Financial markets in Hong Kong have recently presented a perplexing scenario of significant divergence. As of late afternoon, the Hang Seng Index, alongside the Hang Seng China Enterprises Index, reported declines exceeding 2%, while the Hang Seng Technology Index suffered a staggering fall of over 4%. This marks its steepest drop since January. Notably, major tech stocks such as Weibo, Baidu, JD Group, Tencent Holdings, and Alibaba experienced losses ranging from 2% to over 9%.

What has caused this market upheaval? Analysts identify several contributing factors. Firstly, a massacre occurred in overseas markets, particularly affecting Chinese stock indices, which plunged by more than 3%. This had a ripple effect, instigating distress in the Hong Kong stock market. Additionally, ongoing speculation from Japan regarding the end of its quantitative easing policy seems to wield considerable influence on the Hong Kong market. Finally, during the Two Sessions, perceptions surrounding certain data and policies have diverged, inciting further conflict among market participants.

Contrarily, the performance of A-shares has painted a robust picture in the afternoon. Just after two-thirty, the market's momentum shifted dramatically, with the A50 index showing remarkable strength. What underlies this surprising rebound?

On the same day, a peculiar phenomenon unfolded within the market. While the Hong Kong stock market faced extensive sell-offs, the A-share market displayed resilience. By 2:50 p.m., the Hang Seng Index's decline had extended to 2.5%, while the Hang Seng Technology Index experienced a drop exceeding 4.1%. Across sectors, pharmaceuticals, technology, and consumer stocks witnessed some of the most substantial losses.

David Scutt, a senior analyst at Gainscope, pointed out that the Hong Kong stock market continued its upward momentum resulting from the lows of January, supported by a series of measures that buoyed market sentiment. The year-over-year growth in February reflected a rise of 6.6% for the Hang Seng Index and 9.3% for the Hang Seng China Enterprises Index, while the technology-focused index soared by 14.2%. Furthermore, the A50 index has rebounded 13% since its January lows, with overseas hedge funds net buying and the “national team” stepping in to stabilize the market, indicating sustained interest in high-dividend stocks.

However, there are concerns that profit-taking could commence soon, especially as the U.S. Federal Reserve has postponed interest rate cuts until June. Recent data revealed that the PCE index recorded its lowest inflation growth in nearly three years, though core PCE rose by 0.4% month-over-month, marking a one-year high. Despite this, the ISM manufacturing PMI for February fell significantly below market expectations. The release of these varied data points did little to alter the market's anticipation of an approximate 80 basis point rate cut throughout the year, with the earliest possible cut projected for June.

During the previous night, the overseas markets experienced severe selling, a sentiment also echoed in indices tracking Chinese companies. Concerns about Japan's potential exit from its quantitative easing policy loom large, further exacerbating the challenges faced by the Hong Kong stock market. Additionally, during the Two Sessions, varied interpretations of certain economic data and policies have led to added market divergence.

Another development worth noting is the recent speculations surrounding Vanke, a representative company that has become the subject of various rumors, drawing market attention. Investors anxiously await the company's ability to service its dollar debts that mature on March 11. Reports from Vanke as recent as March 5 revealed that it has adequately prepared the capital for its dollar-denominated bond, ensuring that the repayment process proceeds smoothly. In the afternoon, Vanke’s A-shares ticked up slightly, ending the day with a gain of 0.53%.

A noteworthy development lies in the A50 index's remarkable surge, which surpassed 1.4% in growth. This momentum propelled the Shanghai Composite Index to follow suit after two-thirty in the afternoon.

On March 1, the first batch of ten CSI A50 ETFs concluded their fundraising phase, attracting a total subscription amount nearing 17 billion yuan. Notably, funds from Morgan Asset Management, Ping An Fund, Da Cheng Fund, and Huatai-Pb Fund each exceeded the 20 billion yuan fundraising cap, triggering a proportional allocation distribution.

On March 5, Morgan Asset Management announced the formal establishment of its Morgan CSI A50 ETF (securities code: 560350). According to reports, this ETF achieved the highest fundraising amount of 20 billion yuan, unlocking an allocation ratio of 87.8%, with more than 15,000 valid subscription accounts, ranking at the top for the number of subscribers among ETFs founded this year.

Today, the sharp increase in the Shanghai 50 ETF was also noteworthy. This may indicate that the aforementioned funds are actively entering their position-building phase, promoting a race among weighted stocks.

Moreover, interpretations surrounding the government work report are emerging, with key figures expected to surpass prior anticipations. This is believed to diverge somewhat from foreign media perspectives. Guo Lei, chief economist at Guangfa, articulated that the deficit scale has been set at 4.06 trillion yuan, representing a slight increase from the previous year's budget by 180 billion yuan, thus marginally exceeding the anticipated “approximately 4 trillion yuan.” This figure, linked with a 3% deficit ratio, correlates to a projected nominal GDP of 135.33 trillion yuan for 2024, implying an expected nominal GDP growth rate of 7.4%.

From an experiential perspective, the two benchmarks do not perfectly align, yet they reflect a positive hypothesis on nominal growth recovery in 2024. As actual growth stabilizes further, both price centering and nominal growth are anticipated to improve. Concurrently, this validates the characteristic of moderate fiscal “amplification,” thereby ensuring that the deficit size is maintained as much as possible.

Additionally, the broader fiscal space encompasses special bonds valued at 3.9 trillion yuan, together with 1 trillion yuan in ultra-long-term special treasury bonds. Consequently, this year’s generalized fiscal space comprises “4.06 trillion yuan deficit + 3.9 trillion yuan in special bonds + 1 trillion yuan in ultra-long-term special treasury bonds,” alongside last year’s debt issuance expected to influence this year as well as the 1 trillion yuan in newly issued government bonds. Theoretically, this should also account for quasi-fiscal instruments, such as the 500 billion yuan already issued to support “three significant projects” under the PSL.

Fiscal expansion appears to be evident at this stage, which is critically needed for the economy. Notably, the plan for ultra-long-term special treasury bonds aims for consecutive issuance over the coming years, specifically devoted to the implementation of pivotal national strategies and the enhancement of security capabilities in essential domains, thereby suggesting a certain sustainability of fiscal expansion at a mid-term outlook.