Core Views Market Performance This Week: (1) The A-share market exhibited volatile and divergent performance this week (May 18-22), with significant structural characteristics. The All A Index rose by 0.04%. The STAR 50 Index led gains, advancing 5.57%, while the Beijing Stock Exchange 50 Index fell by 3.70%. (2) In terms of style, small-cap stocks performed relatively better. Most of the five major style indices declined, with only the growth style index recording gains. (3) At the sector level, declines outnumbered advances among primary industries this week. Electronics, Building Materials, and Machinery & Equipment were among the top gainers, while Agriculture, Forestry, Animal Husbandry & Fishery, Petroleum & Petrochemicals, and Beauty & Personal Care were among the biggest decliners.
Capital Flows This Week: (1) Trading activity in the A-share market moderated but remained at a high level. The average daily turnover this week was 3,046.9 billion yuan, a decrease of 324.654 billion yuan from last week's average. The average daily turnover rate was 1.9489%, down 0.27 percentage points from last week. (2) As of Thursday, the balance of margin trading and securities lending reached 2,896.191 billion yuan, an increase of 19.744 billion yuan from the previous week. (3) From May 14 to May 20, global funds recorded a net outflow of $4.454 billion from A-shares (previous: $10.159 billion), indicating a narrowing of net outflows. Among these, overseas funds recorded a net inflow of $1.294 billion (previous: $434 million).
Valuation Changes This Week: The P/E (TTM) valuation of the All A Index decreased by 0.23% from last week to 24.24 times, standing at the 96.28th percentile since 2010. The P/B (LF) valuation fell 0.15% this week to 1.93 times, at the 57.23rd percentile since 2010. The equity-bond yield spread for the All A Index was 2.3741%, near -1.72 standard deviations from the 3-year rolling average (3.3024%), at the 40.93rd percentile since 2010.
A-Share Market Investment Outlook: Tightening expectations for the Federal Reserve's monetary policy and persistent geopolitical risks constitute external constraints on the market. The hawkish tone of the April Fed meeting minutes revealed deepening internal divisions, with the market shifting its pricing from expectations of rate cuts to factoring in potential hikes within the year, marginally increasing global liquidity tightening risks. The swearing-in of the new Fed Chair faces a more divided Federal Reserve, leaving little room for policy easing in the short term. Uncertainty surrounding the US-Iran conflict persists, with Iran warning of escalated military readiness, which continues to support high and volatile crude oil prices. This makes it difficult to alleviate high inflationary pressures, further constraining the Fed's room for policy easing. The A-share market reflected these influences, showing volatile and divergent characteristics—amplified intra-week price swings, intensified capital divergence, and accelerated sector rotation. However, market trading activity remained high, and the overall capital structure did not change significantly. Thursday's market action reflected a need for short-term consolidation; when previous gains are substantial, market sentiment is prone to fluctuations, and profit-taking creates adjustment pressure. However, Friday's immediate recovery showed that market willingness to absorb selling pressure has not disappeared. This week's sharp volatility is not a signal of a trend reversal but rather reflects capital games and emotional release mid-trend. External macro disturbances, accelerated sector rotation, and short-term profit-taking collectively amplified market volatility. Nevertheless, the dominant technology theme maintained its strength, and the foundation of ample incremental market funds has not fundamentally changed. Subsequent investment opportunities can continue to be explored around this main theme, focusing on structural prospects.
Allocation Opportunities: "Adhere to the Main Theme + Diversify Allocation + Build a Defensive Base." Focus Area 1: Strength Breeds Strength. Adhere to the core theme of technology sector prosperity. TMT and midstream manufacturing are the main directions for market recovery. As divergence around high-flying themes increases, rotation within the sector accelerates. Key focuses include communication equipment, computing power, storage, semiconductors, computer equipment, power equipment, and energy storage. Focus Area 2: Recovery Momentum Spreads to Resources and Some Consumer Services. This includes sectors benefiting from the recovery of the Producer Price Index (PPI) and price increase logic, such as basic chemicals, non-ferrous metals, building materials, and steel. Concurrently, certain consumer segments benefit from improving business conditions and policy support. Focus Area 3: Energy and Alternative Demand Themes Amidst Repeated Geopolitical Games, and Defensive Sectors. Focus on coal, new energy, finance (banking), and utilities.
Risk Warnings: Risks related to external uncertainties; risks of policy falling short of expectations; risks of unstable market sentiment and ongoing liquidity adjustments.
