Inflation is Back

Thoughts of the Week

Recently, prices have generally risen from oil and natural gas to chemical raw materials, electronic components, and daily consumer goods. What is the root cause of this price increase?

To clarify this issue, let’s first look at what inflation is.

First, understand what currency is. Currency is another name for “currency in circulation”. It only includes the part of each country’s money supply that does not need endorsement, and only includes banknotes, coins, and digital currencies that equivalently replace currency in circulation. That is, the money in the hands of various social units.

Second, inflation refers to the phenomenon of a sustained rise in the general price level over a certain period of time. It can also be interpreted as under the condition of currency circulation, because the actual demand for currency is less than the currency supply, that is, the real purchasing power is greater than the output supply, leading to currency devaluation, causing a sustained and general rise in prices for a period of time. The essence is that total social supply is greater than total social demand. That is, social units have a lot of money, strong purchasing power, and strong desire to buy, but the production capacity of production entities in the market is insufficient, and they cannot buy the goods they want to buy, so social units purchase goods by increasing prices.

Fourth, inflation indicators include the Producer Price Index, the Gross National Product Deflator, and the Consumer Price Index (CPI). Among them, CPI is the most commonly used.

Third, there are two reasons for this inflation: central banks around the world are releasing liquidity. For example, the Biden administration distributed $1.9 trillion in March. Added to the previous relief funds, the total has exceeded $5 trillion. Most of these funds flowed into the US stock market and real estate market, and some were used by residents to purchase daily necessities. As the US’s largest trading partner, its spillover effect has caused imported inflation in China. On the other hand, rising real estate prices have also put pressure on operating costs in other industries. In the end, general products have generally increased in price.

Event of the Week

China-US negotiations: A highlight of the China-US meeting this time was that both sides exchanged words in the opening remarks, and it was fully open to reporters. Although there was an element of showing off to their respective nationals, it was also rare.

Market of the Week

Period: 2021-03-15 ——— 2021-03-21

4-week review: The A-share market differentiated clearly after the Spring Festival holiday. Although market trading is still active, the leading stocks where funds are clustered continued to adjust, and small and medium-cap stocks rose generally. Wind’s top three gaining industry sectors were precious metals, coal, and petrochemicals; the top three losers were office supplies, education index, and household goods. Wind’s top three gaining concept sectors were financial participation, Chengdu-Chongqing economic circle, smart grid, the top three losers were tungsten ore, rare earths, and industrial metal electrolyte.

3-week review: Major global indices fell generally this week, the clustering collapsed, and the main forces fought on their own. Wind’s top three gaining industry sectors were environmental protection, real estate, and motorcycles; the top three losers were alcohol, automobiles, and catering. Wind’s top three gaining concept sectors were reverse merger, limit board, low-price stocks, the top three losers were high-price stocks, beverage manufacturing, and medical.

2-week review: The declines this week tended to stabilize. Wind’s top three gaining industry sectors were forestry, steel, and energy equipment; the top three losers were precious metals, agriculture, and shipping. Wind’s top three gaining concept sectors were rare earths, copper-clad laminates, and carbon neutrality; the top three losers were rare metals, Stock Connect, and photovoltaic roofs.

1-week review: The declines widened this week, and A-shares fell for three consecutive weeks. Wind’s top three gaining industry sectors were electric power, steel, and coal; the top three losers were aerospace, semiconductors, and agriculture. Wind’s top three gaining concept sectors were thermal power, electric power, and coal-power restructuring; the top three losers were aviation, planting, and marketing communication.

This week’s review: The declines widened this week, and A-shares fell for four consecutive weeks. Wind’s top three gaining industry sectors were home furnishings, shipping, and retail; the top three losers were insurance, semiconductors, and energy equipment. Wind’s top three gaining concept sectors were removing the hat (ST), ultra-high voltage, and air transport; the top three losers were rare earths, tungsten ore, and ultra-wideband technology.

Market (%)	Index	This Week	1 Week Ago	2 Weeks Ago	3 Weeks Ago
Shanghai Composite	3404.66	-1.4	-1.4	-0.2	-5.06
Shenzhen Component	13606	-2.09	-3.58	-0.66	-8.31
ChiNext Index	2671.52	-3.09	-4.01	-1.45	-11.3
Hang Seng Index	28990.94	0.87	-1.23	0.41	-5.43
HSCEI	1102.27	0.76	-0.81	1.68	-1.75
Hang Seng HK Chinese Enterprises	4155.43	1.99	-0.84	0.84	-3.54
Dow Jones	32627.97	-0.46	4.07	1.82	-1.78
Nasdaq	13215.24	-0.79	3.09	-2.06	-4.92
S&P 500	3913.10	-0.77	2.64	0.81	-2.45

Market (CNY, Billions)	This Week	Previous Week	2 Weeks Ago	3 Weeks Ago
Shanghai Connect	6.76	61.74	31.28	-21.75
Shenzhen Connect	80.32	4.4	-39.65	-53.206
Hong Kong Connect	40.59	32.05	17.04	-105.52

Positions

Code	Name	Current Period Dynamics
SZ000889	Zhongjia Bochuang	Cleared
SZ300766	Merit Interactive	Cleared
SH600526	Feida Environmental Protection	New
HIMX	Himax Technologies	New
GME	GameStop	Cleared
F260104	Invesco Great Wall Domestic Demand Growth	Flat
F002083	Xinhua Xin Dongli Flexible Allocation A	Flat
F166301	Huashang New Trend Flexible Allocation A	Flat
F163406	Xingquan Herun Mixed	Flat
F005534	Huaxia New Era Mixed	Flat