Has inflation really risen? When things are at their worst, they will begin to improve. It might even be an opportunity.
Hello everyone, I am Dolphin Analyst and here is the weekly market portfolio strategy. Key information is as follows:
1) PCE sets inflation on repeat after CPI and PPI: In January, core PCE accelerated to 0.57% MoM, once again hitting the market's optimistic vision of rapid inflation. Concerns about "stubborn" inflation pushed the pricing of interest rates up again, and the yield on 10-year US Treasuries hit 4%, leading to a widespread decline in global stock markets last week and a significant downturn in growth stocks.
2) Interest rates and foreign exchange deal a double blow, hurting Chinese assets: As US bond yields rose, the US dollar also strengthened, causing Chinese offshore assets to suffer from the double hit of interest rates and forex, with the most significant decline last week. However, the potential to benefit from subsequent interest rate declines and the higher risk of unexpected price reversals are increasing, and the opportunity to monitor future pricing of interest rates is worth paying attention to.
3) The "Three Treasures" of new energy vehicles hand in their homework, and attention is paid to changes in auto companies' gross profit margins: This week's financial reports mainly focus on the field of new energy vehicles. Whether the downward adjustment of the entire vehicle, led by Tesla, and the upstream decline in battery costs will ultimately affect the gross profit margin of automakers positively or negatively, is worth paying attention to.
The following is the detailed content:
I. PCE rises again, is inflation really back?
1.1) After both CPI and PPI rose more than expected in the previous few weeks, the PCE, which is the most concerned inflation index of the Fed, also "rose as expected" again last Friday. In January, core PCE rose by 4.7% YoY, significantly exceeding the market's expected 4.3%. The MoM increase was also significant, rising by 0.57%, compared to the previous two months.
In recent weeks, due to the more resilient-than-expected inflation indices and economic growth in Europe and the United States, concerns about inflation fluctuating instead of continuously decreasing have become more convincing.
As inflation is more stubborn than expected, the pricing of interest rates continues to rise in the market, and the yield on 10-year US Treasuries has reached 3.95% as of last Friday, approaching the integer threshold of 4%.
As US bond yields rose, the US dollar also strengthened, and the USD/CNY exchange rate re-approached the integer threshold of 7. Therefore, under the double negative impact of interest rate increases and RMB depreciation, the decline of Chinese offshore assets was the most significant.
1.2) On the other hand, the income and consumption expenditures of US residents are also stronger than expected due to rising inflation. In January, personal consumption expenditures increased by 7.4% year-on-year and further accelerated from the previous two months. Among the different types of expenditures, daily necessities have remained relatively stable in terms of growth, while durable goods consumption has decreased. Meanwhile, service consumption has accelerated its growth.
At the same time, the per capita income growth, as well as the monthly balance (monthly disposable income - monthly expenditures) of US residents, have both been improving. Combining these three factors, not only is there no sign of recession in US consumption, but it is even thriving. Although consumption helps alleviate worries of a recession, it also leads the market to believe that it will be difficult for inflation to subside.
Due to the previous market surge in anticipation of declining inflation, expectations of interest rate cuts were once again proven false, and global assets saw a general reversal of their previous gains last week. Offshore Chinese and Hong Kong stocks suffered the biggest decline due to the combined effects of rising interest rates and a weaker renminbi exchange rate. However, the A-share market has developed a unique and independent uptrend with less influence from external funds.
Despite the possibility of inflation being more stubborn than expected, prompting the Federal Reserve to increase interest rates even further this cycle, or extending the period of time that high interest rates are maintained, breaking through the previous high point of US bond yields is not impossible. However, as the market's current pricing of interest rates is nearing 4%, the potential for income space brought about by subsequent interest rate declines and the risk of unexpected interest rate increases are mutually exclusive, and it is worth paying attention to the opportunities that arise when expectations of future interest rates are reversed.
Looking at individual industries, both US stocks and Hong Kong stocks have experienced greater declines in optional consumption and technology industries while inflation-related industries such as energy and materials, as well as essential consumption have remained relatively robust.
With regards to the north-south communication channel, due to the strong US dollar and rising interest rates, overseas funds have clearly shown a contraction trend. Last week, northbound funds saw the first net outflow since 2023, with a net outflow of RMB 4.1 billion. Meanwhile, due to the A-share market's rise against the trend, southbound funds have a better market sentiment and had a net inflow of RMB 4.5 billion last week. II. Alpha Dolphin Portfolio Performance
During the week of February 24th, affected by the overall decline of the Hong Kong and US stock markets, the Alpha Dolphin portfolio fell by 2.9%, slightly higher than the 2.7% drop of the S&P 500, but better than a 5.8% drop of the Hang Seng Tech Index.
