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May 2023 Market Insights

2023-06-10

The market experienced a significant downward trend in May, with a significant reversal in expectations compared to the optimism in March and April. In fact, weak domestic demand has always been the main economic dilemma, and it is difficult for both the government and residents to imagine a significant rebound in demand in the face of reduced debt and income. At present, there is an urgent need for stimulus on the demand side, and even in the non real estate sector, more protection needs to be provided for residents. However, currently, the policy focus is more on maintaining enterprises on the supply side, which will make it difficult for supply to contract quickly under weak demand, and corporate profit margins will still hover at the bottom. Therefore, there are some doubts about deflation. At present, there has been no significant action by the senior management on economic policies. In such a policy vacuum period, it is normal for market expectations to fluctuate continuously with monthly data.

As bottom-up investors, we are more focused on micro changes at the corporate level and marginal improvements in shareholder returns. The negative macro environment, although the net value of the fund temporarily experienced a certain degree of retreat in May due to market fluctuations, provides us with more options for companies with reasonable valuations. Some companies actively increase their dividend ratio and repurchase, and good cash flow provides a very good foundation for the subsequent boost of stock prices.

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