Anticipated Reversal: A-Shares Approach Major Market Inflection Point

A-share market sentiment is ignited. On October 10th, the transaction volume of Shanghai and Shenzhen stock markets broke through 2 trillion yuan for the 4th consecutive trading day.

What are the profound impacts of the policy combination on the market? Is A-share a rebound or a reversal, and how long will this round of better-than-expected performance last? How can investors seize the opportunity? In the "Zero Perspective Finance" column, the reporter had a dialogue with Cinda Securities' Chief Strategist Qin Peijing.

Qin Peijing said that the current A-share market transaction is very active, with large intraday fluctuations. Generally speaking, the introduction of policies tends to have an immediate impact on market sentiment, while their actual effects need more time to manifest. When the three factors of housing price stabilization, stable fiscal deficit scale, and the start of the credit cycle are all in place, A-shares may usher in a big market.

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"I expect that from October to December, A-shares will enter a transition period from the expected big inflection point to the big inflection point of the market. This big market inflection point must rely on the policy's ultimate implementation in real estate, finance, and finance, which will be reflected in credit. The market will shift from a fast bull to a slow bull." Qin Peijing said.

Unexpected policies and capital "resonance"

1: The Shanghai Composite Index rose by 800 points in 8 days, what are the reasons behind this?

Qin Peijing: This round of rapid rise in A-shares can be seen from three aspects: a big reversal of policy expectations, a large influx of funds, and the positive impact of the external environment.

From a policy perspective, on September 24th, financial regulatory departments and regulatory authorities clearly proposed to support the stock market with innovative financial instruments, and introduced clear policies for counter-cyclical regulation of the real estate and economy. These policies include directly disclosing future reserve requirement ratio and interest rate cut plans, as well as support for specific loan types, which are policy events that rarely appeared before. The Central Political Bureau meeting on September 26th further improved everyone's policy expectations, especially the mention of real estate stopping and stabilizing, and the support for innovative financial policies in the capital market, including providing low-interest loans to major shareholders for buybacks through specific methods, are all effective policies that directly support the market.

The Political Bureau meeting emphasized "action first", while clarifying the policy direction and goals, it also emphasized the implementation from the bottom up and systematically, which brought about a significant change in the market's policy expectations.

From the perspective of capital, in the past 3-4 years, due to the weak real estate market and the reduction of residents' consumption, a large amount of capital was forced to be deposited in banks. Under the stimulus of unexpected policies, retail investors and hot money and other funds will quickly enter the market, driving the rapid rise in stock prices.From an external perspective, the Federal Reserve's interest rate cuts will alleviate the pressure of capital outflows from emerging market countries, and A-shares will also benefit from this.

As policies continue to be implemented and executed, along with further strengthening of market confidence, the A-share market is expected to maintain a good development trend.

2: After the introduction of a package of policy combinations, A-share turnover has increased significantly. What do you think will be the short-term and long-term effects of these policies on market trends?

Qin Peijing: The current market trading is very hot, with large intraday fluctuations, closely related to policy expectations. Generally speaking, the introduction of policies tends to have an immediate impact on market sentiment, while their actual effects need a longer time to manifest.

Therefore, the short-term effect of policies is more reflected in everyone's judgment of policy expectations. You can pay attention to these two types of policies: the first is the space for fiscal policy, and whether there is some relaxation or innovation in the direction of specific debt tool use by fiscal policy. The second is innovative financial instruments, whether there will be some specific cases and specific implementation methods for directly supporting the vibrancy of the equity market with financial instruments.

The real long-term impact of policies on the market mainly depends on whether the policies truly achieve their designated policy goals, divided into three levels: the first level is the support of policies for real estate, including whether the relaxation of some purchase restrictions in first-tier cities can affect the price expectations of real estate and the quantity and price of second-hand housing. The second level is the actual demand brought by fiscal policy, especially the scale of some special long-term national debt within the budget, the future space for special bonds, and the potential scale of special refinancing bonds. The third level is the change in social financing scale.

Once the three factors of stable housing prices, stable fiscal deficit scale, and the start of the entire credit cycle are met, A-shares may usher in a major annual-level trend.

I believe that from the end of September to October, the A-share market trend is an expected major turning point; from October to December, A-shares will enter the transition period from the expected major turning point to the major turning point of the trend. This major turning point of the trend must rely on the ultimate reflection of policies in real estate, finance, and finance on credit, and the market will shift from a fast bull to a slow bull.

3: On Saturday, October 12th, at 10 am, a press conference will be held, and the Minister of Finance, Lan Fuan, will introduce "Increasing the counter-cyclical adjustment strength of fiscal policy and promoting high-quality economic development." What are your expectations?

Qin Peijing: Indeed, fiscal policy has become the focus of the market's short-term attention. It can be seen that the current fiscal policy pays more attention to people's livelihoods, employment, and creating effective demand. The government has clearly stated that fiscal policy will be tilted towards these areas to provide support for economic development.At the same time, the market is also highly focused on the scale of the medium and long-term government debt plans, especially the incremental long-term special government bonds and special government bonds. The issuance scale of these debts is the focus of market expectations, reflecting the high level of attention to fiscal policy, especially in the face of significant market fluctuations, the direction of fiscal policy directly affects investor confidence.

