Minsheng Securities: In the future macroeconomic fluctuations, non-ferrous metals, cyclical consumption, and traditional manufacturing may benefit more

According to the Zhitong Finance APP, Minsheng Securities released a research report stating that the current valuations of the Big 7 technology stocks in the A-share and Hong Kong markets have significantly converged with those of the Big 7 in the US stock market. However, in the more representative CSI 300 index of China's economic fundamentals, the gap with the S&P 500 remains at a relatively low level since 2022. During the same period, the commodity index/S&P 500 is at a historical low.

In the future macroeconomic fluctuations, three types of assets may benefit more: first, non-ferrous metals (copper, aluminum, small metals, precious metals); second, China's cyclical consumption (food, beverages, cosmetics, tourism), traditional manufacturing (engineering machinery, steel, chemicals); third, banks + physical consumption dividends. Additionally, considering the active participation of individual investors, small-cap stocks may also have a relative advantage in small-cap value.

The main points of Minsheng Securities are as follows:

A Different Decline in the US Stock Market

Yesterday (March 10, 2025), the US stock market experienced a significant overall adjustment, with the Nasdaq index recording its largest decline since October 2022. In fact, since February 20, 2025, the US stock market has entered a downward trend, accompanied by a continuous rise in the VIX index (Figure 1) and a continuous decline in the Nasdaq accelerator indicator (Figure 2). As of March 10, 2025, the VIX index of the US stock market has gradually approached the high point of August 2024, while the Nasdaq accelerator indicator is far below the negative two standard deviation level. Historically, whenever the Nasdaq accelerator indicator falls below negative one standard deviation, the Nasdaq often experiences a rebound. However, in this round of decline in the US stock market, after the indicator fell below negative two standard deviations, the Nasdaq has not yet seen a rebound. We believe that the source of this extreme pricing comes from the market's changing understanding of Trump's policies.

Drivers Behind the Decline in the US Stock Market: Intensifying Recession Fears and Changing Perceptions of the "Trump Put"

Since February, the economic thinking of the Trump administration has gradually emerged: at the beginning of February, US Treasury Secretary Mnuchin stated that the Trump administration is more focused on the decline of the 10Y US Treasury yield rather than interest rate cuts, while Federal Reserve Chairman Powell believes that the 10Y yield mainly depends on budget deficits and inflation expectations. Considering that the Trump administration relies more on tax reduction policies as the main driver of the economy, and the two main economic drivers during Biden's term (expansive fiscal policy + immigration) are projects that were heavily corrected after Trump took office (DOGE/cutting spending + deporting illegal immigrants), the tax reduction policy, as a slow variable (considering legislative delays and the actual effectiveness of tax cuts), is based on future expectations. Fiscal contraction and restrictions on illegal immigration are measures to fulfill campaign promises and address deficits + inflation while driving down the 10Y US Treasury yield. Coupled with the repeated tariff policies, the "growing pains" of the US economy during the transition period may be unavoidable, and the recent weakening of US economic data, the Atlanta Fed's downward revision of first-quarter GDP expectations, and the decline in consumer confidence index gradually reinforce market expectations; On the other hand, due to the "muscle memory" from the previous term, the market may have had expectations for the "Trump put," but with figures like Bessent and Trump not denying the potential for a U.S. recession, as well as an increased tolerance for declines in U.S. stocks, the market's pricing of the "Trump put" has gradually been corrected, further driving the current extreme adjustment in U.S. stocks. We are not optimistic about the medium to long-term trend of U.S. stocks, but we also believe that this round of adjustment may be a concentrated release of previous events and may not mark the beginning of a new round of decline.

Behind the narrative of "the East rises while the West falls" is the negative correlation between A-shares and U.S. stocks, which is nearing historical extremes.

Will the decline in U.S. stocks transmit to A-shares? From the perspective of the correlation in the rise and fall of A-shares and U.S. stocks, whether it is the CSI 300 or technology stocks represented by TMT, the correlation with the S&P 500/NASDAQ index has weakened since September 6, 2024, ultimately turning negative, with the negative correlation coefficient reaching extreme values near 2016. If we look at the differences in industry performance, the main reason for the divergence in the movements of A-shares and U.S. stocks is primarily the information technology sector. From September 6, 2024, to March 10, 2025, the excess return of A-share information technology relative to U.S. stocks reached over 60%. We believe the main driving force comes from the revaluation of Chinese technology assets brought about by AI "equalization" from Deepseek. Additionally, the policy reversal at the end of September 2024 has allowed sectors like finance, real estate, and consumption to perform better than U.S. stocks, which are occasionally overshadowed by recession expectations. Therefore, in recent times, both the technology industry and economic fundamentals have supported the narrative of "the East rises while the West falls," allowing A-shares to develop independently of U.S. stocks. The investment value of A-shares in the medium to long term is not in doubt, but the resilience of Chinese assets led by technology may have reached a historical extreme, potentially creating a demand for mean reversion.

Volatility may not have subsided; seeking resilience.

Currently, the valuations of the Big 7 technology stocks in A-shares and Hong Kong stocks have significantly converged with those of the Big 7 in U.S. stocks, but the gap on the CSI 300 index, which better represents the fundamentals of the Chinese economy, remains at a relatively low level compared to the S&P 500 since 2022. During the same period, the commodity index/S&P 500 is at a historical low. In the future macro volatility, three types of assets may benefit more: first, non-ferrous metals (copper, aluminum, small metals, precious metals); second, China's cyclical consumption (food, beverages, cosmetics, tourism), traditional manufacturing (engineering machinery, steel, chemicals); third, banks + physical consumption dividends In addition, considering the activity of individual investors, small-cap stocks may also have a relative advantage in terms ofsmall-cap value**.