A-Share Style Aligns with Dominant Fund Preferences: Foreign, Retail, and Mutual Funds Entering Market

2024-08-05 99 Comments

Haitong Securities issued a research report stating that historically, the style of A-shares has been complementary to the investment preferences of the dominant incremental funds during the same period. In the first half of 2024, the dividend style took the lead, with a significant entry of insurance funds and passive funds. During the period from 9/24 to 9/30, the estimated net inflow of foreign capital set a new weekly historical high. The data from bank transfers and financing showed a significant acceleration of retail capital entering the market. In addition, it is likely that actively managed equity mutual funds also flowed in. In the first half of 2024, foreign capital and actively managed equity mutual funds significantly reduced their holdings in sectors such as food and beverages, pharmaceuticals, and computers. Since 9/24, these two types of funds have returned, and the aforementioned sectors have led the gains.

There are differences in the dominant incremental funds for different styles of A-shares. At different historical stages of China's economic and stock market development, the dominant styles and incremental funds of A-shares have also changed. First, from 2016 to 2018, the structural reform of the supply side improved the concentration of domestic industries. Coupled with the stabilization and recovery of the domestic real estate market after the monetization of shantytown renovation, blue-chip leading enterprises were relatively dominant from 2016 to 2018. During this period, the scale of foreign and insurance funds grew significantly. For foreign capital, assets with long-term advantages and sustainable operations are often more favored, and the internationalization process of A-share market systems continued to accelerate from 2016 to 2018.

Advertisement

Secondly, from 2019 to 2021, the high-tech industry developed rapidly, and some growth sectors welcomed faster earnings growth, with white-horse growth taking the lead. During this period, the scale of public fund issuance increased significantly, and foreign capital accelerated its inflow into A-shares. Domestic public mutual funds pursue excess returns, so they prefer targets with greater earnings elasticity in investment. Moreover, China's economic growth has shown a more significant advantage compared to the global context, and foreign capital continues to accelerate its inflow into A-shares. Finally, since 2022, dividends and bonuses have been dominant in the long term under the曲折 repair of fundamentals, and during this period, insurance funds have further increased the scale of equity investment, and passive funds have also grown significantly. Insurance funds have higher requirements for the safety and stability of assets, and new regulations have driven the demand for insurance companies to invest in dividend stocks and place them under the FVOCI project.

Since 9/24, foreign capital, retail investors, and public funds have entered the market significantly. In terms of foreign capital, as of 8/16, the northbound funds have slightly outflowed 6.8 billion yuan since the beginning of the year, showing a reverse "V" shape of first inflow and then outflow. In terms of passive funds, broad-based ETFs have seen a large net subscription, with a significant increase in January-February and Q3. As of 24/09/26, the total net subscription has exceeded 840 billion yuan. In terms of insurance funds, the position of the fund utilization balance has not changed much, but the scale has grown steadily. The balance of insurance funds used for stocks, funds, and other equity assets in Q2 2024 increased by about 306.1 billion yuan compared to Q4 2023.

In terms of leveraged funds, there has been a large fluctuation in inflows this year, and the overall financing balance has decreased. As of 24/09/27, the A-share financing balance was 1384.7 billion yuan, a net decrease of 20.03 billion yuan since the beginning of the year. In terms of actively managed equity funds, the issuance scale has remained low, with a net redemption overall. The net redemption scale for Q1 2024 and Q2 2024 was 19.36 billion yuan and 12.34 billion yuan, respectively. From September 24 to 30, policy efforts have driven a rapid repair of market sentiment, and the dominant market style has clearly switched from dividends to consumer finance. This may be due to a significant change in the main body of incremental funds in A-shares. During this period, the issuance of actively managed equity funds has increased, and positions may have risen, with foreign capital and retail funds likely to return significantly.

Since the beginning of 2024, the dividend sector has been the main direction for incremental funds to increase their positions. Overall, the configuration of various funds to different sectors has both concentration and differentiation. Specifically, for dividend sectors such as public utilities, non-ferrous metals, and banks, the A-share market has fluctuated significantly against the background of twists and turns in macro and micro fundamentals since the beginning of the year. In this environment, various funds have increased their holdings in dividend asset sectors. For the electronics and new energy sectors, passive and actively managed equity fund funds have inflow, but insurance funds have reduced their holdings, due to the obvious differentiation of the two sectors' fundamentals this year. Foreign capital has significantly inflow into electronics and outflow from new energy. For the pharmaceutical and food and beverage sectors, actively managed equity funds and foreign capital have significantly outflowed, while passive funds have inflow.

Leave A Comment