In the ever-evolving landscape of financial markets, a keen understanding of short-term and medium-term indicators is crucial for navigating investment strategies effectivelyAs investors closely monitor economic signals, the focus tends to gravitate toward sectors exhibiting stability or potential for better-than-expected performance, especially in light of recent developments in equity markets, particularly in technology and emerging sectors.

The catalysts that may drive market adjustments in the near term are often linked to geopolitical developments, particularly concerns surrounding policies from the United StatesThese worries are compounded by the increasing density of internal trading, where quantitative trading and leveraged funds can amplify market volatilityHistorical patterns surrounding the performance of technology stocks in the A-share market serve as a guide; particularly when assessing the allocation levels in major public funds post period of diminishing trading zeal

It is plausible that the ongoing positive trends in the Tech, Media, and Telecommunications (TMT) sector from 2023 onwards could continue to unfold, thus providing opportunities for discerning investors willing to capitalize on them.

Nevertheless, short-term fluctuations remain prevalent, with various factors contributing to market uncertaintyKey considerations include:

The potential for disappointing earnings reports by the end of April poses a riskAs annual and quarterly reports are disclosed, firms with subpar performance or those failing to meet market expectations may opt to delay the announcement of such financial resultsThis delay can precipitate a cascade of “earnings shocks” in late April, which in turn can lead to a contraction in investor risk appetite, inducing a cautious market sentiment

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Observing patterns from previous years, the ratio of stocks hitting daily price limits during late April often indicates a decline, underscoring that this may not be an opportune window for thematic investment.

Moreover, the implications of new U.Spolicies warrant attentionHistorically, American investments in key Chinese tech sectors have been limitedGiven the backdrop of recent sanctions impacting these industries, U.Sinvestors have increasingly avoided domestic investments, leading to minimal real impact from any new restrictive measuresRather, the effects of such news are predominantly emotional, casting shadows of increased risks surrounding the decoupling of U.S.-China technology relations, which might influence market sentiments in the short term.

The forthcoming Federal Reserve meeting in May also looms large on the horizon, as investors are keenly interested in whether this meeting signifies the culmination of the current rate hike cycle

Market speculation suggests a potential final increase of 25 basis points could occurWith previous pressures stemming from the Silicon Valley Bank incident appearing to ease, a moderation in credit contraction has been observedYet, recent surveys indicate a marked resurgence in consumer inflation expectations, bringing forth a focus on the Federal Reserve's guidance at the May meeting and its subsequent market ramifications.

Despite the short-term challenges, the medium-term outlook appears promisingThe recovery momentum witnessed in the first quarter reinforces the “mini bull market” narrativeThe real GDP growth for the first quarter surged to an impressive 4.5%, residing at the upper limits of market expectationsMonthly data from March revealed notable acceleration in key economic indicators such as retail sales and industrial production compared to January and February, confirming a post-pandemic recovery trajectory.

Service industries and certain consumer sectors, which are re-emerging strongly, play a significant role in propelling GDP beyond forecasts

This resurgence is likely attributed to the restoration of consumer experiences affected by the pandemic and reflects a pent-up demand phenomenon often described as “revenge spending.” Such trends can also elucidate the marked improvement in real estate salesHowever, it is critical to remain cognizant of the likelihood that consumer spending, as a cyclical variable, may still depend on recovering income expectations to generate enduring internal demand post-surgeExcluding base effects and considering growth rates relative to pre-pandemic norms, the improvements in consumption observed in March might not be as robust as initially perceivedConsequently, both the pressures and driving forces of recovery will need to be balanced as we uphold our perspective of a “slow recovery” characterized by the ongoing “mini bull market” theme.

In terms of valuation, major indices maintain relatively attractive levels, endorsing a strategic bullish outlook

Notably, even as economic reports confirm positive recovery trends, the yields on 10-year government bonds have been on a downward trajectoryThis decline can be attributed to weaker macro price indicators generating expectations for more accommodating policies and a strong inclination among some financial institutions toward reallocation to bond markets.

Utilizing this valuation backdrop, certain stock market indices still show considerable excess returns compared to bonds; the room for price retractions seems limitedAn analysis of the equity risk premium (ERP) across major indices over the past decade shows current ERP levels resting at about the 60th percentileMeanwhile, the previously underperforming ChiNext index has reached near 100th percentile across three, five, and ten-year historical measurements, indicating that current valuations may indeed dwell within a favorable range.