【A50 Weekly Report】

　　Opinion: Abroad: The global epidemic hasdeclined + the progress of the Russia-Ukraine negotiations has been blocked +the Fed is expected to tighten policy. (1) The global epidemic situation has fallen:The 7-day average number of newly diagnosed new crowns in the world has fallenback to the level at the end of December last year. As of April 17, the globalseven-day average of newly diagnosed new crowns has dropped by about 740,000 inthe past month, to about 920,000 per day, which is about the level of the lastweek of December last year. The 7-day average of newly diagnosed cases in SouthKorea and Vietnam dropped by 58% and 83% respectively from the high point ofthis round, and the 7-day average of newly diagnosed cases in Hong Kong droppedto less than 2,000. South Korea will fully lift social distancing measures toprevent epidemics from the 18th - including limited business hours in publicplaces, restrictions on gatherings, and restrictions on large-scale activities.(2) The conflict between Russia and Ukraine is still in a stalemate: theprogress of peace talks is blocked, the risk of commodity supply risk hasreappeared, and the risk of stagflation has become more prominent; (3) the expectationof monetary tightening is heating up: the hawkish signal of Fed officials hasstrengthened, promoting the 10-year US Treasury bond Interest rates soared to ahigh of 2.84%, which in turn caused the Sino-US interest rate gap to invert forthe first time since 2010, triggering market concerns.

　　Domestic: (1) Macro liquidity: At present,China's economic growth is slowing down, and China's economic growth continuesto exert its strength, with particular attention to the implementation of realestate and local rescue policies; last week's National Standing Committeereleased a signal and the central bank announced a RRR cut on Friday, boostingthe market confidence. (2) Funds: There has been a net outflow ofmainland-stock trading, industrial capital and two financing capital have bothdeclined, and fund positions have also declined. The current market liquidityis tight. (3) Market valuation: The market valuation of A-shares is at alower-middle level, which is attractive compared with other major markets.However, the current demand for safety of international funds is greater thanthe demand for profit. (4) The local epidemic spread and escalated, thenational epidemic prevention and control measures continued to be tightened,and residents' consumption and logistics continued to be under pressure.Midstream and downstream manufacturing industries were also affected. The RRRcut was realized, and the liquidity pressure of financial data in March was“extended” but not yet eradicated.

　　In terms of A50, last week was dominated bybottom shocks. Individual stocks fell more and rose less, and the profit-makingeffect was poor. Most sectors fell. The rate of interest rate hike and balancesheet reduction by the Federal Reserve has accelerated, and the yield on the10-year US Treasury bond has continued to rise, resulting in a narrowing of theSino-US interest rate gap, superimposed on the uncertainty of the conflictbetween Russia and Ukraine and the spread of the domestic epidemic, resultingin increased downward pressure on the economy, and the economy is basicallyThere is still no signal of stabilization on the surface, and the market isworried about escalating. However, the domestic growth stabilization policycontinues to increase, which will help boost market sentiment, restore marketconfidence, and provide certain support for the A50. From a technical point ofview, it is currently building a bottom at a support level. In operation, it isrecommended to sell high and buy low.

　　Figure 1 Year-to-date stock index ups anddowns

　　Data source: HGNH International, wind

　　1. Technical Analysis

　　From a technical analysis point of view,the support point of the A50 index is 13344. The current market hot spots arenot sustainable, and it is expected that in the next period of time, there is ahigh probability that a bottoming market will start near the support point.

　　Figure 2 FTSE China A50 Trend

　　Data source: HGNH International, wind

　　2. the plate trend

　　Figure 3 Trends of the three major sectorsof the FTSE China A50 Index

　　Data source: HGNH International, wind

　　Last week, the A50 oscillated at thebottom. The three major sectors rose collectively, and the food and beveragesector performed well.

　　3.the news

　　RRR cut: On the 13th, the National StandingCommittee proposed to use monetary policy tools such as RRR cut in a timelymanner. On the evening of the 15th, the central bank announced that it willreduce the deposit reserve ratio of financial institutions by 0.25 percentagepoints on April 25, 2022, releasing a total of about 530 billion yuan of long-termfunds.

　　4. Funding

　　In terms of public offerings, compared withlast week, the position of stock funds decreased, and the shares of newlyestablished stock-oriented funds decreased; compared with last week, northboundfunds saw a net inflow of land-based stocks, and the trading activitydecreased; compared with last week, leveraged funds, The scale of the balanceof the two financing and the transaction activity decreased; the activity ofindustrial capital and industrial capital transactions decreased, and the netincrease in telecommunications and banks was the top.

　　5. Index Valuation

　　In the past five years, the average valueof PE is 13.9 times, and the average value of PB is 1.95 times. But since 2019,its valuation has rebounded from a low level and has risen all the way. Thecurrent PE is 14.36 times, which is in the 65% quantile; 2.03 times the PB,which is in the 75% quantile in 6 years. Compared with the Shanghai StockExchange 50 and the CSI 300 Index, the ROE of the A50's return on equity islarger, and the current value is 14.1.

　　Calculation formula:

　　price-earnings ratioPE (TTM) = 1/SUM (Wi/PEi), price-to-book ratio PB (TTM) = 1/SUM (Wi/PBi),return on equity ROE = PB/PE.

　　Figure 4 PE of each index from 2015 topresent

　　Data source: HGNH International, wind

　　Figure 5 A50 PE ratio

　　Data source: HGNH International, wind

　　Figure 6 A50 P/B PB

　　Data source: HGNH International, wind

　　Figure 7 A50 ROE

　　Data source: HGNH International, wind

　　6. Spread Analysis

　　Monthly spread: Last week, the upper andlower bounds of the Bollinger Band of the A50 monthly spread: [62,6], it isrecommended that the spread exceeds this range for arbitrage.

　　Figure 8 A50 Basis Chart

　　Data source: HGNH International, wind

　　Figure 9 A50 basis chart (five-month data)

　　Data source: HGNH International, wind

　　Figure 10 A50 month-to-month spread

　　Data source: HGNH International, wind

　　Figure 11 Application of Bollinger Bands inmonthly spreads

　　Data source: HGNH International, wind

　　7. Trading strategy

　　Unilateral strategy: In terms of A50, lastweek was dominated by bottom shocks. Individual stocks fell more and rose less,and the profit-making effect was poor. Most sectors fell. The rate of interestrate hike and balance sheet reduction by the Federal Reserve has accelerated,and the yield on the 10-year US Treasury bond has continued to rise, resultingin a narrowing of the interest rate gap between China and the United States.The uncertainty of the conflict between Russia and Ukraine and the spread ofthe domestic epidemic have led to increased downward pressure on the economy.There is still no signal of stabilization on the surface, and the market isworried about escalating. However, the domestic growth stabilization policycontinues to increase, which will help boost market sentiment, restore marketconfidence, and provide certain support for the A50. From a technical point ofview, it is currently building a bottom at a support level. In operation, it isrecommended to sell high and buy low.

　　Inter-month arbitrage: Last week, the upperand lower bounds of the Bollinger Band of the A50 inter-month spread: [62,6],it is suggested that the spread can break through this range for arbitrage.

　　8. this week's focus

　　Figure 12 Follow this week

　　Data source: HGNH International, JinshiData

　　9. Risk Warning

　　(1) The easing of domestic policies is lessthan expected; (2) The overseas new crown epidemic is out of control; (3) Theupward pressure on inflation is increasing; (4) The yields of government bondsof major overseas countries are rising too fast; (5) The geopolitical turmoilhas further escalated.

　　Disclaimer

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