Last Friday, the offshore RMB exchange rate plummeted, and A-shares also suffered a significant decline. Today, the offshore RMB exchange rate soared, yet A-shares still took a dive. It appears that the exchange rate is not the main factor causing fluctuations in A-shares; it primarily affects foreign capital. Last Friday, foreign capital flowed back during the midday session, and today it made a substantial purchase of over 5.5 billion, indicating that today's sharp decline was entirely due to domestic capital selling. Over the weekend, AI was hyped excessively, leading to overly uniform expectations. Given the nature of domestic capital, it was inevitable that they would sell when consensus was reached. The concept stocks of large models and corpus that were heavily promoted over the weekend all died at the opening today. As AI, as the main theme, underperformed expectations, it naturally affected market sentiment, and with AI's weakening, a sell-off occurred across high-positioned stocks.

We once thought that the plunge in small-cap stocks in January meant that the speculative theme trading that was prevalent last year had ended. Unexpectedly, it made a comeback after the New Year, with numerous short essays being circulated daily in the past two weeks, causing extreme stock fluctuations and severely damaging the ecosystem of A-shares.

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Previously, speculation in A-shares followed the lead of major investors. When retail investors saw the positions of Yang Jia, Zhang Mengzhu, Fang Xinxia, and Xin Yi on the list, they would follow suit and buy in the next day. Major investors deliberately maintained a premium on their positions, creating a pricing effect.

With the rise of live streaming, social platforms, and group chats, thematic speculation has turned into being driven by various short essays. The truth of the logic is not important; what matters is whether it has enough recognizability and can create a widespread breakout effect. These short essays are disseminated in various media in the form of tables, chat records, and images, and retail investors follow suit to buy when they see them. After hitting the upper limit, the recognizability is further strengthened, leading to more follow-up capital joining in. Some of these short essays are spread by sellers, some are based on rumors, some are passed on by foreign media, and some are pieced together from various information.

However, there is no free lunch in the world. Information has a very high barrier, especially valuable information. By the time it reaches ordinary retail investors, it is often many hands old. Each time it is passed on, an additional layer of latent capital is added. Once these pieces of information are widely disseminated and highly fermented across the network or after expectations are realized, the latent capital will take the opportunity to dump the goods to the funds that are chasing high prices.

Some information may be correct, but it has already been reflected in the stock price during the dissemination process. When it is finally realized, the stock price may plummet instead. This is the game of A-shares. We have reason to suspect that the information chain of short essays has formed an interest group, and it is the vast number of following retail investors who are being harvested.

For example, today's surge in the real estate sector is not only due to the significant tone set by the State Council's executive meeting on Friday but also related to a rumor. According to a report by Caixin, this morning there was a market rumor that soon there will be a real estate-related document issued, focusing on two directions: first, the comprehensive cancellation of restrictive policies in core cities, and second, promoting the implementation of a financing coordination mechanism. According to industry insiders, the purchase restrictions in non-core areas of first-tier cities may be lifted, but they may still be in the research stage. Meanwhile, the financing coordination mechanism is being implemented.For instance, stocks like Guanghong Technology, which are part of Huawei's smartphone supply chain, plummeted in the afternoon trading session, and so did HBM concept stocks like Tongfu Microelectronics today, all of which are related to some rumors. We won't specify the unconfirmed rumors, but suffice it to say that the market environment is quite harsh.

Looking specifically at the market performance, by the close, the Shanghai Composite Index had fallen by 0.71%, the ChiNext Index by 1.91%, the Hang Seng Index by 0.19%, and the Hang Seng Tech Index by 0.63%. The total turnover on both markets slightly shrank to 1.04 trillion yuan, with more than 4,500 stocks declining.

There is no need to worry about the future of A-shares; we believe there is no basis for a significant drop in A-shares:

From a fundamental perspective, China's economy in the first two months was not poor, and the recovery continued into March. According to high-frequency data, the slope of domestic economic recovery has stabilized and rebounded this week. On one hand, the increase in construction usage has driven the production of raw materials such as steel, cement, and asphalt to warm up, and the cargo logistics have recovered on a month-over-month basis, with the futures prices of black series commodities also rebounding. On the other hand, external demand and consumer spending by residents continue to recover, and the production in the downstream of the industry remains strong.

According to Ping An Securities, the daily average transaction area of new houses in the 61 sample cities increased by 26% month-on-month, and the year-on-year decline narrowed by 10 percentage points to -41%, which is a 40% drop compared to the average of the same period from 2019 to 2021. Looking at the city tiers, the sales of new houses in second and third-tier cities this week performed better than those in first-tier cities and fourth and fifth-tier cities in terms of both year-on-year and month-on-month comparisons.

Even the bond market funds that were bearish on the economy are now showing divergence. Today, the yield on government bonds continued to rebound, and government bond futures closed down across the board, with the 30-year main contract falling by 0.76%, the 10-year main contract by 0.25%, the 5-year main contract by 0.17%, and the 2-year main contract by 0.02%.

From a capital perspective, the national team is providing support to the market, and insurance and foreign capital continue to buy in. Compared to the high positions of major global stock markets, A-shares clearly offer value for money.

This year, everyone should adopt a bullish mindset and not think that A-shares are simply experiencing a rebound from an oversold condition. Last year's sharp drop in A-shares was suppressed by macro narratives such as "deflationism," but these grand narratives will be proven wrong this year. Just the repair of valuations is enough for A-shares to rise for a while. As global stock markets are reaching new highs, there is no need to panic when A-shares reach 3,000 points, as this is due to not recognizing the changes in the macro environment.The stabilization and recovery of the domestic economy this year is a highly probable event, and it is also highly likely that central banks in Europe and America will cut interest rates one after another. This will promote the recovery of the global manufacturing prosperity, which is beneficial for boosting external demand. This is a macro environment that is clearly favorable to equity assets, and it is important to have a clear understanding of this. Having a long-term bullish mindset will prevent one from being confused by short-term fluctuations.