Huatai Securities: Managing Uncertainty Through Position Control and Stock Selection

Huatai Securities points out that last week, A-shares experienced low-volume fluctuations. From the perspective of market trading structure and capital behavior, overall risk appetite has cooled down, with geopolitical tensions and rising oil prices still being the core contradictions in market pricing. Looking ahead, on a macro level, short-term risks have not been fully released; concerns about stagflation are intensifying globally. Domestic liquidity remains ample, but the sustainability of improving import-export and inflation data needs verification. On a micro level, global investors still worry about AI disruptive impacts. The most important earnings season of the year for A-shares is approaching, with AI chains and resource commodities being key focus areas. Currently, macro and micro visibility is relatively low, so it is recommended that investors reduce positions and respond flexibly. In terms of allocation, seek alpha in the power chain (batteries, traditional energy, and operators) and essential consumer goods. Additionally, as valuation pressures gradually ease and there are catalysts in the short term, consider buying leading hardware upstream of the computing power chain at dips for high risk-adjusted returns.

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Huatai | A-Share Strategy: Managing Uncertainty Through Position Control and Stock Selection

Last week, A-shares experienced low-volume fluctuations. From the market structure and capital behavior, overall risk appetite has decreased. The China Securities Red Chip Index hit a new high since October 2024, indicating reduced risk appetite. Structurally, geopolitical tensions and rising oil prices remain the main contradictions in market pricing. On one hand, defensive sectors like utilities and agriculture have been relatively strong since March, reflecting increased global stagflation concerns. On the other hand, within the energy chain, strong commodities are shifting from oil and petrochemicals to power and coal, indicating a shift in market focus from direct to indirect impacts (substitution effects). We believe that in the short term, risks such as rising global energy costs and tightening financial and trade conditions have not been fully released. Attention should be paid to four sectors that benefit from high oil prices. In the medium to long term, Chinese assets are less sensitive to oil price increases, supporting our view that Chinese assets remain relatively advantageous (as of 26/3/9, “Winners and Losers Under High Oil Prices”). Additionally, the excess returns of upstream computing infrastructure related to AI chains are warming up; focus on Nvidia’s GTC conference this week.

Most capital flows are marginally cooling, with leverage funds remaining relatively active

First, leverage sentiment has slightly improved. As of March 12, weekly net financing inflow was 18.3 billion yuan (vs. net outflow of 24.2 billion yuan previously), with trading activity at 9.4% (vs. 9.1%). Second, net outflows from broad-based ETFs have widened, while sector ETFs saw significantly reduced inflows, with electric new energy ETFs leading net inflows and petrochemical ETFs leading net outflows. Third, new issuance of equity-focused public funds rebounded last week but remained below February’s average; marginally lower positions are estimated for equity hybrid and flexible funds. Private fund filings have slowed for three consecutive weeks. Fourth, as of March 11, weekly net outflows from overseas mutual funds in A-shares reached $1.06 billion, with both active and passive funds turning net negative, possibly influenced by overseas funds reducing exposure to Asia/emerging markets.

Broad liquidity remains ample, with positive outlooks for industries like batteries, components, and oil & gas extraction

On the macro level, domestic broad liquidity remains relatively loose. February financial data exceeded expectations, with a slight rebound in the M1-M2 gap, driven by offsetting effects such as the offset of the Spring Festival, increased foreign exchange settlement surplus, accelerated fiscal spending, and improved corporate funding needs. Fundamentals look promising, but sustainability needs observation. February import-export data and CPI both exceeded expectations, influenced by seasonal factors. February PPI also beat expectations, mainly driven by rising prices of non-ferrous metals and oil & gas resources. On the micro level, industries with the largest upward revisions in profit forecasts over the past week or four weeks include precious metals, batteries, oil & gas extraction, automation equipment, and components, with batteries, components, and oil & gas extraction seeing the largest upward revisions in revenue forecasts.

Investment suggestions: With limited macro visibility and upcoming earnings verification, reduce positions to explore alpha

In the short term, macro risks such as geopolitical tensions and stagflation concerns are ongoing. Domestic data for January-February mostly exceeded expectations but are affected by seasonal factors; sustainability remains to be seen. Micro-wise, concerns about disruptive impacts of AI persist globally. Domestically, A-shares are entering an important window for annual and first-quarter earnings verification, focusing on high-growth sectors like power grid equipment, optical fiber cables, and chemical industries with high capacity cycle expectations. It is advised to lower positions and leave room for adjustments. In allocation, focus on the power chain and essential consumer goods to find alpha. Additionally, as valuation pressures ease and hardware upstream of the computing power chain has catalysts in the short term, consider buying on dips. Stock selection should emphasize valuation and dividends.

Risk warnings: 1) Discrepancies between domestic and foreign fundamentals; 2) Geopolitical and oil price rise risks not meeting expectations.

(Source: People’s Financial News)