East Fortune Securities believes that the turnover ratio of the CSI 2000 reaching 32% marks a historical high, indicating that short-term overheating sentiments still need to be digested. In Q2-Q3, the stable dividend style profitability ratio may marginally increase, but the absolute return driving force of dividend assets has shifted from interest rate declines to expectations of increased dividend growth.
Fundamentally, changes in the consumption habits of Generation Z support the medium-term trend of new consumption, but there are concerns about overheating at the transaction level. In our previous weekly report, we continued to highlight that, considering the suppression of external demand shocks and insufficient upward momentum in domestic demand recovery, the market’s further upward space is limited. Structurally, we consider a stable dividend base with a selection of prosperous sectors. This week, overseas financial market turbulence has intensified, with Japanese long-term bond yields and US Treasury yields significantly rising; trade frictions between the US and Europe have emerged again, confirming Trump’s fickleness on tariff issues, both of which will marginally disturb market risk preferences, requiring more robustness in the short term. Small-cap style shows signs of transactional overheating. Recently, the micro-cap style has recorded significant relative returns, which we believe is the result of funds seeking to gain excess returns by sinking market value to capture chip pricing rights in a market environment of stock contention and rapid rotation. Looking back since 2023, the CSI 2000 index has shown a significant increase in volatility after reaching a high congestion state of 30% turnover ratio, and subsequent factors such as market risk aversion and policy statements may bring negative feedback risks to capital. This week, the CSI 2000 turnover ratio reached a high of 32%, and the current market liquidity environment is significantly better than at the beginning of 2024, with an expected better drawdown than at that time, but short-term overheating still needs to be reasonably digested. In addition to the micro-cap style, in terms of industry structure, the market has also formed a consensus on dividends and new consumption. How should we view the continuity and space of these two threads now? Dividends: The probability of relative returns remains high, and the driving force of absolute returns has changed. The CSI 2000 turnover ratio has reached a high level of 32%, approaching the historical high of 2023; the Choice Micro-cap Index continues to reach new highs, with a turnover ratio of 2%, which, although not reaching 2023, is also at a relatively high level. From a valuation perspective, the PE (TTM) of the National 2000/East Fortune All A has reached a position of one standard deviation above the three-year mean. Looking back since 2023, the CSI 2000 index has shown a significant increase in volatility after reaching a high congestion state of 30% turnover ratio, and subsequent factors such as market risk aversion and policy statements may bring negative feedback risks to capital. 1) In the second half of 2023, the index market was weak, and in a liquidity stock contention environment, micro-cap stocks also gained significant excess returns due to the capital market value sinking effect. After capturing the premium of the small-cap style, incremental funds such as quantitative DMA strategies rushed in, pushing micro-cap stocks to rise continuously, and the CSI 2000 index turnover ratio reached 33 in November.6% high congestion positions. Starting from November 2023, regulatory trends began to shift, with the Shenzhen Stock Exchange continuously sending signals of ‘strong supervision’ and ‘strict supervision’ of the capital market, while also demanding control over the new scale of multi-asset swap DMA business. Affected by the expected slowdown in incremental capital inflows, the CSI 2000 and micro-cap stock indices stopped rising.
Subsequently, the pressure of weakening economic data became apparent, and the failure of interest rate cut expectations led to an increase in market risk aversion, causing institutional funds to flow out, resulting in a correction of small and medium-cap indices. The DMA products linked to them passively reduced positions, and the corresponding ‘snowball’ products began to enter a dense knock-in area, further intensifying the negative feedback effect of funds. By February 2024, the maximum drawdown from the high point for the CSI 1000 and the East Money Choice micro-cap stock index was as high as 34.75% and 45.77%, respectively. 2) In December 2024 and March 2025, the transaction volume ratio of the CSI 2000 index also returned to a high level above 30% twice, affected by the increased delisting risk of small and medium-cap companies under the new delisting rules and the increased market risk aversion due to the uncertainty of U.S. tariff policies. The subsequent index suffered varying degrees of drawdown. With increased overseas uncertainty and domestic macroeconomic incremental momentum still to be clarified, the market is unlikely to welcome significant incremental funds. Small and medium-cap stocks have now become a high congestion consensus direction, and the overheated sentiment in the short term needs to be digested for the healthy development of medium-term trends. However, considering the current market liquidity environment is significantly better than at the beginning of 2024, the space and time for drawdowns are expected to be relatively limited. On the other hand, the recent ‘Action Plan for Promoting the High-Quality Development of Public Funds’ strengthens the binding effect of performance comparison benchmarks. We estimate that traditional large-cap industries such as banking, non-bank finance, public utilities, food and beverage, and building decoration are expected to receive increased funding, which may also push the market style marginally towards large-cap direction. 2. How to view the sustainability of dividends and new consumption? In the past two weeks, in terms of industry structure, high dividend assets such as banks, coal, and hydropower, as well as some export-related fields and new consumption fields, have recorded leading returns. The market consensus on dividends and new consumption is gradually strengthening. How to view the continuity and space of the two clues at present? Dividends: The relative return rate is still high, and the driving force for absolute returns changes, making stable dividend assets suitable for the DDM valuation model. Benefiting from the relatively stable dividend performance on the numerator side and the continuous decline in the interest rates of medium-term government bonds on the denominator side, the CITIC stable style index has been fluctuating upwards since 2021, significantly outperforming the overall A-shares. If the dividend rate expectation remains unchanged, under the DDM framework theory, the stock-bond yield difference (dividend rate – 10-year government bond rate) of dividend assets will also maintain stability.Under the premise of low dividend growth volatility and low profit decline pressure, the preferred choices for investment are those with high stock-bond yield differentials or expected dividend rate increases since 2022, including urban and rural commercial banks, hydro/thermal power, and insurance companies.
