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The New Year's Rally in A-shares: A Worthy Expectation

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The phenomenon of cross-year trading, commonly referred to in the financial world as a classic "calendar effect," is particularly notable in the A-share market in China, occurring predominantly between December and March of the following yearJournalistic inquiries have revealed that since 2005, the A-share market has exhibited varying degrees of cross-year trading effects during most years, reflecting a tendency towards bullish trends during this period.

According to statistics from Haitong Securities, the performance of the cross-year trading patterns can be quantitatively assessed using the CSI 300 index as a benchmarkData indicates that, since 2005, the average maximum gain across these trading sessions has been approximately 23%. Among the peaks, 2007 stood out with an astonishing increase of 89.6%, while the lowest recorded increase was a mere 5.7% in 2014, demonstrating substantial variability in market performance during this time frame.

During an interview with Duan Xiaole, the investment director at Shanghai Pienfeng Investment Co., he conveyed an optimistic outlook, asserting, "The likelihood of seeing a significant cross-year trading surge is quite high in the near future

Once the small-cap index undergoes its necessary adjustments, we can anticipate a robust start to the cross-year trading." Duan expressed that the current market remains mired in structurally oscillating patterns, particularly noting that previously buoyant small-cap stocks have recently retreated, suggesting they are still in the throes of adjustmentIn contrast, large-cap blue-chip stocks that had lagged have recently shown invigorated performanceBoth the CSI 300 and the CSI A500 composite indexes are also exhibiting a range-bound motion, with the Shanghai Composite Index fluctuating between 3350 and 3500.

Timewise, Duan is projecting that this forthcoming cross-year trading may extend up to the period surrounding the National People's Congress, which is often pivotal in influencing market sentiments in ChinaShould the Congress unveil policies that surpass market expectations, there is a strong possibility for the momentum to sustain and even amplify.

From an economic fundamentals standpoint, Duan highlights a notable stability in the actual GDP growth rates, which he estimates could hold steady around 5%. However, he draws particular attention to the nominal growth rate, which shows signs of potential marginal improvement due to various favorable influencing factors

This stems from the notion that an optimized industrial structure and the rapid development of emerging industries could yield greater value addition, thereby enhancing the statistical advantages of nominal GDPAs nominal growth edges higher, historical patterns suggest a ripple effect occurs within capital markets, subsequently leading to gradual price escalations for various asset classesStrong economic growth pitches confidence amongst investors, fostering increased capital influx and thus, propelling asset prices upwards.

Moreover, examining the policy landscape reveals that the Chinese economy is currently enveloped in a dual-pronged narrative of monetary and fiscal easingOn the monetary front, strategies such as interest rate reductions and increased money supply are expected to create a liquidity-rich environment, facilitating a more permissive financing climate for both enterprises and investors, thereby spurring economic activities

In tandem, fiscal policies may involve heightened government expenditures on priority sectors—such as infrastructure investments aimed at stimulating domestic demand, and subsidies for emerging industries—all aimed at driving overall economic expansionSuch a collaborative policy approach inherently raises the probability of asset prices stabilizing and even recovering, as the supportive policies generate a conducive atmosphere for healthy asset market growth, positively influencing both real economic activities and investor sentiments.

Additionally, on a microeconomic level, overall corporate profitability is poised for marginal improvementsHowever, it is crucial to recognize that the nature of such enhancements may witness structural shiftsThe current policies are heavily geared towards supporting sectors tied to consumption and innovation

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Consequently, this prioritization means that consumer-oriented and innovative enterprises are well-positioned to receive targeted resources, including tax incentives and specialized subsidies, facilitating notable uplifts in their profitability metricsConversely, traditional sectors—like real estate and infrastructure that have historically played significant roles in economic momentum—may experience dwindling support, potentially leading to a relatively muted recovery in their profit margins compared to their consumer and innovation-focused counterparts, resulting in a discernible disparity in profit growth trajectories.

Lastly, evaluating the state of market liquidity reveals a fairly robust environmentThe liquidity conditions surrounding currency supply, overall financial market flow, and specific stock market dynamics are all relatively favorable

Sufficient currency availability ensures that a solid funds reservoir exists for diverse asset trading activitiesOn an aggregate level, the overall scale of financial resources is capable of meeting the routine funding needs of various economic entities, ensuring market vibrancyStock market liquidity, which is paramount, signifies smoother trading operations with lower transaction costs, thereby augmenting investor enthusiasmSuch favorable liquidity conditions essentially construct a solid underpinning for asset prices, allowing for a steadier market foundation and an impetus for potential price advancements, thus reinforcing a stable, health-driven trajectory for the asset market.

Yang Delong, chief economist and fund manager at Qianhai Kaiyuan Fund, also echoed similar sentiments during his interview, stating, "The current market activity appears to be relatively vibrantTraditionally, January is characterized as the month with the highest credit extension, which predicts significant funds may flow back into the stock market, thereby making January's performance a reflection of the cross-year trading phenomenon."

The recent Central Economic Work Conference has also underscored the importance of implementing a moderately accommodative monetary policy, marking a shift from a steadfast 14-year "prudent" monetary approach to an updated tone of "moderately accommodative."

According to a recent report from Citic Securities, expectations for further easing measures—such as reductions in reserve requirements and interest rates—remain high for early next year

It is anticipated that substantial funds will continue to influx into the A-share market, with concrete policies from various ministries also expected to roll out gradually, indicating that the theme of cross-year trading is set to persist.

Duan Xiaole pointed out that sectors linked to innovation in manufacturing and consumption will likely attract significant attention"On one hand, the support aimed at these segments from policy frameworks is becoming evidently strongerOn the other hand, segments of the manufacturing industry aligned with high-quality growth characteristics are also expected to show promiseSectors like semiconductors, software, biopharmaceuticals, and electromechanical equipment may experience notable growth surges backed by favorable policies, liquidity statuses, and risk appetites from investors."

In the short term, HuaBao Securities emphasizes that the A-share market is likely to revolve around themes linked to "AI+" and "new consumption," suggesting keen interest in areas such as media, telecommunications, robotics, and artificial intelligence, along with new consumption segments encompassing consumer electronics, dining, tourism, sports entertainment, and retail.


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