Since the U.S. 10-year Treasury yield peaked and declined in early November, the offshore renminbi exchange rate has quietly appreciated by more than 2,200 pips, and today it even broke through the 7.2 threshold during the trading session.
This also corroborates the pivotal significance of the U.S. 10-year Treasury yield peak for the global stock market. From early November to now, U.S. stocks, European stocks, and Asia-Pacific stocks have all performed well.
Some may wonder why A-shares are lagging behind. This round of renminbi appreciation has not attracted foreign capital to buy in, while domestic institutional investors are preoccupied with their own affairs. Speculative capital dominates the pricing power in the market, and thematic speculation is rampant. The Wind Micro-cap Index has risen by more than 7% within the month, which is not inferior to other stock markets. It's just that other stock markets are rising in index weights, while A-shares are rising in thematic small caps.
If this were last year, with the renminbi appreciating like this, foreign capital would definitely be providing a "billion-yuan subsidy" every day, which would inevitably drive the rise of weighty stocks. Since foreign capital and institutional heavyweight stocks have a high degree of overlap, this would lead to a recovery in fund net values. After the redemption pressure is reduced, fund managers would dare to increase their positions. The rise in the index would also attract funds from outside the market, thus forming a positive and healthy cycle of market liquidity.
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There is a reason why we say that speculative capital holds the market's pricing power. In addition to the market trend being in line with the preferences of speculative capital, the balance of financing in both markets can also show where the incremental funds are coming from. It can be seen that although the Shanghai Composite Index is still fluctuating at the bottom, the balance of financing in both markets has already set a new high for the year. This represents that institutions represented by quant funds and retail investors represented by speculative capital are increasing their positions. These funds have a strong preference for small caps, themes, and growth styles.
We always say that incremental funds determine the market style, and it is very clear at a glance. Due to the continuous selling by foreign capital and the prisoner's dilemma of domestic institutional investors, the trend of institutional heavyweight stocks is weak, and most of the institutional and foreign capital's heavyweight stocks are weighty stocks, which also leads to a weak rebound in the index. On the contrary, quant funds, speculative capital, and retail investors are the main sources of incremental funds in the market, and speculative capital dominates the market's pricing power, leading to the prevalence of thematic speculation.
This extremely fragmented market style is constantly reinforcing itself. The reason is simple: those who make money are the bosses. Themes will continue to attract funds to increase their positions, while those who lose money are always wrong, and funds will continue to cut their positions, further deteriorating the chip structure. This may also be one of the reasons why foreign capital does not buy in despite the appreciation of the renminbi. Foreign capital is value investment, and the current style of A-shares, which is dominated by themes, may make foreign capital feel uncomfortable. It is human nature to redeem when the market falls.Back in the market, last Friday saw a significant plunge in the US dollar and a substantial appreciation of the Chinese yuan, which was reflected in the strong performance of the Hong Kong stock market. However, the A-share market did not fare well in the morning session today, with a low opening followed by a dive. Fortunately, a sharp drop in the US dollar during the session led to a significant appreciation of the Chinese yuan, prompting foreign capital to turn to buying, and domestic capital also took the opportunity to go long, allowing the A-shares to rebound from their lows.
Overall, the A-share index gains were far weaker than those of the Hong Kong stocks, with the profit effect mainly concentrated in thematic investments. By the close, the Shanghai Composite Index had risen by 0.46%, the ChiNext Index by 0.32%, the Hang Seng Index by 1.86%, and the Hang Seng Tech Index by 2.45%. The total turnover in the two markets increased to 0.92 trillion, with net purchases of 1.373 billion by Northbound capital.
Looking at the industry breakdown, sectors such as agriculture, forestry, animal husbandry, and fishing, national defense, military, machinery equipment, social services, and beauty care led the gains, while the coal, non-bank finance, and electronics industries were the three major sectors to decline. The HBM concept, which was the hottest topic over the weekend, opened high but then dived, underperforming expectations. In contrast, the robotics and intelligent driving sectors saw a surge of limit-up stocks, and additionally, the pork and poultry sectors experienced significant gains, indicating a play on a turnaround in difficult situations.
The robotics sector was mainly stimulated by news from Huawei, and with Tesla's upcoming visit to China for factory inspections, the sector has been hyped for quite some time. The fact that just a few pieces of news could lead to a wave of limit-up stocks is quite extraordinary, but it also reflects the current trend of speculation.