Over the weekend, there were three main bearish factors in the news:

First, the non-farm employment data released by the United States last Friday significantly exceeded market expectations, causing the US dollar index to rebound sharply and break through 103. At the same time, non-US currencies depreciated significantly, with the offshore renminbi exchange rate depreciating by nearly 1000 points at one point, which will increase the pressure of capital outflows. The rebound in the A-share market since January has been mainly driven by foreign capital purchases. If foreign capital turns to outflows in stages, there will be pressure for the Shanghai 50 to correct. As of press time, the net selling of Northbound capital is 3.5 billion yuan.

Second, the balloon incident over the weekend will undoubtedly increase the risk of geopolitical games, which will suppress market risk appetite and also increase the pressure of capital outflows. In particular, the Hong Kong stock market will be more severely impacted, with the Hang Seng Technology Index plunging by 3.5% in the morning session today.

Third, according to financial news on February 6, the central bank today carried out a 150 billion yuan 7-day reverse repurchase operation. Since there are 523 billion yuan of 7-day reverse repurchase expiring today, a net withdrawal of 373 billion yuan was realized on the day. This week (February 6-10), more than 1 trillion yuan of reverse repurchase is due to expire, followed by a peak of nearly 2.5 trillion yuan of interbank certificates of deposit expiring in the next four weeks, which will bring significant liquidity pressure.

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As of press time, the Shanghai Composite Index fell by 0.91%, the ChiNext Index fell by 1.66%, the Hong Kong Hang Seng Index fell by 2.30%, and the Hang Seng Technology Index fell by 3.83%. The turnover of the two markets slightly increased, and the net selling of Northbound capital was 3.521 billion yuan.

Looking at the industry, only comprehensive, public utilities, and environmental protection stocks rose, while home appliances, non-ferrous metals, food and beverages, non-bank finance, building materials, and other industries led the decline. The concept blocks such as Chatgpt and Huawei remain strong.

In the context of the Spring Festival consumption data being relatively better than expected, the A-share market has seen its first weekly-level correction, especially with the financial and consumer sectors representing the heavyweight sectors, with the Shanghai 50 leading the decline, and the performance of small and medium-sized enterprises and startups being better, with a rotation in market style.

We believe there are three main reasons: First, objectively speaking, since November, the Shanghai 50 has rebounded by more than 20%, with a lot of profit-taking positions, and there is an impulse for funds to take profits; then there is the catalyst, although the consumption data during the Spring Festival period is relatively good, institutions are worried that this is a retaliatory consumption, and the reason is that real estate and car sales are poor, and institutions have lowered their expectations for economic recovery; finally, the redemption effect of fund holders returning to their original investment has led to institutions passively reducing their positions.In summary, since November, the three major favorable factors that have driven the rebound in A-shares, namely the adjustment of epidemic prevention and control policies, the three arrows for the real estate sector, and the Federal Reserve's slowdown in interest rate hikes (weakening of the US dollar and appreciation of the Chinese yuan), have largely been reflected in the market. However, the current real estate market remains sluggish, indicating that the strength of economic recovery is unlikely to exceed expectations, and the market's preference for style is hard to continue to improve, making it difficult for A-shares to find new expectations for further gains.

Conversely, for A-shares to rise further, we would need to see a recovery in the real estate market or the introduction of more robust policies, a restoration of consumer confidence, a decrease in the excess reserve ratio, and a continuous rebound in social financing. If the real estate market warms up, then large-cap value and large-cap growth stocks will continue to strengthen; otherwise, the index will shift from a one-sided rise to a fluctuation, and small and medium-sized innovative companies will perform stronger.

Risk warning:

The stock market is risky, and investment should be made with caution. This article does not constitute investment advice, and readers need to think independently.