On the last trading day of February, the A-share market closed in the black collectively.
The Shanghai Composite Index rose by 1.94%, closing at 3015.17 points; the Shenzhen Component Index rose by 3.13%, closing at 9330.44 points; the ChiNext Index rose by 3.32%, closing at 1807.03 points; the STAR 50 rose by 4.68%, closing at 807.71 points, with a cumulative increase of 17.94% in February; the SSE 50 rose by 1.15%, closing at 2413.14 points, with a cumulative increase of 7.05% in February.
Northbound capital had a net single-day purchase of 16.603 billion yuan, setting a new high for the net purchase amount in seven months, with Shanghai-Shenzhen Stock Connect purchasing 8.642 billion yuan, marking 23 consecutive days of net purchases; Shenzhen-Hong Kong Stock Connect had a net purchase of 7.962 billion yuan.
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Looking at the entire month, northbound capital added a total of 60.744 billion yuan to the A-share market in February, setting a new high for 13 months. Among them, there was a net purchase of 45.158 billion yuan in the Shanghai market and 15.586 billion yuan in the Shenzhen market.
Industry insiders believe that under the influence of factors such as the continuous purchase of "national team" funds, the prohibition of short selling, and the restriction of DMA quotas, market sentiment has warmed up, and the market in March is expected to continue this trend.
Northbound capital's monthly purchase exceeded 60 billion yuan
On the last trading day of February, northbound capital once again poured into the market.
Wind data shows that on February 29, northbound capital had a net single-day purchase of 16.603 billion yuan, setting a new high for the net purchase amount in more than seven months; the cumulative increase in February exceeded 60 billion yuan, setting a new high for 13 months. This action ignited the trading sentiment, driving the A-share turnover to break through the trillion yuan mark again, with more than 5,200 stocks across the market rising and more than a hundred stocks hitting the daily limit up.
In February, driven by funds, the Shanghai Composite Index accumulated an increase of 8.13%, the Shenzhen Component Index accumulated an increase of 13.61%, and the ChiNext Index accumulated an increase of 14.85%, with all three major indices showing a positive line for the first time after six consecutive monthly declines.
During the month, northbound capital added more than 10 billion yuan in a single day four times, and on February 21, it added 13.595 billion yuan, setting a new high for the net purchase amount in a single day since July 29, 2023. Wind data shows that among the top ten positions of northbound capital inflows on that day, nine had foreign capital backgrounds. J.P. Morgan Chase & Co. (Hong Kong) had a net purchase of 3.09 billion yuan, ranking first, followed by Morgan Stanley Hong Kong Securities and The Hongkong and Shanghai Banking Corporation Limited, with net purchases of 2.89 billion yuan and 2.73 billion yuan, respectively, ranking second and third.Institutional sources have indicated that the recent enthusiastic actions of Northbound capital demonstrate its optimistic view of the A-share market. CITIC Securities strategist Li Shihao believes that since the beginning of this year, there has been a clear differentiation in the flow of different types of overseas funds. Several indicators suggest that the trend of foreign capital continuously reducing its holdings in A-shares since August 2023 has come to an end. The actual positions of China within the actively managed funds of overseas multinational allocations have on average dropped to levels prior to 2018. It is anticipated that the strength and persistence of the subsequent "replenishment" by allocation funds will depend on the changes in expectations for the recovery of domestic fundamentals.
However, looking back at the performance of Northbound capital at the beginning of the year and the performance of the A-share market, there is a certain time lag effect. In the view of Qu Yiping, the head of the total quantity group and chief analyst at Orient Wealth Securities, the net purchases of Northbound capital in January and February in previous years often foreshadowed the strength of market capital for the following quarter.
In 2023, after a significant increase in holdings at the start of the year, Northbound capital showed a weak inflow trend throughout the year. In January, it poured in 141.3 billion yuan, and in the first two months, it added 150 billion yuan. Under the influence of capital sentiment, the Shanghai Composite Index recorded a 1.33% increase in the following March and April, after which it experienced high-level fluctuations.
Extending the timeline to 2022, Northbound capital increased its holdings by 16.8 billion yuan in January and 4 billion yuan in February of that year. The Shanghai Composite Index recorded a drop of over 6% in both March and April.
The market is dominated by sentiment
Industry insiders say that under the influence of factors such as continuous purchases by "national team" funds, prohibition of short selling, and restrictions on DMA quotas, market sentiment has been continuously warming up.
Qu Yiping told reporters that the market repair process in February is expected to continue in March, and the key to judging the market is to observe whether the strength of the small-cap stocks in the China Securities 2000 index can be sustained. Looking back at the past 10 years, the two severe deviations between large and small caps occurred in the middle of a bull market, and the repair of the deviation was relatively fast. The deviation repair at the end of a bear market often takes longer or even several quarters. The maximum deviation between large and small caps in this round occurred at the end of January, so we believe that the current repair has just begun.
"At present, it is still sentiment that is the main factor," said a Shanghai equity fund manager to the reporter. The Shanghai Composite Index has stood above the 60-day moving average resistance line, and the index has basically closed with a positive line from the lowest point of 2635 points to 3000 points in recent times. Micro-cap stocks have also recorded a repair, with an increase of about 50%, and many individual stock prices have doubled.
The aforementioned manager further stated that the stocks that have rebounded the most recently are basically those that fell the most before, and the catch-up decline is relatively normal. The main indices are expected to return to the levels at the end of 2023.
"We are currently in the first stage of the rebound," said a public fund strategist. From a strategic point of view, on the one hand, "high dividends," on the other hand, growth stocks, the essence is still to pay attention to the increase in the gains of thematic individual stocks.Galaxy Securities strategist Yang Chao believes that it is still necessary to adhere to a high dividend strategy. He pointed out that the domestic economy is still in the period of real estate inventory reduction and the transition of old and new drivers of growth, with a relatively slow economic recovery slope. High dividend assets have strong certainty and are expected to continue to attract investor attention. As policies continue to encourage listed companies to pay dividends and improve the cash dividend governance mechanism, coupled with the marginal improvement of A-share profitability in the economic recovery environment, the willingness of enterprises to pay dividends is expected to increase, driving the continuous enhancement of cash dividend strength. After the recent rise in the market, the valuation of high dividend assets is still at a historical low, with a high safety margin.
"During the catch-up rise of the overall market, the market is expected to trend upwards with fluctuations, and the over-sold growth stocks and the rotation of thematic concepts will become the main line of the market," said an analyst from a large securities firm to the reporter.
However, some industry insiders also said that the current market is dominated by sentiment and is in a vacuum period of fundamentals such as economic data and company financial reports. The future upward trend needs to be verified, and it is recommended to be cautiously optimistic.
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