Falling stock and futures, road to recovery requires patience

In early morning of February 3, which is the last trading day of the first week after Chinese Lunar New Year. Shanghai A-shares and some commodity futures that were active in the early days declined significantly. Shanghai (securities) composite index fell by 1.37 percentage points to 3240.64, below its closing price before the Spring Festival. The trend of funds shows that there is a net outflow of northbound funds, with a net sales of more than 6.2 billion yuan in half a day.

Some chemical and textile-related futures products also declined as below:

Prices updated at 1:49 pm, February 3, 2023

A minor fluctuation in a single week is not enough to explain the problem, but it is still a sign of confidence. Although the IMF raised its forecast for China's economic growth to 5.2% this week, and Chinese government’s departments at all levels have also expressed their determination and confidence to boost the economy, after all, the economic recovery is not a video toy, and it is impossible to respond immediately with a button. There is still great uncertainty in the overall path and rhythm.

In the face of recession in the global economy, Sino-US economic and trade relations are threatened, and China's debt problem remains unsolved. The COVID-19 pandemic has broken out for three years, whether the private income of Chinese residents or the willingness of investment by private enterprises has yet recovered strongly. During the Spring Festival in 2023, although the number of tourists returned to 89% of that before the epidemic, tourism income only returned to 73%, which shows that the consumer confidence has not fully recovered.

Among the factors affecting the market, the positive ones are increasing. After the relaxation of epidemic control, tourism, travel, social activities and apparel consumption have increased. The current monetary policy is relatively friendly, and according to the investigation of textile enterprises, many of them have obtained relatively sufficient low-interest loans, with the annualized interest rate partially less than 4%. This can stimulate the restocking enthusiasm of enterprises to some extent. We can see that VSF sales in China have been increased since December last year, and VSF plants have held pre-sale volume for more than 1-month prodeuction. The market enters the restocking cycle.

At the same time, the operating rate of VSF industry once hit as low as 55% during the Spring Festival, which is also a rare low level over the years. The resumption of work by downstream plants after the holiday is relatively ideal. As of last Friday, the operating rate of rayon yarn and fabric has returned to the level of November last year, or even slightly higher. The supply-demand relationship is improving for the time being.

The above is static data at present, and we have to pay attention to the changes in both supply and demand. With the narrowing loss of VSF, some VSF plants plan to restart the units, and the operating rate is expected to see double-digit increase. On the demand side, as the restocking comes to an end, how many orders can be increased in end-user market is still unknown.

During the period of China's economic recovery, it is reasonable for enterprises to maintain a moderate positive attitude after receiving capital replenishment. Strong expectations can generally be confirmed, but it is difficult to achieve strong reality in the short term. At present, it is still not appropriate to gamble too much. It is still a rational choice to maintain a positive attitude and steady operation according to the actual recovery of the market.