Soochow: As the "national team" enters the market, the broad-based index is attracting strong inflows, with blue-chip stocks likely to have the least resistance in market trading direction.

Soochow Research Report: "National Team" enters the market, traditional broad-based ETF funds become an important increment. Looking at the market performance structure, both stable capital and active capital have shown liquidity premiums. Looking ahead, in the complex situation of uncertainty in the domestic and international environment, investors may further seek stability. External disturbances mainly focus on the unpredictable nature of Trump's policies, while internal uncertainty stems from the pressure to deliver results. In this scenario, medium to long-term funds represented by Central Huijin increase holdings against the trend, releasing clear signals for policy stabilization, forming a stable anchor for market expectations. Blue-chip stocks benefiting from the significant inflow of ETFs may have the least resistance in the market trading direction. It is recommended to focus on high-profit visibility, abundant cash flow, and high-quality blue-chip stocks with leading positions in the industry. Soochow's views are as follows: "National Team" enters the market, ETF funds become an important increment In the past two weeks, external uncertainties have intensified, and ETF funds have become the most important increment in the market. From April 7th to 17th, the total net inflow of stock-type ETFs was 192.6 billion yuan. Breaking down the structure of the incremental funds of ETFs, broad-based index funds have shown strong attraction, with a total net inflow of 187.2 billion yuan, while industry themes and strategic style ETFs net inflows were 2.1 billion yuan and 3.2 billion yuan, respectively. The inflow of broad-based ETFs is closely related to the active efforts of the "National Team". Since last year, the "National Team" has shifted its fund allocation strategy from individual stocks to passive index instruments. By the end of 2023, the "National Team's" ETF holdings were only 122.5 billion yuan, with an ETF-to-stock allocation ratio of 4:96. By the end of last year, its ETF holdings had surpassed one trillion yuan, and the ETF-to-stock ratio had significantly increased to 20:80, making indices the main vehicle for medium to long-term funds to enter the market. On April 7th, Central Huijin, China Securities, and China National Fund successively announced increases in ETF holdings and will continue to increase their holdings in the future. On that day, the net inflow of stock-type ETF funds was 66.2 billion yuan; then on April 8th and 16th, ETFs both saw significant trading volumes, with net inflows of 101 billion yuan and 26.6 billion yuan respectively. The incremental funds of this round of ETFs have mainly flowed into traditional broad-based varieties preferred by the "National Team". Based on the top ten fund holders' data in the annual reports, the "National Team" has mainly favored core broad-based varieties such as the SSE 300 and the SSE 50. As of the end of 2024, the "National Team" held significant positions in the SSE 300, SSE 50, CSI 1000, CSI 500, and ChiNext, amounting to 689.3 billion yuan, 111.4 billion yuan, 90.2 billion yuan, 74.8 billion yuan, and 33.3 billion yuan, respectively. In terms of holdings, the "National Team" holds a proportion greater than or close to 70% in the CSI 1000, SSE 180, 180 Financial, SSE 300, and SSE 50 ETFs. Looking at the structure of this round (4/7-4/17) of incremental ETF funds, the SSE 300, CSI 1000, CSI 500, and SSE 50 accounted for 64%, 16%, 9.4%, and 9.3% respectively. The top-performing ETFs in terms of net inflows are all traditional broad-based varieties previously favored by the "National Team". If we use a standard of "National Team" holding ratio 40% in Q4 2024 to select 15 ETFs preferred by the "National Team", the total net inflow of the "National Team" from April 7th to 17th is approximately 190.1 billion yuan. Looking at the market performance structure, both stable capital and active capital have shown liquidity premiums By looking at the index, in the past two weeks (4/7-4/18), important A-share indices, except for the BSE 50 which rose by 4.4% on active fund support, all other indices have adjusted to varying degrees, with the SSE 50 being the most resilient with only a 0.2% decline. Soochow believes that the SSE 50 has been the index benefiting the most from the incremental ETF funds in this round. Firstly, because the constituent stocks of the SSE 50 make up the core of the SSE 300, accounting for nearly 40% of the weight, this means that at least 34% of the stable capital of 190.1 billion yuan has flowed into the constituent stocks of the SSE 50. Secondly, as a core index of large-cap blue-chip stocks, with a relatively healthy chip structure and a weaker speculative nature, it has a higher efficiency in attracting funds. Looking at the industry, the sectors that have led the rally in this round have benefited from the support of stable capital or have been preferred by active capital. On the one hand, active capital is actively trading in industries related to the domestic market and against tariffs. With the rapid escalation of trade tensions, the logic of retaliatory tariffs and boosting domestic demand has been strengthened, and the active pricing by active funds has led to significant outperformance in related industries. Soochow uses the proportion of daily appearances on the Dragon and Tiger List (number of appearances on the Dragon and Tiger List divided by the total number of stocks in the industry) to characterize the behavior of active funds. From April 7th to 17th, the proportion of appearances on the list for agriculture, forestry, animal husbandry, and fishery was the highest among all industries, reaching 12.6%, an increase of 12 percentage points from the first quarter; while the proportion for commerce and retail was second-highest at 5.9%. In terms of market performance, commerce and retail as well as agriculture, forestry, animal husbandry, and fishery have risen by 1.1% and 3.1% respectively in the past two weeks, achieving an outperformance of 7.1% and 5% relative to the overall A-share market. On the other hand, industries with weight represented by banks have clearly benefited from the buying activities of the "National Team". The logic of the funds behind the rise in banks in this round is similar to the extreme interpretation of the dividend style in the first three quarters of 2024. The significant inflow of ETF funds has been an important force for banks to achieve excess returns. Soochow pointed out in the report "The Rise of ETF Investment Paradigm: How Does it Affect A-share Pricing?" that in core indices such as the SSE 300 and the SSE 50 where large-cap blue-chip stocks are concentrated, the proportion of banks is relatively high, and the flow of incremental funds in the form of ETFs will significantly overweight the banking sector; in addition, due to the low turnover of banks and their large market value, a small amount of funds can effectively drive the sector. Risk Warning: Economic recovery pace slower than expected; Policy progress slower than expected; Geopolitical risks; Overseas interest rate cuts and uncertainties related to the tariff policies of the Trump administration, etc.