Since the start of the test to the end of last week, the absolute return of the portfolio is 12.5%, and the excess return compared to the benchmark S&P 500 index is 21.7%.
III. Individual Stock Performance: Chinese concept stocks hit hard, e-commerce further intensified
Among the stocks held and observed last week, the decline of Chinese concept assets was significant except for Unity, which fell sharply due to poor performance guidance. The decline was most significant in the e-commerce industry because of JD.com's high-profile declaration of war against Pinduoduo.
In contrast, domestic assets performed relatively well, especially the home appliance and home furnishing industries (such as Gree, Midea, and Minhua), which benefited from improvement in the expectation of real estate completion, and Longi and Sungrow Power, whose silicon prices turned down again with a good outlook for the week.
For companies with significant price increases or declines, the driving factors summarized by Dolphin Analyst are as follows, for reference:
IV. Portfolio Asset Allocation
The Alpha Dolphin portfolio did not adjust its position and invested in a total of 34 stocks, including seven with standard ratings and 27 with lower ratings, as well as gold, US bonds, and US dollars. As of the end of last week, the distribution and weighting of equity asset holdings in the Alpha Dolphin portfolio are as follows:
V. Key Events Next Week:
The performance of this week mainly focuses on the new energy sector (such as Li Auto, NIO, and A-share Enjie) and B station. "Recently, with Tesla taking the lead in price reduction, and the upstream cost of lithium batteries also going down, the entire auto industry has come to a very important turning point. Whether the overall impact of the simultaneous price reduction of automobiles and raw materials on the gross profit margin of automakers is positive or negative is a key issue. " For the key financial report focus this week, refer to the table below:
Please refer to the following recent weekly reports of Dolphin research portfolio:
- "Inflation Is Currently On Hold, But Signals From Alibaba and Baidu Are More Important"
- "Hong Kong and the US Market Are Both Weak, Will the Wolves Come Back Again?"
- "High-frequency Macro Controls Like Puppets, Is the US Stock Market a Puppet Market?"
- "A Bullish Candle Can Change Beliefs, Can Tesla Lead US Market to Rally Back?"
- "How Far Away Is the End of the Crisis in the US Market Without the Red of Chinese New Year?"
- "Though the US Stock Market Had No Red in the Chinese New Year, Performance Is Still Coming"
- "The Root of the Stagnation in US Stock Market"
- "Why Is the US Federal Reserve So Stubborn, Even Though CPI Has Fallen?"
- "Is It Really Easy to Eliminate Service Inflation? Beware of the Market Overcorrecting"
- "Has the Hong Kong Stock Market Finally Found Its Backbone? And Is the Separate Trend Sustainable?"
- "Darkest Before Dawn: It's the Dark or the Dawn That Matters" 《 US stock market "hit back" with reality, can emerging markets bounce for how long?》
《Global Valuation Repair? There is also a hurdle of Performance Inspection》
《Chinese Asset Violence Boosts, Why Are China and the United States Different?》
《Policy turnaround expectations: unreliable "Strong USD funds" GDP growth?》
《Southward takeover vs. Northward crazy run, it's time to test "determination" again》
《Slow down and raise interest rates? The American dream was shattered again》
《 Reacquaint with an "Iron-blooded" Fed》
《 Sad Second Quarter: "Eagle Sound" Loud, Collective Crossing Difficulties》
《Falling into doubt about life, is there still hope for despair and reversal?》
《 The Fed's Violent Hammering of Inflation, Domestic Consumer Opportunities are Coming Instead?》 《Global Falls Again, US Labor Shortage is the Root of the Problem》
《The Federal Reserve is the Top Bear, and Global Markets are Falling Down》
《A Bloodbath Triggered by a Rumor: Risks Have Never Been Cleared, and Sugar is Found in the Broken Glass》
《The US is Moving Left, China is Moving Right, and the Cost Performance of US Assets is Back Again》
《Layoffs are Too Slow and Not Enough to Pick Up the Pieces. The US Must Continue to "Decline"》
《US Stocks Celebrate "Funeral" Style: Recession is Good News, and Raising Interest Rates the Most Fiercely is Called Negative》
《The Interest Rate Enters the Second Half, and the "Performance Thunder" Opens》
《The Epidemic Will Fight Back, the US Will Decline, and Funds Will Change》
《China's Assets Now: "No News is Good News" for US Stocks》
《Growth is Already in a Carnival, But Will the US Definitely Decline?》
《Will the US in 2023 Experience Recession or Stagnation?》 《US oil inflation, can China's new energy vehicles expand and become stronger?》
《As the Fed speeds up interest rate hikes, China's asset opportunities arise》
《US stock inflation hits the roof again, how far can the rebound go?》
《The most grounded portfolio, Dolphin Investment is launched》
Risk Disclosure and Statement of This Article: Dolphin Disclaimer and General Disclosure
