Today, the market experienced a surprising division!

As of 2:50 PM Beijing time, Hong Kong's market has seen significant declinesThe Hang Seng Index and the Chinese Enterprises Index both dropped more than 2%, while the Hang Seng Technology Index fell over 4%, representing the largest drop since JanuaryTech stocks in Hong Kong continued to plummet in the afternoon, with Weibo falling more than 9%, Baidu dropping over 5%, JD.com suffering a decline greater than 6%, while Tencent Holdings and Alibaba both experienced drops exceeding 2%.

So, what exactly happened? Analysts believe several key factors are influencing these movements: First, last night’s external markets saw a significant dip, particularly the NASDAQ Golden Dragon China Index, which fell more than 3%, impacting the Hong Kong marketFurthermore, there have been indications from Japan regarding theend of their quantitative easing policies, which could also have a considerable effect on the Hong Kong stocksLastly, during China’s Two Sessions, there are differing interpretations of certain data and policies, leading to market discrepancies.

Conversely, the performance of the A-share market in the afternoon was quite strongAfter 2:30 PM, the market responded positively, with the A50 index suddenly skyrocketingWhat could be the cause of this?

A sharp decline in Hong Kong stocks

Today, a curious phenomenon unfolded across the market

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The Hong Kong stock market faced a significant downturn, with the Hang Seng Index plunging by 2.5% and the Hang Seng Technology Index dropping over 4.1% by 2:50 PMPharma, tech, and consumer stocks were the hardest hit.

David Scutt, a senior analyst at GAIN Capital, pointed out that in February, Hong Kong’s stock market continued its upward momentum from January’s lows, largely due to a series of supportive measures that boosted market sentimentOn a year-on-year basis, the Hang Seng Index and the Hang Seng China Enterprises Index increased by 6.6% and 9.3%, respectivelyMoreover, the Hang Seng Technology Index, which tracks major tech companies listed in Hong Kong, surged by 14.2% month-on-monthThe China A50 index has rebounded 13% from January’s lows, with overseas hedge funds showing net purchases, aided significantly by the support from the "national team," stabilizing the markets; overall, high-yield stocks still maintain relative investor favor.

Nevertheless, the possibility of profit-taking cannot be ruled out, especially as the expectations for the Federal Reserve’s rate cuts have been postponed to JuneRecent data from the Personal Consumption Expenditures index indicated that inflation in the U.S. has reached its lowest growth rate in nearly three years, although core PCE growth hit a yearly high at 0.4%. However, the ISM Manufacturing PMI for February was significantly below market expectationsFollowing the release of a series of economic data, the market’s bets on rate cuts remain largely unchanged, expecting cuts to total around 80 basis points over the year, with the earliest possible timing being in June.

Last night’s downturn in external markets, especially the more than 3% drop in the NASDAQ Golden Dragon China Index, had a tangible influence on Hong Kong's market; the recent signals from Japan regarding the cessation of quantitative easing policies are also expected to have a considerable impact on the Hong Kong market; during this period of China’s Two Sessions, the market interpretations of various data and policies differ, leading to a flurry of disagreement.

In addition, Vanke has been the center of various rumors, capturing market attention

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Investors are particularly concerned about the company’s forthcoming dollar bond repayment due on March 11thHowever, on March 5th, Vanke reassured that all funds for its dollar bond VNKRLE 5.35 03/11/24 (XS1917548247) are secured, and that the repayment process is progressing smoothlyConsequently, in the afternoon session, Vanke’s A-share price saw a slight uplift, closing with a gain of 0.53%.

The A50 index surged dramatically

In stark contrast, the A50 index spiked sharply, registering an increase of over 1.4%. This surge has influenced the Shanghai Composite Index to show robust performance post 2:30 PM.

On March 1st, the first batch of ten China A50 ETFs completed their fundraising, reportedly achieving a total subscription scale of nearly 17 billion yuanAmong them, major asset management firms like Morgan Asset Management, Ping An Fund, Da Cheng Fund, and Huatai-Pb Fund conducted subscriptions exceeding the 2 billion yuan cap, prompting proportionate allocation.

On March 5th, Morgan Asset Management announced that its Morgan China A50 ETF (securities code: 560350)was officially established on the same dayData revealed that it achieved a maximum fund collection of 2 billion yuan, with a placement ratio at 87.8%, and an effective subscription count exceeding 15,000; this makes it one of the most subscribed ETFs established this year.

Today, we also see substantial gains in the Shanghai 50 ETF

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This potentially indicates that the above-mentioned funds are entering a phase of establishment, igniting a rally among heavyweight stocks.

Moreover, various interpretations of the government work report have emerged, particularly focusing on key figures that seem to exceed expectations, somewhat differing from views presented by foreign mediaGuo Lei, chief economist at Guangfa Securities, noted a deficit of 4.06 trillion yuan, which is 180 billion yuan higher than last year’s initial budget forecast, slightly above the anticipated figure of around 4 trillion yuan, which suggests a nominal GDP of 135.33 trillion yuan for 2024, corresponding to an implied growth rate of 7.4%. It is noteworthy that historical experiences do not always correlate between these figuresHowever, this indirectly reflects potential recovery in nominal growth, suggesting that as real growth stabilizes further, the central price level and nominal increases may improve; furthermore, it confirms the characteristic of “moderately increased” fiscal support, assuring that a certain deficit level is maintained.

In addition to this, the broad fiscal space includes 3.9 trillion yuan in special bonds and 1 trillion yuan in ultra-long-term special national bondsAccordingly, this year’s broad fiscal space aggregates to “4.06 trillion yuan deficit + 3.9 trillion yuan in special bonds + 1 trillion yuan in ultra-long-term special bonds,” along with the issuance of 1 trillion yuan in additional treasury bonds from the previous year’s Q4, which is expected to largely impact this year; theoretically, one should also consider additional fiscal tools which have already accumulated to 500 billion yuan supporting the “three major projects.” This clear sign of broad fiscal expansion is precisely what the economy requires at this stage

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