HuaChuang Securities: Top Ten Global Investment Themes for March

According to the Zhitong Finance APP, Huachuang Securities released a research report stating that by the end of March 2025, the margin balance of A-shares accounted for 2.55% of the circulating market value of A-shares, reaching a high since 2017. Meanwhile, the implied option volatility of the CSI 300 Index ETF has continued to decline, dropping from 100% in October 2024 to 20%. It is worth noting that although the margin balance as a proportion of the circulating market value of A-shares continues to rise, it still has a significant gap compared to the high of 4.47% in April 2015.

The main points of Huachuang Securities are as follows:

1. Since 2024, China's Terrific 10 in technology has outperformed the Magnificent 7 in the U.S. stock market.

From 2024 to March 2025, the Terrific 10 Index, which is a simple weighted average of the stocks of ten technology companies, has increased by 58%, surpassing the Magnificent 7 Index's increase of 41%. How should this situation be understood? On one hand, DeepSeek has triggered a market re-evaluation of Chinese assets and a fading narrative of "American exceptionalism"; on the other hand, the stimulus policies since September 2024 have boosted confidence and led to a recovery in risk appetite.

2. Divergence between U.S. small-cap stocks and the U.S. small business confidence index.

The relative performance of U.S. small-cap stocks is usually closely related to the improvement in small business confidence, meaning that the ratio of the Russell 2000 Index to the S&P 500 Index generally aligns with the trend of the NFIB Small Business Confidence Index. The firm has calculated the correlation coefficient between the two from 2016 to the end of September 2024, finding that the correlation coefficient between the Russell 2000 Index/S&P 500 Index and the NFIB Small Business Confidence Index reached 0.77. However, since October 2024, the two indices have diverged, with the NFIB Small Business Confidence Index rising while the Russell 2000 Index has continued to underperform the S&P 500 Index.

3. The valuation of the Magnificent 7 in the U.S. stock market is negatively correlated with the real yield of 10-year Japanese government bonds.

The high valuation of the Magnificent 7 in the U.S. stock market has raised concerns about market fragility. The firm found that since October 2024, the price-to-earnings ratio of the Magnificent 7 has shown an inverse relationship with the real yield of 10-year Japanese government bonds. That is, when the real yield of Japanese 10-year government bonds rises, the price-to-earnings ratio of the Bloomberg Magnificent 7 Index declines. How should this inverse relationship be understood? The Magnificent 7 may still face concerns about overvaluation and fragile liquidity.

4. Global fund managers expect gold to be the best-performing asset in a scenario of comprehensive trade conflicts.

According to the Bank of America Global Fund Manager Survey in March 2025, in the context of comprehensive trade conflicts, 58% of fund managers expect gold to be the best-performing asset, followed by long-term U.S. Treasury bonds (16%), short-term U.S. Treasury bonds (9%), commodities (6%), and the U.S. dollar in fifth place (5%). Meanwhile, the allocation to U.S. stocks has seen the largest quarter-on-quarter decline on record, while the allocation to European stocks has improved significantly quarter-on-quarter.

5. The Hang Seng Composite Index and the Philadelphia Semiconductor Index have shown divergence year-on-year. The Hang Seng Composite Index is highly correlated with the Philadelphia Semiconductor Index year-on-year. From 2001 to the end of March 2025, the year-on-year changes of the Hang Seng Composite Index and the Philadelphia Semiconductor Index were highly synchronized, with a lag correlation coefficient of 0.70. How should we understand this synchronization? The semiconductor industry has significant globalization characteristics, and the Hang Seng Composite Index includes leading companies such as SMIC and Hua Hong Semiconductor, whose businesses are linked to the upstream and downstream of the components of the Philadelphia Semiconductor Index. However, it is worth noting that since October 2024, the year-on-year changes of the two indices have shown significant divergence.

6. The balance of margin financing and securities lending accounts for a high proportion of the circulating market value of A-shares since 2017.

By the end of March 2025, the balance of margin financing and securities lending accounted for 2.55% of the circulating market value of A-shares, reaching a high level since 2017. Meanwhile, the implied volatility of options for the CSI 300 Index ETF has continued to decline, from 100% in October 2024 to 20%. It is noteworthy that although the balance of margin financing and securities lending as a proportion of the circulating market value of A-shares has been rising, it still has a considerable gap compared to the high of 4.47% in April 2015.

7. The price trends of rebar and copper continue to diverge.

Since 2023, there has been a significant divergence in the spot prices of rebar and copper. How should we understand this phenomenon? Generally, both copper and rebar are exposed to risks related to the economic fundamentals, so their historical trends are basically consistent. The differences between the two may reflect the varying strengths of demand in different industries. Rebar prices reflect the demand from infrastructure and real estate, while copper prices more reflect the demand from manufacturing industries such as automotive. The institution attempts to use the operating rates of petroleum asphalt plants and semi-steel tire production as proxy variables for infrastructure and automotive production activities, finding that since 2021, the correlation coefficient between copper prices/rebar prices and the semi-steel tire operating rate minus the petroleum asphalt plant operating rate is 0.86.

8. The rise in the AH premium center may partly stem from the strengthening of the US dollar index.

Since 2014, the AH premium index has shown a phenomenon of rising center. The People's Bank of China (2020) constructed an A-share H-share premium index that excludes the movements of the US dollar, finding that since the implementation of the Shanghai-Hong Kong Stock Connect in November 2014, the Hang Seng AH premium index adjusted for the US dollar index has shown stronger mean-reversion characteristics. Therefore, the rise in the center of the AH premium index may partly stem from the rise in the center of the US dollar index.

9. The speed of industry rotation in A-shares has reached a historical high in the past 10 years.

The speed of industry rotation reflects the degree of consensus or divergence in the market regarding current investment themes. The institution uses the daily return rankings of CITIC's first-level industries, calculates the changes in daily rankings, and sums the absolute values of the month-on-month changes to obtain the absolute level of industry ranking changes. Finally, a 60-trading-day moving average is applied to the daily ranking changes. As of March 2025, the speed of industry rotation in A-shares has reached the 94th historical percentile level over the past 10 years.

10. In the context of gold prices hitting new highs, the holdings of gold ETFs have rapidly increased.

Between 2014 and 2022, the holdings of gold ETFs were highly correlated with gold prices, with a correlation coefficient of 0.81. However, between 2022 and 2023, the trends of the two diverged, with gold ETF holdings decreasing while gold prices continued to rise. The underlying reason is that central banks in countries such as China and India purchased gold, offsetting the impact of capital outflows from gold ETFs Since mid-2024, the correlation between the two has resumed, accompanied by a new high in gold prices, leading to a rapid increase in gold ETF holdings.

Risk Warning: The Federal Reserve's monetary policy exceeds expectations, global geopolitical risks intensify, and global trade conflicts escalate