New Consumption: Theme or Main Line? Recently, the heat of the new consumption market has significantly increased, with concerns about over-trading in some new consumption sectors of A-shares. Since 2024, leading new consumption stocks in Hong Kong stocks such as Pop Mart and Laopu Gold, and A-shares such as Zhongchong Shares and Dongpeng Beverages have continued to show impressive performance, with their scarcity in prosperity supporting a steady upward trend in market performance and driving market trading sentiment towards the new consumption direction. This week, the transaction volume ratio of Shenwan Beauty Care and CITIC Pet Food Index relative to the whole A-share market has broken through historical highs, indicating a rapid increase in market trading enthusiasm for new consumption clues, with short-term trading indicators showing signs of overheating. The rise of new consumption trends is supported by medium-term fundamentals. On the demand side, there are medium-term new changes in consumption structure and habits at the macro level. The generation born between 1995 and 2009, known as Generation Z, is gradually becoming the main force of consumption. Compared to their parents, Generation Z has significantly different consumption habits, reflecting an upgrade from material satisfaction to spiritual satisfaction. Generation Z has stronger consumption power, higher demands for spiritual, quality, and differentiated needs, and is more willing to pay for spiritual, experiential, self-pleasing, and personalized consumption. The Xiaohongshu Post-Pandemic Consumption Psychology Research Report shows that compared to 2021, the proportion of consumers choosing to please themselves/cheer up their mood as a shopping motive in 2024 has increased by 9%, the largest increase among all motives, especially women, post-90s, and highly educated people are the main force of emotional consumption. Looking at international benchmarking experience, Japan also experienced a surge in personalized/emotional consumption after the period of rapid economic growth. According to Miura Noboru’s division in ‘The Fourth Consumer Society’, Japan officially entered the third consumer society characterized by personalization, diversification, and quality in the mid-1970s, accompanied by the growth of a new generation born during the period of rapid economic growth with abundant material, strengthening the tendency towards personalized and quality consumption. Even after the Japanese real estate bubble crisis and the two decades of economic downturn, the cultural and entertainment industries such as the animation industry and offline entertainment facilities achieved growth against the trend. However, market trading ideas need to be discussed in categories: 1) The true prosperity that applies to PEG pricing and has longer sustainability is currently only concentrated in a few directions. Summarizing the characteristics of new consumption companies that have successfully realized their performance in recent years, they either accurately enter sub-blank markets or create differentiated brand identities.In recent years, emerging consumer sectors such as pet economy, trendy toys, snacks/functional beverages, and lab-grown diamonds have been at the forefront, while high-end gold, mid-low-end tea drinks, domestic cosmetics, and branded apparel belong to the latter category. The differentiation on the supply side helps businesses to mitigate the impact of the overall economic cycle beta, achieving continuous high growth in performance by cultivating consumer mindset or capturing the existing market.
Unlike the sluggish overall consumption growth, in recent years, the leading companies in new consumer sectors like trendy toys, pet economy, and tea drinks have continued to deliver, possessing a scarcity of prosperity. In 2024, new consumer leading companies such as Pop Mart, Zhongchong Shares, Mixue Bingcheng, and Laopu Gold recorded eye-catching growth rates in net profit attributable to parents of +189%, +69%, +41%, and +254%, respectively. The subsequent market penetration rate and the company’s innovation capabilities are the key to whether performance can continue to be realized. In fact, the concept of new consumption did not rise from 2024; there was also a wave of enthusiasm from 2020 to 2022, where fields like medical beauty, lab-grown diamonds, pet economy, domestic cosmetics, and emerging small appliances performed quite brightly at that time. However, the macro demand logic did not support their continued upward trend, and the performance of each sector diverged under the influence of terminal penetration rates and brand innovation. For businesses still in traditional consumer sectors and constrained by industry beta elasticity, innovation on the supply side and initiatives to enter new fields may be key to driving their valuation reassessment, applicable to thematic speculation ideas, and attention to trading indicator changes, such as gourd economy and first issuance economy. Author: Chen Guo, Zheng Jiawen, Source: Chen Guo Investment Strategy, Original Title: ‘How to View the Sustainability of Current Consensus Clues? [Oriental Fortune Strategy Chen Guo Team]’ Risk Warning and Disclaimer: The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article match their specific situation. Investment based on this, the responsibility is self-borne.