The "Third Plenary Session" is approaching, and the "Red May" can be expected

Domestic A-shares and the Hong Kong market extended their upward momentum in April, as overseas investors increased their holdings of Chinese stocks for three consecutive months, setting the longest monthly net buying record in A year. In a reversal of early losses, the Hang Seng Index is up 7.4% this month, in stark contrast to the Nikkei and S&P 500, which are down 4.9% and 4.1%, respectively. The CSI 300 index continued to rise 2.0%, and the yuan remained steady as the US dollar strengthened against most currencies; Taiwan's stock market fell 1.3 per cent in US dollar terms, dragged down by declines in overseas markets; The MSCI index of Shanghai, Shenzhen and Hong Kong investable markets is up 3.1 per cent this month.

Economic growth is mixed. In the first quarter, GDP grew by 5.3%, investment in fixed assets increased by 4.5% year-on-year, and electricity consumption increased by 9.8%. The official manufacturing purchasing managers' index came in at 50.4 in April, expanding for a second straight month. The non-manufacturing construction and services activity index was 51.2, which remained in expansion mode. But exports fell 7.5 per cent in March from a year earlier; CPI growth slowed to 0.1% from 0.7% in February. The PPI also eased to -2.8 per cent year-on-year from -2.7 per cent in February. Although China's economy achieved a good start in the first quarter, the property market continued to decline sharply and deflationary pressure continued.

This month, regulators stepped up structural reforms of the stock market. The State Council has issued guidelines on China's capital market for the third time, known as the new Nine National Guidelines, with key points including stricter IPO access, improved shareholding reduction rules and cash dividend supervision, delisting supervision, stricter trading supervision and medium - and long-term capital utilization. We believe that this policy will help fundamentally guide the long-term healthy development of the capital market, improve the quality of listed companies, enhance returns to investors, and ultimately boost market confidence.

Hong Kong's capital market is enjoying a major boost. This month, the China Securities Regulatory Commission made clear five measures, including broadening the range of eligible products under the Shanghai-Shenzhen-Hong Kong Stock Connect, supporting the inclusion of renminbi stock trading counters in the Hong Kong Stock Connect, improving mutual fund recognition arrangements and supporting leading mainland companies to list in Hong Kong. In the medium and long term, the relevant measures will help to diversify the types of trading products and provide more convenience and choices for foreign and mainland investors. The effect of these measures in the short term has been very obvious, in the context of overseas stock market correction, Hong Kong stocks have outperformed the global stock market.

To boost real estate demand, several core second-tier cities in China have lifted restrictions on home purchases. After second-tier cities including Nanjing, Hefei and Suzhou lifted various restrictions on home purchases, Chengdu announced at the end of last month that it would no longer review the qualifications of home buyers. At the same time, the Shanghai government issued a statement saying that it will focus on meeting the reasonable financing needs of all types of real estate enterprises. We expect more cities to abandon home purchase restrictions, and mortgage down payments and interest rates to fall further.

To stimulate new-energy vehicle consumption, The State Council announced a detailed car-trade-in program, offering subsidies to individual consumers who scrap vehicles that meet certain standards. It is expected to bring about 1-2 million additional vehicle scrapping and replacement by 2024. Vehicles that meet national Level III and below emission standards, or new energy vehicles registered before April 30, 2018, are covered by the scheme. Consumers who replace old cars with new energy vehicles can enjoy a subsidy of 10,000 yuan, and consumers who choose to buy new internal combustion engine cars below 2.0L can enjoy a subsidy of 7,000 yuan. The central and local governments will provide subsidies in a ratio of 60:40. In addition, local governments such as Guangzhou have also announced subsidy programs for equipment renewal and home appliance replacement.

There are reports that the central bank will soon resume buying and selling government bonds in the secondary market and may launch a new round of quantitative easing (QE). In our view, the central bank's buying and selling of government bonds through the secondary market does not necessarily mean QE, and its main purpose is to regulate liquidity through the buying and selling of government bonds in the secondary market. At present, China's short-term policy interest rate is around 2%, and the relative deflation and long-term interest rate level is still high, and the reduction of short-term policy interest rate may be more necessary than the implementation of QE.

Domestic tourism is hot, outbound tourism needs to recover. During the Qingming small holiday, the number of domestic tourism trips increased by 11.5% compared with the same period in 2019 according to the comparable caliber, the travel spending of domestic tourists increased by 12.7% compared with the same period in 2019, and the per capita expenditure recovered to 101% of 2019. During the "May Day" golden Week, the hot domestic and outbound travel is worth looking forward to.

Rapid advances in artificial intelligence are driving demand for computer hardware, with Taiwan's exports growing at their fastest pace in two years in March, with exports of computers and related hardware, including servers, hard drives and keyboards, up 465 per cent from a year earlier. The increase has pushed Taiwan's overall exports up 18.9 per cent year on year, the fastest pace since March 2022.

Looking ahead, first-tier cities may continue to relax purchase restrictions, the central bank may further cut interest rates and lower mortgage interest rates within the year. The market will strengthen further as liquidity continues to improve