Recently, the market's expectation of the Federal Reserve shifting towards interest rate cuts has become increasingly strong. As Pan Gongsheng, President of the People's Bank of China, said at a press conference held by the State Council Information Office on January 24th, "There is also a lot of discussion in the market, and it is widely expected that both the Federal Reserve and the European Central Bank may cut interest rates in 2024. Overall, there is a sign of a shift in the direction of the Federal Reserve's monetary policy in 2024.".
The shift in monetary policy by the Federal Reserve will undoubtedly have a significant impact on global financial markets. Several foreign institutions have recently held market outlook and investment strategy meetings for 2024 or released reports, expressing optimism about the A-share market trend against the backdrop of a shift in the Federal Reserve's monetary policy in 2024.
Pan Gongsheng stated at the aforementioned press conference that there is a strong correlation between changes in the US dollar index and expected policy interest rates. Therefore, as the Federal Reserve ends raising interest rates, the market generally expects the momentum for further significant strength of the US dollar index to weaken.
Huang Senwei, a senior market strategist at Lianbo Fund, told Securities Daily that when the US dollar interest rate rises, funds tend to flow out of the Chinese stock market; When the US dollar interest rate falls, funds tend to flow into the Chinese stock market. At present, the market generally expects that the Federal Reserve will cut interest rates in 2024, and the yield of US treasury bond bonds will also reach a high level in October 2023 and reverse the decline, which means that the probability of funds returning to China's stock market is higher, and the incremental funds will be beneficial to the trend of A-shares.
"From the perspective of international investors and global monetary policy, 2024 will be a favorable year for A-shares," said Huang Senwei.
Wen Qingsheng, Global CEO of Anben Investment Business, a global asset management company, told Securities Daily that considering the possible easing cycle of the Federal Reserve, he is optimistic about the overall outlook for 2024 and expects the interest rate cut cycle to attract investors back to the investment market. For the Chinese capital market, the current valuation appears attractive.
According to Chen Dong, Asia Chief Strategist and Research Director of Baida Wealth Management in Switzerland, based on global stock valuations, the historical P/E ratio of the US stock market is probably below 16 times. Currently, the P/E ratio of the US stock market has reached 19 times. If we remove the seven largest technology related stocks in the US, we can see that the current valuation level is still 16.5 times. Therefore, the valuation of US stocks is relatively high, which is also an important factor in "bearish" US stocks. At present, the valuation level of the Chinese stock market is relatively low, and from a valuation perspective alone, it is a major factor that holds a relatively good and constructive view of the Chinese stock market.
UBS Securities China Equity Strategy Analyst Meng Lei said that northbound funds are currently at the bottom and there are signs of a gradual return throughout the year.
Many foreign institutions have also expressed that China's continuous efforts in macroeconomic policies have a positive driving effect on the stock market.
Meng Lei believes that from past history, policies such as credit and finance have been closely related to the trend of A-shares. The current monetary, credit, fiscal and other policies are all being implemented, which will have a positive impact on the stock market.
From a monetary policy perspective, the People's Bank of China will lower the reserve requirement ratio by 0.5 percentage points on February 5th, providing long-term liquidity of 1 trillion yuan to the market. Starting from January 25th, the interest rate for agricultural and small scale re loans and rediscounting will be lowered by 0.25 percentage points. The industry generally believes that this reserve requirement reduction indicates an increase in the implementation of monetary policy, which will bring more liquidity support to the capital market and have a greater positive impact on the annual economic operation.
Jia Wenjian, head of diversified asset investment and management at Baida Wealth Management Asia, predicts that Chinese corporate profits and market sentiment will improve in 2024. Considering low valuations and limited investor holdings, the Chinese stock market remains strategically optimistic in the medium to short term.
In BlackRock's recent market outlook for 2024, Lu Wenjie, Deputy General Manager and Chief Investment Officer of BlackRock Fund, stated that the Chinese economy will moderately recover in 2024 under the support of policies, and excellent corporate profits are expected to be repaired. Among them, companies with the logic of going global may show growth highlights in the global macro landscape of 2024.
Lu Wenjie also mentioned that many high-quality stock assets have a good value for money ratio after adjustments in recent years. With the gradual resolution of interest rate pressures in the United States and the improvement of market risk preferences, the excess returns in the equity market are worth looking forward to. Under the expectation of moderate recovery, it is expected that the equity market in 2024 will mainly focus on structural opportunities, with a focus on investment directions such as corporate overseas expansion, technological innovation, and high dividends.
