Net inflow of nearly 14 billion! Northbound funds hit the second-highest daily scale of the year

Everyday Business News reporter: Wang Haimin Everydaily Business News editor: Xiao Ruidong

On the noon of May 31, the State Council released the “Notice of the State Council on Issuing a Package of Policy Measures to Solidly Stabilize the Economy” (hereinafter referred to as the “Notice”). It includes 33 specific policy measures and work arrangements across six areas, covering fiscal policy, monetary and financial policies, policies to stabilize investment and boost consumption, policies to ensure food and energy security, policies to preserve the stability of industrial chains and supply chains, and policies to protect basic民生.

The State Council requires that all regions and departments, with a “nailing-it-to-the-wall” mindset, ensure the implementation of the decision-making and deployment made by the CPC Central Committee and the State Council, so as to firmly stabilize the economy in the second quarter, work hard to lay a good foundation for development in the second half of the year, and keep economic operations within a reasonable range.

The “Notice” provided a boost to the A-share market on the day. The market showed a broad-based advance pattern, with 26 out of 31 Shenwan primary industries rising. Among the leading industries by gain were beauty and personal care, electronics, agriculture, forestry, animal husbandry and fisheries, food and beverage, and electrical equipment, among others. Is the A-share market likely to launch another round of rebound from here? In response, reporters from the Everydaily Business News interviewed chief analysts from multiple securities firms’ strategy research teams.

It is worth noting that on May 31, Northbound capital recorded a net inflow of nearly RMB 14 billion, the second-highest single-day net inflow level for Northbound capital this year.

Chief analysts interpret policy positives

Yi Bin, chief strategy analyst at Western Securities, told reporters that the release of the package of policy measures to solidly stabilize the economy signals that an accelerated economic recovery in the future is promising. Judging from the policy document, the government’s determination to stabilize the macroeconomic backdrop is clear. Recently, Shanghai has also issued a document titled “Shanghai Municipality’s Action Plan to Accelerate Economic Recovery and Revitalization,” and the overall policy approach focuses on resuming work and production, stabilizing demand, and working to bring the economy back onto normal tracks to ensure it remains within a reasonable range.

Yi Bin believes that the market main theme in June will shift from the policy game period to the economic validation period. Since late April, the market’s trajectory has been closely related to the pandemic situation. The dense policy signals in May are also the main factors driving a rebound in market sentiment. For the market, it can be seen that the first half of May’s pandemic-recovery rally was driven with enthusiasm, but in June the trading pace will gradually slow down, and the trading style will become more balanced.

Wu Kaida, chief strategy analyst at Debon Securities, told reporters: “The State Council released the ‘Notice of the State Council on Issuing a Package of Policy Measures to Solidly Stabilize the Economy.’ We believe there are several key areas the focus should be on: first, tax cuts and fee reductions will continue to be further strengthened, with an additional RMB 142 billion in tax refunds; the total amount of tax refund and tax reduction for the full year will be RMB 2.64 trillion, continuing to lower corporate costs and stabilize employment. Second, special-purpose bonds will basically be issued by the end of June; efforts will be made to complete their use by the end of August. Compared with the statement at the March 29 State Council executive meeting, in which special-purpose bonds were to complete their issuance by the end of September, this schedule is significantly brought forward. Third, a phased reduction of the purchase tax on automobiles of RMB 60 billion will be directly used to provide consumers with vehicle purchase discounts, stimulating automobile consumption. Fourth, structural monetary policy will be stepped up again—funding support for the inclusive small and micro loan support tool will increase from 1% to 2%.”

“Currently, the overall economy is still in a passive inventory replenishment cycle. On top of that, some regions in China are seeing sporadic and frequent outbreaks of COVID-19, and with the Russia-Ukraine conflict, the prices of bulk commodities remain high. In May, the manufacturing PMI was 49.6%, below the boom-bust line, and macroeconomic sentiment remains sluggish. There is an urgent need for domestic policies to counter cyclical efforts to stabilize overall demand. On May 23, the State Council executive meeting made deployments. Only 8 days later, the formal notice document was issued. On May 25, the meeting on stabilizing the economy and the economic front and center vigorously抓落实 (vigorously implemented), seized the time window, and ensured that policy measures would basically be implemented in the first half of the year. It is expected that May will be able to chart out the ‘economic floor.’ The equity market will gradually emerge from the doldrums and climb step by step. In terms of pacing, the logic that the impact of the first wave of the pandemic fades and resuming work and production begins has already been realized. As fiscal efforts step up and help unlock the mechanism from broad money to broad credit, the market will accumulate strength for a second wave of upward push. In terms of industries, it is about capturing four opportunities:稳增长 (stable growth), self-reliance and controllability, consumption recovery, and strategic resource.” Wu Kaida said.

ETF interconnection advances further

It is worth noting that on May 31, Northbound capital recorded a net inflow of nearly RMB 14 billion, the second-highest single-day net inflow level for Northbound capital this year.

According to data from Choice, the highest single-day net inflow by Northbound capital so far this year occurred on May 20. On that day, the net inflow was RMB 26.4k. In May as a whole, net inflows totaled RMB 14.24B, setting a new high for this year.

In recent times, certain policies introduced by regulators will provide foreign investors in the domestic equity market with more choices. For example, on May 27, the CSRC solicited public comments on the “Announcement on Matters Relating to the Inclusion of Exchange-Traded Funds into the Northbound-Southbound Mutual Market Access Arrangements,” which marked that the inclusion of ETFs into the interconnection arrangements has achieved substantive progress.

In response, a strategy team at China Merchants Securities (600999) released an opinion recently, stating that, based on the draft for soliciting opinions issued by the Shanghai and Shenzhen exchanges on the inclusion of ETFs into the interconnection arrangements, they conducted a screening of A-share ETFs. In total, 77 ETFs that basically meet the inclusion conditions are included, accounting for 13.75% of all A-share ETFs; they correspond to a net value size of RMB 551.2 billion, accounting for 65.35% of the total size of stock ETFs. Of these ETFs, 33 are broad-based index ETFs, corresponding to a size of RMB 320.5 billion; 44 are industry or thematic ETFs, corresponding to a size of RMB 230.7 billion. Among industry & thematic ETFs, there are many ETFs in the TMT and new energy sectors, such as semiconductor ETFs, communications ETFs, new energy vehicle ETFs, photovoltaic ETFs, and so on.

The China Merchants Securities strategy team believes that the inclusion of Northbound capital will drive the development of the domestic ETF market. On the one hand, it brings incremental funds to the ETF market, which is conducive to improving the liquidity and trading activity of related ETFs, thereby boosting the subscription enthusiasm in the primary market and accelerating the expansion of ETF scale. On the other hand, in the future, as Northbound capital is added, the proportion of institutions among ETF investors is expected to recover somewhat, which will play a positive role in the healthy development of the ETF market.

In addition, the China Merchants Securities strategy team also said that, according to the draft for soliciting comments, the ETFs under the interconnection arrangements are clearly limited to trading in the secondary market. Therefore, they do not directly bring incremental funds to the A-share market, and they also will not affect the prices of constituent stocks through primary-secondary market arbitrage trading involving ETFs; the direct impact on the A-share market is limited.

(责任编辑：岳权利 HN152）

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