【Core Viewpoint】

Weekly data range: 2024.6.11-2024.6.14

Last week, the major indices of A-shares fluctuated with mixed results, with growth outperforming value, the technology sector leading the gains, and dividends experiencing a noticeable correction. The Hong Kong stock market saw a significant decline and underperformed compared to A-shares, with significant adjustments in the Hong Kong dividend direction. Medium and short-term varieties entered a volatile adjustment phase, long-term interest rates fell significantly, and the China Securities Convertible Bond Index rose slightly.

Looking ahead, there is a clear outflow of Northbound capital in A-shares, and we maintain our previous judgment that the market adjustment has not yet ended. The market expects a 100% chance of the Federal Reserve cutting rates by 25 basis points in November, but the Fed is rearranging the path of rate cuts, maintaining the judgment that the Hong Kong stock market will continue to fluctuate upwards. Bond market sentiment warms at low interest rates, and a cautious view is maintained for the convertible bond market.

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Allocation recommendations: Medium and short-term credit bond funds and US dollar bond funds. Under the trend of "rate cuts" in deposit interest rates, the Rock Series portfolio can serve as an alternative tool.

The Federal Reserve decided to hold its interest rate policy steady at its June meeting, continuing to maintain the federal funds rate range at 5.25%-5.50%. In addition, the updated dot plot suggests that Federal Reserve officials have significantly reduced their expectations for the number of rate cuts this year, from three indicated in the previous dot plot to one. The Fed remains cautious in its decision to start cutting rates. However, May's inflation data, which was lower than market expectations, and the latest employment data and business sentiment data that fell short of expectations, have increased the likelihood of the Fed starting to cut rates within the year.

Market Commentary

A-shares: Last week, the major indices of A-shares fluctuated with mixed results, with growth outperforming value, the technology sector leading the gains, and dividends experiencing a noticeable correction. Over the four trading days of the week, semiconductor technology stocks led the gains at the beginning of the week; later, inflation data met expectations, PPI turned positive on a monthly basis for the first time this year, and the market expected a mild price recovery, with the equity market closing higher; on Thursday, blue-chip stocks corrected, and the market closed lower overall; on Friday, market expectations for real estate policy led to capital inflows into real estate and financial sectors, driving the stock market higher.

Bonds: Last week, domestic bond market yields fluctuated due to a tug-of-war between bulls and bears. On one hand, the central bank once again warned of the risks of long-term bond trading, and on the other hand, expectations of rate cuts re-emerged; the equity market performed weakly, and the seesaw effect between stocks and bonds pushed the bond market to maintain a fluctuating and strengthening trend. Medium and short-term varieties that performed well previously entered a volatile adjustment phase, long-term interest rates fell significantly, and the China Securities Convertible Bond Index rose slightly.

OutlookA-shares: As of last Friday (June 14th), due to the continuous decline in turnover rate, coupled with a significant outflow of capital from the north, the overall market adjustment trend is quite evident. Maintaining the previous judgment, the market adjustment has not yet ended.

Last week's Federal Reserve interest rate meeting revealed that there is still at least one possibility of a rate cut this year, and the market expects a 100% chance of a 25 basis point rate cut by the Federal Reserve in November. From the published dot plot, the Federal Reserve is essentially rearranging the path of rate cuts. This has provided a significant obstacle for funds trading on rate cuts. The judgment for this year's Hong Kong stocks is still a fluctuating upward trend, and the barbell strategy remains an effective strategy for investing in Hong Kong stocks at present.

Bonds: The economic data for May did not meet market expectations, the market's risk preference remains low, and the liquidity in the money market is abundant, with the bond market sentiment warming at low interest rates. For the convertible bond market, a cautious view should be maintained at present.

Asset Allocation Suggestions

Asset Allocation Suggestion One: Medium to short-term credit bond funds. Factors such as fundamentals and policies are unlikely to see a turning point in the short term, and the bond market is likely to continue a pattern of fluctuation. From a conservative allocation perspective, medium to short-term credit bond funds can be a focus of attention.

Asset Allocation Suggestion Two: U.S. dollar bond funds. Firstly, there is uncertainty about the timing of the Federal Reserve's rate cuts, and the magnitude of this round of rate cuts may be relatively restrained, but the probability of further rate hikes is low. Secondly, U.S. Treasury yields may fluctuate with the ebb and flow of expectations for Federal Reserve rate cuts, but the risk of interest rate increases is limited, and a decline in interest rates is a more likely event. Finally, from a configuration perspective, investors can choose to gradually increase their allocation to U.S. dollar bonds, with short-term U.S. dollar bonds and long-term U.S. dollar bonds meeting investors' requirements for stable returns and return elasticity, respectively.