Last Friday, the photovoltaic sector surged dramatically, followed by a sharp rise in the lithium battery sector on Monday, and today, the consumer sector experienced a significant boom. The pharmaceutical sector has also shown strength in recent days. Consumption, pharmaceuticals, and new energy have been the main protagonists of the core asset bull market in 2020 and 2021, heavily invested in by public funds and foreign capital. They are also the sectors that have been lagging at lower levels since the start of this rebound. Therefore, the significant increase in these three sectors sends out what signal?

There is a voice suggesting that the rotation has also reached these three low-level sectors of consumption, pharmaceuticals, and new energy. The previous main line of AI and dividend stocks has already corrected, which implies that all sectors have rotated once, and there is no room for the index to move upwards, indicating an adjustment is due.

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We believe that this viewpoint is a mechanistic and static way of looking at the A-share market. If one only looks at the stock market, it is indeed possible to draw this conclusion. However, if we consider the performance of various asset classes, we will arrive at a different conclusion.

Yesterday's closing review mentioned the stock-bond seesaw effect and the substitution effect of global stock markets, both of which are key to analyzing the current trend of A-shares. It can be observed that as A-shares continue to strengthen, even with expectations of interest rate cuts, the yield on China's ten-year government bonds has rebounded from its low point. Today, government bond futures closed lower across the board, with the 30-year main contract down 1.20%, the 10-year main contract down 0.23%, the 5-year main contract down 0.16%, and the 2-year main contract down 0.07%.

Coincidentally, this week, the high-dividend sector, represented by coal, has continued to plummet, with the coal sector falling by more than 3% today. Some friends may not know that in the past two years of the A-share bear market, the bond market and high-dividend dividend stocks in A-shares have actually experienced a bull market. These two are similar in nature, representing defense, low risk appetite, and pessimism. Essentially, they are all bearish on the economy and then huddle together for defense in stable returns. Generally speaking, in a bear market, funds will huddle together for defense, and dividend stocks will be relatively strong. However, once the economy improves and market sentiment rises, the market will definitely pursue growth, and consumption and growth sectors will have excess returns.

Combining today's surge in A-share consumption and real estate chains with the sharp decline in the bond market and dividend stocks indicates that the market's risk appetite has increased. The market may not be optimistic about the economy, but at least it has turned away from the pessimistic atmosphere of last year. The significant increase in core assets such as liquor may be due to funds from outside the market looking for low-level sectors and funds from dividend stocks switching to core assets, as the dividend yield of the CSI 300 is also good and more growth-oriented.

A key reason for the sharp decline in A-shares in the second half of last year was the grand narrative of "deflation" and "balance sheet recession." Foreign capital sold off significantly for several months in a row, and the market even thought that the law of mean reversion had disappeared, and the valuation center of A-shares would permanently shift downwards, with A-shares possibly recording new records for several years in a row. If this grand narrative is proven false, on the contrary, the valuation of A-shares will be repaired.

Last year's grand narrative was, on the one hand, indeed due to the economic downturn, and on the other hand, the continuous decline in the stock market, which reinforced the market's pessimistic sentiment, was also an important reason. However, as policies such as local debt resolution and real estate continue to be introduced, as the economy stabilizes and rises, and as the stock market rises, the pessimistic narrative will collapse on its own.The reason why the turning point in the market is expected to occur this week is due to several factors: the relatively positive tone set by the Two Sessions last week, the export figures for February that exceeded expectations, and the CPI for February that also surpassed forecasts. Although the market is not betting on a rapid economic recovery, it also lacks confidence in the economy continuing to be sluggish. In essence, betting against the economy is seen as too risky and offers low odds.

Another factor is the substitution effect in global stock markets. Last year, stock markets worldwide were reaching new highs, while only the A-share and Hong Kong markets experienced a significant bear market. Investing in US stocks and shorting A-shares became the most popular strategy. However, extremes can lead to reversals; continuous growth in external markets will eventually pose risks, and continuous declines in A-shares and Hong Kong stocks will eventually create opportunities. Last year, foreign capital flowed out of A-shares into US stocks and other emerging markets, but this year it might flow out of other emerging markets and into A-shares. In the last two trading days, US and Japanese stocks have been adjusting, but A-shares and Hong Kong stocks have been rising, with Hong Kong stocks surging today.

At the end of January this year, we wrote the following: "Do not believe in nonsense like A-shares becoming like Hong Kong stocks or that Hong Kong stocks have no value. The lack of confidence in you is not entirely due to fundamental reasons; it's also because you are not performing well. No one wants to stay in a market where they lose money. Profit-seeking is the nature of capital; when A-shares and Hong Kong stocks fall to a point of value, there will be capital to bottom-fish, and when they rise, there will be various reasons to be bullish."

Looking specifically at the market, by the close, the Shanghai Composite Index fell by 0.41%, the ChiNext Index rose by 0.83%, the Hang Seng Index in Hong Kong rose by 3.05%, and the Hang Seng Tech Index rose by 4.64%. The turnover in the two markets expanded to 1.14 trillion, with 3,700 stocks rising. Northbound capital net purchased 42.44 billion, buying for three consecutive trading days. Today's surge in Hong Kong stocks may indicate that foreign capital is starting to focus on long positions.

By industry, real estate, food and beverage, light manufacturing, beauty and personal care, and social services industries led the gains, while coal, public utilities, petroleum and petrochemicals, non-ferrous metals, and steel industries led the declines. It is mainly the strong performance of consumer goods and the real estate chain, with the previous main theme of AI and dividend stocks experiencing a pullback.

The surge in real estate stocks during the trading session was stimulated by news, according to a report by Caixin, banks were asked to strengthen their financial support for Vanke.

Looking again at the four clues we provided during the Spring Festival period: high dividend stocks before the festival, AI after the festival, and these two days it has been the real estate chain and consumption, all have taken their turns.Risk Warning:

The stock market involves risks, and investment should be approached with caution. This article does not constitute investment advice, and readers should think independently.