 indices, currently trade at a price-to-earnings ratio of about 45 times, already at expensive valuations.
However, their performance could spark a new rebound in China's A-share AI sector. Particularly in AI applications, video-oriented AIGC has emerged as the hottest short-term theme, with securities firms aggressively recommending related stocks. Following OpenAI's release of Sora, 19 research reports covered the topic within just three days.
Beyond the often-discussed AI computing power industry chain, Sora's future commercialization is expected to bring revolutionary changes to downstream sectors like short videos, films, gaming, and animation. Combined with record-breaking Spring Festival box office numbers, these dual positive factors await market reflection. Content creation companies benefiting from efficiency improvements and cost reductions may become primary investment targets. As for mid-to-long term market trends, they are ultimately supported by marginal improvements in economic fundamentals and macro policies. The January price and financial data released before the holiday set a good start for 2024.
First, let's look at January's CPI and PPI.
Year-on-year, the CPI in January fell by 0.8%, compared to an expected -0.5% and a previous value of -0.3%. Month-on-month, it grew by 0.3%, compared to an expected 0.4% and a previous value of 0.1%. Although this marks two consecutive months of month-on-month growth, the decline has shown an expanding trend. According to the National Bureau of Statistics, the expanded decline is primarily due to the misalignment with last year's Spring Festival (January), holiday effects, and the surge in consumer demand after the lifting of pandemic restrictions, which significantly increased the base. However, as the Spring Festival (this February) approaches, prices for some food items and travel demand have shown signs of recovery compared to December last year.
After a year of adjustments, the current supply still significantly exceeds demand.
From the CPI structure, food prices, especially pork prices, have a significant impact on the year-on-year CPI. Among food items, pork, fresh vegetables, and fresh fruit prices fell by 17.3%, 12.7%, and 9.1%, respectively, collectively contributing to a 0.78 percentage point drop in CPI, accounting for over 90% of the CPI decline. Undoubtedly, these were the main factors driving the year-on-year decline in CPI. In the month-on-month CPI growth, fluctuations in food prices such as vegetables and aquatic products significantly contributed to the CPI increase. The cold wave weather and increased consumption demand ahead of the Spring Festival led to price rises in shrimp and crab (9.3%), fresh vegetables (3.8%), potatoes (1.5%), and fresh mushrooms (1.3%), collectively impacting the CPI by approximately 0.12 percentage points.
Non-food prices also shifted from decline to growth. Due to increased travel demand, air ticket and tourism prices rose by 12.1% and 4.2%, respectively. Influenced by the return of migrant workers and increased service demand before the holiday, prices for domestic services, hairdressing, and maternal and infant care services increased by 4.8%, 4.6%, and 1.5%, respectively.
Regarding PPI, the year-on-year decline in January was 2.5% (expected -2.6%, previous -2.7%), with a month-on-month drop of 0.2% (previous -0.3%). Although some domestic industries entered their traditional off-season in January, the year-on-year and month-on-month declines in PPI narrowed by 0.2 and 0.1 percentage points, respectively, compared to the previous month. From the continuous improvement in the month-on-month CPI and the narrowing decline in PPI in January, it is evident that with the continued implementation of growth-stabilizing policies this year and the gradual recovery of consumer confidence, the supply-demand relationship is moving towards a more balanced state in the medium to long term. The path of a moderate rebound in CPI and PPI turning from negative to positive is relatively clear. A mild recovery in prices should serve as a strong boost for the stock market.
Now, let's look at the credit and social financing aspects.
First, examining the supply side, the year-on-year growth rate of M2 has declined, and the M2-M1 gap has narrowed. In January, M1 and M2 grew year-on-year by 5.9% and 8.7% respectively, with their growth rates changing by +4.6 and -1 percentage points compared to the previous month. The M2-M1 gap stood at 2.8%, showing a significant narrowing from the previous value of 8.4%.
The decline in M2 was primarily affected by the high base of 12.6% in January last year. Last year, household deposits increased due to salary and benefit distributions before the Spring Festival (January), coupled with massive redemptions of wealth management products at the beginning of the year. As a result, household deposits in January this year decreased by 3.67 trillion yuan year-on-year.
Conversely, M1, which is predominantly composed of corporate demand deposits, saw significantly reduced consumption due to the timing of the Lunar New Year. Corporate deposits increased by 1.86 trillion yuan year-on-year, leading to a substantial narrowing of the scissors gap. However, this year's M1 growth reached a staggering 1.37 trillion yuan, setting a new record for January increments. Beyond the usual transfer of household deposits to corporate accounts, this surge may have been propelled by fiscal deposits moving into corporate accounts—a dynamic likely stemming from the allocation of last year's trillion-yuan government bond funds.
On February 7th, the National Development and Reform Commission announced that all projects funded by the additional 1 trillion yuan in government bonds had been fully allocated. They also emphasized plans to accelerate fund disbursement and utilization to swiftly translate these allocations into tangible outputs.
On the demand side, January saw 6.5 trillion yuan in new social financing—exceeding expectations of 5.55 trillion yuan—marking the highest single-month increase since 2014. The year-on-year growth of outstanding social financing remained steady at 9.5%, consistent with December's figures. Structurally, the primary contributors to this growth were corporate bonds, undiscounted bankers' acceptances, foreign currency loans, and trust loans. Structurally, January is typically a peak month for credit issuance, with declining financing costs aligning with banks' motivation for early loan deployment to secure returns. Despite the high base of RMB 4.9 trillion in loans during the same period last year, January still saw a year-on-year increase of 16.2 billion yuan.
Compared with the same period last year, household credit demand rebounded significantly in January, with short-term and medium-to-long term loans increasing by approximately 318.7 billion yuan and 404.1 billion yuan year-on-year respectively, although real estate sales data didn't support the recovery in medium-to-long term household loans.
On the corporate side, January saw reductions in corporate medium-to-long term loans, short-term corporate loans, and net bill financing by 190 billion, 50 billion, and 560.6 billion yuan respectively compared with 2023. The narrower decline in corporate medium-to-long term loans against last year's high base and debt resolution pressures demonstrates the effectiveness of last year's accommodative policies supporting infrastructure development. At the end of last year, while stock markets and economic policies were gradually improving, A-shares failed to synchronize with other markets. The primary reasons were: 1) Significant capital pressures led to a lack of confidence among investors, who adopted a barbell strategy, leaving most high-quality blue-chip stocks neglected and unable to drive the market index; 2) Some quantitative and snowball products harbored risks, opting to reduce positions or even forcibly liquidate to control risks, resulting in a stampede-like market scenario at year-end.
Hong Kong and Chinese concept stocks have rebounded for three consecutive days, indicating that foreign investors' attention to Chinese assets has not waned. After a prolonged decline, the current valuation's safety margin means that any improvement in liquidity could easily trigger a rebound. Before the holiday, with a series of measures from the China Securities Regulatory Commission and Central Huijin, the 'trading risks' in A-shares have been controlled. Short-term liquidity and risk appetite are gradually improving, forming the basis for A-shares' continued oversold rebound.
Although the turning point may not arrive quickly, under the expectation of looser policies, the clues to A-shares' subsequent trends still hinge on marginal changes in the macroeconomy. One depends on the restoration of external loose liquidity, and the other relies on more effective and forceful domestic policy stimuli to smoothly reverse expectations. Gelonghui Statement: All views expressed in this article are those of the original author and do not represent the views or positions of Gelonghui. Special reminder: Investment decisions should be based on independent thinking. The content of this article is for reference only and does not constitute any actual operational advice. Trading risks are borne by the individual.