Dinner conversations revolve around the Federal Reserve's interest rate cuts, with a 50 basis point reduction taking place. Insiders claim it's 'within expectations,' yet there are undercurrents at play. This rate cut appears to be a preemptive measure, but with CPI falling to 2.5% and the unemployment rate jumping to 4.2%, it fundamentally indicates an inability to withstand economic cooling pressures, forcing an early release of liquidity.
The impact on A-shares needs to be viewed from two perspectives: the short-term emotional boost from foreign capital replenishing positions, and the medium-term game of currency transmission. The dollar index has broken through the 105 level, and it is highly likely that northbound funds will replenish positions in consumption leaders and new energy giants, especially since the foreign capital holding levels in core assets like Ningde and Moutai have reached a three-year low. However, don’t expect a flood of liquidity; the domestic policy toolbox is more focused on structural tools, and the space for simultaneous MLF and LPR cuts is constrained by banks' net interest margins. A reserve requirement ratio cut could be anticipated.
There is a clear divergence at the sector level: the export chain must be wary of currency appreciation pressures, as margins for photovoltaic components and consumer electronics OEMs may be eroded by exchange losses, while the import chain sectors such as paper manufacturing and aviation directly benefit from decreased dollar debt costs. Although gold stocks have followed COMEX gold prices up and then down, the actual interest rate decline cycle has not concluded, and the pullback may actually present a buying opportunity.
In my personal judgment, the sustainability of this market rally will depend on a combination of policy measures—if a specific plan for resolving real estate debt can be presented by the end of the month, coupled with the confirmation of the Federal Reserve's interest rate cut cycle, A-shares may hope for a first-quarter level rebound.
Otherwise, a net inflow of hundreds of billions from foreign capital will only create a pulse market, while domestic institutional adjustments will be the underlying trend, focusing on specialized and innovative stocks within the CSI 2000 index. These stocks are not affected by currency fluctuations and can still benefit from stable growth dividends.
The risk lies in the narrowing of the China-U.S. interest rate differential, which may trigger cross-border arbitrage fund movements. Recently, the offshore RMB overnight HIBOR soared above 5%, indicating that shorts are not yet out of the game. Don’t be swayed by foreign capital; it’s more prudent to focus on signals from the central bank’s midpoint rate.
As for whether there will be opportunities to seize, it depends on where everyone stands and their fortune~
