Navigating Divergences: Rational Asset Allocation Tips
As policies were successively introduced around the extended holiday in October, the domestic capital markets witnessed a long-awaited surge in activity. Daily stock trading volumes reached historic highs, and mainstream funds significantly flowed into ETFs. On October 8, the market showed a robust offensive performance, exemplified by indices such as the STAR Market and the ChiNext, igniting investor enthusiasm for utilizing ETFs to capture market trends.
Since the Fed's rate cut, the Chinese market has benefitted from easing external liquidity, leading to an increase in the inflow of equity capital. Subsequently, driven by domestic policies released on September 24 and 26, the scale of equity inflows post the holiday sharply increased, although there was a notable contraction on October 10.
As the domestic asset market gradually shifts from a phase of "high slope" to "differentiation," the importance of stock selection has evidently risen. Investors are increasingly concerned about: how this market will diversify in the future? Which sectors still merit continued participation?
How will the subsequent market unfold after the increase in volatility in Hong Kong stocks?
Under the expectations of the 924 and 926 policies, the Hong Kong stock market maintained a buoyant sentiment during the holiday, with clear sector rotation. The dual support of favorable policies and a bustling travel season propelled the consumer sector to lead the rally, while real estate and construction, with their higher AH premiums, as well as the undervalued information technology sector performed well.
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After a rapid rise in the short term, a large amount of profit-taking was accumulated, leading to a market correction post-holiday as optimistic sentiments were released. From the perspective of sentiment indicators, after the announcement of the 924 and 926 policies, the proportion of short sales in Hong Kong stocks initially crept up, indicating a degree of skepticism among some investors about the current market rally. However, as the Hong Kong market continued to rise sharply, the proportion of shorts showed a significant decline, and post-holiday, the rate of decrease in bearish positions slowed.
In terms of capital, a significant inflow of domestic and foreign funds entered the Hong Kong stock market during the holiday, but post-holiday, both southbound and foreign capital exhibited a slowing inflow trend. Overall, the Hong Kong market experienced a short-term rapid rise during the holiday, accumulating substantial profit-taking, thus market fluctuations in such a situation are not unexpected.
Considering the overseas macro situation, the Fed has officially commenced rate cuts, and overseas central banks have largely entered a rate-cutting cycle, returning global liquidity to a relaxed stance, favoring the performance of risk assets, making Hong Kong stocks worthy of close attention. According to Wind data, after the Fed's rate cut began, the Hang Seng Index has mostly risen in the short term.
In specific directions, if the subsequent fiscal scale meets expectations, sectors like consumption, large finance (insurance, banking, brokerage), and real estate will directly benefit from policies. Meanwhile, amid the continued inflow of both domestic and foreign capital, resilient sectors represented by the Hang Seng Tech Index, alongside excellent interim performance, will also highlight their value in allocation.
Seizing resilient varieties in the reversal market
We are currently at the early stage of a substantial shift in macro policies, with a strong determination from policymakers to stabilize the economy and capital markets. As a new round of global easing unfolds, a wave of liquidity returning is undoubtedly on the horizon. A-shares still represent a value area among major global markets, which provides space for future allocations.
Furthermore, this round of rebound has highlighted the potential of elastic sectors, including the ChiNext and STAR Market, which have been significantly benefiting in this rally. This underscores that areas of new productive forces are the pivotal points combining long-term economic dynamism shift and short-term stabilizing policies. In this broader context, the enhancement of total factor productivity represents the hallmark of new productive forces, becoming the new momentum driving the economic development strategy nationally, which will be a central theme of this market cycle.
As a cradle of innovation and entrepreneurial energy, the ChiNext focuses on five major industries: the next-generation information technology, high-end equipment manufacturing, new energy, new materials, and biopharmaceuticals. The more refined ChiNext 50 index especially concentrates on the "hard technology" domain, with the top five weighted industries comprising power equipment and new energy, pharmaceuticals, communications, non-bank financial services, and electronics, collectively accounting for 84.84%.
When it comes to "hard technology," innovative semiconductors also stand out among varieties. Recently, the semiconductor industry has faced multiple challenges such as a global chip shortage and trade frictions, constraining overall valuation levels in the industry. As these adverse factors gradually ease, the industry's valuations are poised for recovery.
With the rapid advancement of emerging technologies like artificial intelligence, the Internet of Things, and 5G, the global demand for chips continues to rise. Chips, being the core components of these technologies, boast a vast market outlook. The semiconductor ETF tracks the Shanghai Stock Exchange’s semiconductor index, focusing on leading enterprises in the STAR Market, and at the onset of a bull market, investor interest in tech stocks often escalates, making them more inclined to invest in entities with innovative capabilities and high growth potential.
How to allocate with the dumbbell strategy currently?
The dumbbell strategy is an asset allocation approach centered on simultaneously integrating assets with distinctly different risk profiles within a portfolio to balance risk and return. The strategy derives its name from the shape of the investment portfolio—heavier at both ends and relatively light in the middle, resembling a dumbbell.
Specifically, one end of the dumbbell strategy focuses on high-growth assets such as tech stocks and emerging markets, which may yield high returns but also entail significant risks; the other end prioritizes defensive assets such as high-dividend stocks and bonds, which provide relatively stable returns with lower risks.
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