Unconsciously, the A-share market has undergone adjustments for another month.

Looking at the performance of the A-share market in the past two months, the Shanghai Composite Index broke through the consolidation range upwards at the end of April, reaching a peak of 3,174 points on May 20th, which even briefly gave investors hope of breaking through the 3,200 point mark. However, from May 20th to the present (as of 20240620, same below), the Shanghai Composite Index has once again entered a downward range, during which all sectors except for the power and public utilities, and some electronic industries including chips, have seen declines across the board.

From the beginning of the year to the present, excluding the stock market disaster caused by the liquidity crisis of small and medium-sized value stocks in the A-share market before the Spring Festival, this round of decline in the A-share market has been particularly prolonged. At the same time, the Shanghai Composite Index has once again shown a rare "four consecutive weeks of阴线" in its weekly K-line, and has once again arrived at the "3000 point defense battle". It has to be said that the 3000 point mark is a number that is a mix of love and hate for A-share investors.

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As it approaches the 3000 point mark again, where should the A-share market go in the future?

Let's first review why the A-share market was able to usher in a short bull market in mid-to-late April. Taking the Spring Festival of 2024 as a node, the A-share market entered a stage of dense policy issuance. With the efforts of the national team's capital to rescue the market, the Shanghai Composite Index stood steadily above 3000 points. Although there has been no official statement, the market generally regards the 3000 point mark of the Shanghai Composite Index as a crucial position. The index cannot stay below 3000 points for a long time, otherwise, many funds in the market will have panic psychology, and there may be a risk of a significant market downturn. Therefore, when the index deviates downward from 3000 points, many funds will enter the market to bottom-fish. However, when the Shanghai Composite Index stabilizes above 3000 points and the national team's capital no longer buys, the market lacks new capital inflow. Therefore, between March and the end of April, the Shanghai Composite Index fluctuated between 3000-3100 points.

But starting from the end of April, the market began to see a dense "singing more about China's economy" voice. Especially foreign institutions, they have released many bullish views on raising China's economic growth rate in 2024 and the real estate market will bottom out ahead of schedule. There is also a strong expectation of stable real estate policies in China. Under the joint efforts of insiders and outsiders, from April 30th to May 22nd, the domestic financing scale increased by about 26.9 billion yuan at most, and the northbound capital also net bought nearly 21.7 billion. The collective bullishness of foreign capital, the expectation of policy issuance and better economic prospects, coupled with the "technical bull market" trend of the Hong Kong stock market, have ignited the enthusiasm of investors, and the Shanghai Composite Index has also quickly broken through 3100 points and moved up after the May Day holiday.

Through the above analysis, it can be seen that since the end of April, the fundamental reason why the market was able to break through the upper edge of the previous consolidation of nearly two months (that is, near 3100 points of the Shanghai Composite Index) was the expectation of a good future market economy. The expectation drove the inflow of leveraged capital and northbound capital, and the A-share market rose.

The turning point occurred after the "5.17 new policy" of real estate. The biggest drag on the current domestic economy is real estate. If real estate is stable, the economy is stable. Therefore, there was a resonance phenomenon between the real estate index and the market in mid-to-late May. Although the implementation of the 5.17 new policy briefly stimulated the market sentiment, from the policy orientation, it still focused on "residents adding leverage". The long-awaited real estate inventory did not meet market expectations and did not make substantial progress.

With the announcement of the PMI at the end of May and a series of monthly financial, economic, and export data announced in June, to some extent, the optimistic expectation of the continuous repair of the economy in the previous period was falsified, which may be one of the important reasons for this round of adjustments since May 20th.

For example, the May PMI, the manufacturing PMI was 49.5, which was below the 50 boom and bust line level again after two months. Not only is it lower than the same period in previous years, but it is also significantly lower than the market expectation of 50.5%. As a forward-looking macroeconomic data, PMI points to the direction of the market economy recovery being weaker than market expectations.High-frequency financial data has always been regarded as a leading indicator of the economy. The growth rate of social financing reflects the willingness of the actual economy to expand, long-term loans to residents can reflect the willingness of residents to buy houses, short-term loans to residents can reflect the willingness of residents to consume, long-term loans to enterprises reflect the willingness of enterprises to expand, and M1 to a certain extent reflects the vitality of the real economy. However, the financial data for May showed a cliff-like drop in the year-on-year growth rate of M1 to -4.2%. Although there are reasons such as "squeezing out the water" in financial data and regulatory rectification of banks' "manual interest supplementation," the regulator has also explained this particularity through various means, but the sluggish market obviously did not buy it.

In terms of economic data, the economic data for May was mixed. For example, the total retail sales of social consumer goods increased by 3.7% year-on-year, an increase of 1.4 percentage points from April, which was better than expected. However, the core issue of real estate dragging the economic recovery has not been alleviated, and there is no sign of bottoming out in various data such as real estate investment, sales, and prices. This also indicates to some extent that the 5.17 new policy on real estate may not have much stimulating effect.

Although high-frequency economic data is mixed, under the already weak market sentiment, the failure to meet interest rate cut expectations and policy expectations have all led to further market declines.

However, after a month of adjustment, the risk of A-shares continuing to decline is relatively small, and the current opportunities far outweigh the risks.

The capital market is always a game of expectations. From the middle and lower reaches of May to now, the performance of A-shares has basically reflected a lot of unfavorable news. But as mentioned earlier, the Shanghai Composite Index at 3000 points has become a very strong support for the market, and the room for market decline is very limited.

At present, laying out a broad-based index is undoubtedly a choice with a high win rate. Whether it is the upcoming important third plenary session in July, or from the current regulatory care for the A-share market, the Shanghai Composite Index at 3000 points is a relatively solid bottom. Buying index funds that track the Shanghai Composite or CSI 300 index near this point, the opportunity to hold and profit is far greater than the risk. Of course, on the other hand, it is also necessary to see that the volatility of these large-cap indexes is getting lower and lower, and the upward elasticity is not very large.

Therefore, buying a broad-based index is a strategy with a high win rate, but the odds are not high, and the advantage lies in stability.

For investors pursuing higher odds, there are two perspectives to consider:

First, from the perspective of capital game. The recent sharp decline in trading volume of A-shares, the capital level is a logic of stock game, and there is a clear high-low switch in the stock pattern. One reason is that the previous gains in sectors such as dividends and non-ferrous metals have been quite large, and there are many funds taking profits. On the other hand, the AI technology growth sector represented by TMT is significantly weaker than the CSI 300, and the rebound strength is not great. The four main directions of technology stocks in A-shares, TMT, new energy, pharmaceuticals, and military industry, all lack unexpected fundamental drivers, which leads to a lack of motivation to give valuation from the perspective of performance elasticity. The upward momentum comes more from changes in capital and chips. Therefore, the high-cut-low of strong concepts may be an opportunity that can be grasped in the future. There are also phased game opportunities in pig breeding with price increase expectations and gold.

Second, the performance opportunities brought by the upcoming release of the mid-term report. For example, in the mid-upstream raw material sector, the performance growth opportunities brought by the price increase of the chemical chain; in the mid-downstream equipment manufacturing sector, focusing on the opportunities related to the export chain such as the upgrading and transformation of manufacturing equipment, such as power equipment, industrial robots, etc.; in the downstream consumer sector, home appliances, sports and entertainment products, etc. also show good growth in high-frequency data.