Body I. Review of This Week's Market (A) Index Performance This week (May 18-22), the A-share market showed volatile and divergent performance with notable structural features. The All A Index rose 0.04%. Among major broad-based indices, the STAR 50 Index led with a 5.57% gain. The ChiNext Index, Shenzhen Component Index, and CSI 1000 Index all recorded slight increases, while other indices declined, with the Beijing Stock Exchange 50 Index falling 3.70%. Intra-week volatility was significant, with the A-share market experiencing a substantial pullback on Thursday as broad indices retreated from highs. This was primarily due to profit-taking from substantial prior gains in the technology and growth sectors, suppressed risk appetite from persistent overseas inflation expectations and hawkish Fed policy expectations, coupled with trading factors that exacerbated the decline. The market turned towards recovery again on Friday. In terms of style, small-cap stocks performed relatively better this week, with the CSI 1000 Index (0.12%) outperforming the CSI 300 Index (-0.30%). Most of the five major style indices declined, with the consumption and stability styles falling over 2% each; only the growth style recorded gains.
At the sector level, declines outnumbered advances among primary industries this week. The top three gaining sectors were Electronics, Building Materials, and Machinery & Equipment, rising 6.56%, 2.61%, and 1.92%, respectively. Agriculture, Forestry, Animal Husbandry & Fishery, Petroleum & Petrochemicals, and Beauty & Personal Care were among the biggest decliners.
Looking at secondary industry performance, the top five industries by return this week were Components; Glass & Fiberglass; Optoelectronic Devices; Lighting Equipment II; and Semiconductors. The industries with the lowest returns were Recreational Products; Personal Care Products; Animal Husbandry; Animal Health II; and Real Estate Services.
(B) Capital Flows Trading activity in the A-share market moderated but remained at a high level. The average daily turnover this week was 3,046.9 billion yuan, a decrease of 324.654 billion yuan from last week's average. The average daily turnover rate was 1.9489%, down 0.27 percentage points from last week. Among this, the average daily northbound trading turnover was 365.066 billion yuan, a decrease of 49.247 billion yuan from last week. As of May 21 (Thursday), the balance of margin trading and securities lending was 2,896.191 billion yuan, an increase of 19.744 billion yuan from the previous week. Specifically, the margin financing balance was 2,875.254 billion yuan, up 19.094 billion yuan, and the securities lending balance was 20.936 billion yuan, up 648 million yuan. According to statistics based on fund establishment dates, as of May 23, 40 new funds were established this week, with an issuance share volume of 24.813 billion units. Among these, 33 were equity funds (including stock funds and hybrid funds), with an issuance share volume of 20.757 billion units, an increase of 11.678 billion units from last week. Their share proportion this week was 83.65%, up 30.37 percentage points from last week. According to statistics based on listing dates, as of May 23, there were 5 IPOs this week, raising 5.483 billion yuan. There was 1 refinancing case, raising 330 million yuan. Market pressure from capital outflows is expected to ease next week compared to this week. This week, restricted shares of 76 companies were lifted, totaling 1.177 billion shares with a total market value of 73.577 billion yuan. Next week (May 25-31), restricted shares of 37 companies are expected to be lifted, totaling 1.959 billion shares. Based on closing prices on May 22, the total market value of these shares is approximately 32.161 billion yuan. According to EPFR statistics on global fund flows, from May 14 to May 20, global funds recorded a net outflow of $4.454 billion from A-shares (previous: $10.159 billion), indicating a narrowing of net outflows. Among these, overseas funds recorded a net inflow of $1.294 billion (previous: $434 million), including a net inflow of -$65 million from overseas active funds (previous: -$193 million) and a net inflow of $1.424 billion from overseas passive funds (previous: $630 million). Structurally, observing the industry allocation preferences of funds towards Chinese assets based on globally listed stocks of Chinese mainland enterprises, from May 14 to May 20, global funds recorded the largest net outflows from the Technology and Commodities/Materials sectors, with net flows of -$1.375 billion (previous: -$4.958 billion) and -$1.330 billion (previous: -$294 million), respectively. Financials and Consumer Goods also saw significant net outflows. Net inflows continued to dominate in Healthcare/Biotechnology and Telecommunications. Overseas funds notably recorded a net inflow into the Technology sector during the week, with a net flow of $1.179 billion (previous: $784 million). Energy and Infrastructure also saw relatively large net inflows. Consumer Goods, Healthcare/Biotechnology, and Telecommunications saw slight net outflows.
