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 as 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 upstream hardware of computing power chains, it is advisable to buy on dips in leading high-risk, high-reward stocks.

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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 declined. The CSI Dividend Index reached its highest 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 in High Oil Price Environment”). Additionally, the excess returns of upstream computing infrastructure stocks in AI chains are warming up, with 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 power and new energy ETFs leading net inflows and oil & petrochemical ETFs leading net outflows. Third, new fund launches for equity-focused public funds rebounded last week but remained below February’s levels; mixed and flexible funds have marginally reduced their positions. Private fund filings have slowed for three consecutive weeks. Fourth, as of March 11, overseas mutual funds withdrew 1.06 billion USD from A-shares, with both active and passive funds turning net outflows, likely influenced by overseas funds reducing their exposure to Asia/emerging markets.

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

On the macro front, domestic broad liquidity remains relatively loose. February financial data exceeded expectations, with M1-M2 growth differential slightly widening, driven by offsetting effects such as offsetting seasonal factors, increased foreign exchange 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. Micro-wise, industries with the largest upward revisions in profit forecasts over the past week/4 weeks include precious metals, batteries, oil & gas extraction, automation equipment, and components, with batteries, components, and oil & gas extraction showing the largest upward revisions in revenue expectations.

Investment suggestions: Given 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 persist. Domestic data for January-February mostly exceeded expectations but are affected by seasonal factors; sustainability remains to be seen. Micro-wise, global concerns about AI’s disruptive impact still exist. Domestically, A-shares are entering an important window for annual and first-quarter earnings verification, with high consensus on the cyclical rebound of power grid equipment, optical fiber cables, and chemical industries. It is recommended to reduce positions and leave room for adjustments. Focus on extracting alpha from the power chain and essential consumer goods. Additionally, as valuation pressures ease and catalysts emerge in upstream hardware of computing power chains, consider buying on dips. Stock selection should emphasize valuation and dividends.

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

(Source: People’s Financial News)