Fiscal policy will play a more critical leadership role this year and next year, especially in creating effective demand. The key lies in whether fiscal policy can transform from the traditional profit-chasing model, that is, from supply-side policies such as infrastructure construction and debt leverage, to the demand side, especially the cultivation of long-term demand. The market's recognition of supply-side policies is limited because this model may lead to excessive leverage ratios and overcapacity, while new fiscal policies should pay more attention to the guidance and innovation on the demand side.

In general, the innovation of fiscal policy and the long-term demand-side driving mechanism will be the core of future policies. The scale of fiscal expansion is important, but more importantly, how to effectively stimulate demand through fiscal means, especially innovative debt use and repayment methods. At the same time, the policy coordination of various departments is being strengthened, which is also the biggest difference from previous policies, and we remain optimistic about the policies and their effects.

Retail investors should pay attention to risks when following the trend to enter the market.

4: Compared with the bull market from 2014 to 2015, what are the similarities and differences of this bull market?

Qin Peijing: The environment faced by each bull market is different. Compared with the last one, there are four differences in this bull market:

First: The participating funds are different. The bull market from 2014 to 2015 was driven by a large amount of leveraged funds, including off-exchange financing and classified products, while the current market participants are more retail investors and hot money, and the main use is non-leveraged funds. Although the scale of financing has increased to a certain extent, it has not reached the peak of the last bull market. This means that even if the current market faces short-term fluctuations, its potential risk is smaller than that of 2014 to 2015.

Second: The economic fundamentals are different. The macroeconomic fundamentals of the last bull market reversed quickly, especially the improvement of supply and demand drove the positive growth of PPI. However, the current economic reversal is slower, and the rebound of prices relies more on mergers and integration, rather than top-down deleveraging and capacity reduction. This makes the economic foundation of this bull market different from 2014 to 2015, and the reversal speed is also relatively slow.

Third: Changes in the external environment. During 2014 to 2015, the external environment was relatively good, while the current global situation is more complex. Factors such as anti-globalization, the Russia-Ukraine conflict, and the Israel-Palestine conflict have made the external environment more severe than before, bringing more uncertainty to the stability of the market.

Fourth: The leading sectors are different. The bull market from 2014 to 2015 was led by the ChiNext and growth stocks, which then expanded to various industries. The current bull market is mainly led by large-cap stocks with low price-to-book ratios, non-bank finance, and real estate chain sectors, which are more about value repair rather than the rise of growth stocks, showing the difference between the dominant forces of the current market and the last bull market.5: In this wave of market movement, have foreign investors participated? How have they influenced market trends?

Qin Peijing: The early phase of this short-term market rise is certainly characterized by the rapid entry of retail investors, which is dynamic trading, and foreign investors are not the main participants.

Looking at the capital flow situation, there has indeed been a clear inflow of foreign capital, but compared to domestic retail and speculative funds, its scale is far from being on the same order of magnitude. Foreign capital saw a significant short-term inflow in the last week before the long holiday, amounting to about $4 billion, but even so, in a market environment with daily transactions of 2 trillion to 3 trillion yuan, they are still not the main price setters.

Foreign capital or long-term institutional funds tend to participate in the market when there is an improvement in fundamental expectations, clear industry logic, the rise of credit cycles, or differentiation at the industry level. Foreign investors pay more attention to the trend stabilization of housing prices and the recovery of credit cycles, and only when these fundamental expectations improve will there be more sustainable and stable inflows.

6: How should ordinary investors adjust their investment strategies and participate rationally in the current market environment? What risks need special attention?

Qin Peijing: The amplification effect of mobile internet platforms on retail investor sentiment is the fundamental difference between this round of market movement and previous ones, leading to the rapid entry of retail investors and a faster initial market increase. Investors relying solely on chasing price limits or high elasticity trading strategies may overlook the fundamental risks of individual stocks, leading to potential losses. Market increases and decreases are symmetrical; if investors focus only on short-term gains and ignore potential risks, they are prone to fall into the expected deviation brought by high volatility.

In the context of high market sentiment and increased volatility, investors should pay attention to three aspects:

First, do not blindly use leverage, especially when cash flow is tight. Leverage can amplify gains, but it also amplifies risks.

Second, rely on the analysis and advice of professional institutions, especially in stock selection, choosing targets with fundamental support to avoid being caught up in short-term market sentiment.

Third, in terms of investment targets, ETFs (Exchange-Traded Funds) are the preferred choice for medium to long-term investment. Retail investors often face greater volatility and risks in stock selection, while ETFs offer a more robust investment method. The government is encouraging medium to long-term funds to enter the market, and ETFs, as a convenient and transparent investment tool, align with regulatory directions. Both broad-based index ETFs and industry and theme ETFs are important tools for guiding medium to long-term funds. As China's economy becomes more mature, the profitability and cash flow performance of leading companies in the market continue to improve, and these leading companies are mostly concentrated in indices such as the CSI 300 and the CSI 800, which are typically the basis for ETFs. This means that investing in broad-based ETFs is essentially indirect investment in a group of the most competitive and stable-performing leading enterprises, allowing investors to enjoy the dividends of the economic cycle while reducing the risks associated with individual stock selection. ETFs reduce volatility through diversified investments, making them suitable for investors seeking long-term stable returns. Especially in the current market with over 5,000 A-shares, it is challenging to screen for high-quality stocks, and ETFs can simplify this process.(Edited by: Xia Xin Reviewed by: He Shasha Proofread by: Yan Jingning)