(C) Valuation Changes As of May 22, the P/E (TTM) valuation of the All A Index decreased by 0.23% from last week to 24.24 times, at the 96.28th percentile since 2010, indicating a historically high level. The P/B (LF) valuation of the All A Index fell 0.15% this week to 1.93 times, at the 57.23rd percentile since 2010, indicating a historically median level. As of May 22, the yield on the 10-year government bond was 1.7519%, down 1.39 basis points from last week. The closing price of the active 10-year government bond futures contract was 108.93 yuan, up 0.11% from last week. Based on this calculation, the equity-bond yield spread for the All A Index on May 22 was 2.3741%, near -1.72 standard deviations from the 3-year rolling average (3.3024%), at the 40.93rd percentile since 2010. At the industry level, among the 31 primary industries, 5 saw their P/E valuations increase this week. As of May 22, based on P/E valuations, 21 industries have valuations above the 50th percentile since 2010, 8 industries are within the 20th-50th percentile range since 2010, and 2 industries are below the 20th percentile since 2010. Among them, Conglomerates, Communications, and Electronics have relatively high P/E valuation percentiles, at the 99.75th, 97.16th, and 95.57th percentiles since 2010, respectively. Non-Bank Financials, Food & Beverage, and Non-ferrous Metals have relatively low P/E valuation percentiles, at the 0.14th, 15.74th, and 20.69th percentiles since 2010, respectively.
II. A-Share Market Investment Outlook Tightening expectations for the Federal Reserve's monetary policy and persistent geopolitical risks constitute external constraints on the market. The hawkish tone of the April Fed meeting minutes revealed deepening internal divisions, with most officials supporting rate hikes if inflation remains persistently high, and several leaning towards removing language suggesting an easing bias. Under this hawkish signal, market pricing has shifted from rate cut expectations to factoring in potential hikes within the year, marginally increasing global liquidity tightening risks. The swearing-in of the new Fed Chair faces a more divided Federal Reserve, leaving little room for policy easing in the short term. Uncertainty surrounding the US-Iran conflict persists, with Iran warning of escalated military readiness, which continues to support high and volatile crude oil prices. This makes it difficult to alleviate high inflationary pressures, further constraining the Fed's room for policy easing. Influenced by external factors such as overseas liquidity tightening and geopolitical disturbances, coupled with intensified market games, the A-share market exhibited volatile and divergent characteristics—the cumulative gain/loss at the All A Index level was not significant, but intra-week price swings amplified, capital divergence intensified, and sector rotation accelerated. Market trading activity remained at a high level, and the overall capital structure did not change significantly. Thursday's market action reflected a need for short-term consolidation; when previous gains are substantial, market sentiment is prone to fluctuations, and profit-taking creates adjustment pressure. However, Friday's immediate recovery showed that market willingness to absorb selling pressure has not disappeared. This week's sharp volatility is not a signal of a trend reversal but rather reflects capital games and emotional release mid-trend. External macro disturbances, accelerated sector rotation, and short-term profit-taking collectively amplified market volatility. Nevertheless, the dominant technology theme maintained its strength, and the foundation of ample incremental market funds has not fundamentally changed. Subsequent investment opportunities can continue to be explored around this main theme, focusing on structural prospects. Regarding allocation, focus on the strategy of "Adhere to the Main Theme + Diversify Allocation + Build a Defensive Base." Focus Area 1: Strength Breeds Strength. Adhere to the core theme of technology sector prosperity. TMT and midstream manufacturing are the main directions for market recovery. As divergence around high-flying themes increases, rotation within the sector accelerates. Key focuses include communication equipment, computing power, storage, semiconductors, computer equipment, power equipment, and energy storage. Focus Area 2: Recovery Momentum Spreads to Resources and Some Consumer Services. This includes sectors benefiting from the recovery of the Producer Price Index (PPI) and price increase logic, such as basic chemicals, non-ferrous metals, building materials, and steel. Concurrently, certain consumer segments benefit from improving business conditions and policy support. Focus Area 3: Energy and Alternative Demand Themes Amidst Repeated Geopolitical Games, and Defensive Sectors. Focus on coal, new energy, finance (banking), and utilities.
III. Risk Warnings Risks related to external uncertainties; risks of policy falling short of expectations; risks of unstable market sentiment and ongoing liquidity adjustments.