Yang Delong: A-Share Market Enters Second Growth Phase, Investors Urged to Embrace Bull Market Mindset

In the context of a booming trading market, A-shares have dominated the hot search and social media circles. During the National Day holiday, the number of account applications and inquiries surged, with veteran investors increasing their positions and new investors entering the market...

On October 10th, the first phase of the "swap facility" of 500 billion yuan was launched for application. How will this affect A-shares? What is the view on this round of market movement? Why, amidst the rapid market rise, have more than 100 major shareholders conducted share reductions? In the "Zero View Finance" column of China Business News, a reporter from China Business News conducted an in-depth dialogue with Yang Delong, Chief Economist of Qianhai Open Source.

Yang Delong believes: "The first phase of rapid rise in A-shares has ended, and the future trend may become healthier, entering the second phase of steady increase. Policies beyond expectations are expected to reverse the trend of slowing economic growth in China, bringing about a more prolonged economic recovery. In particular, the long-term decline in the capital market has led to valuation repair, providing investors with a good opportunity for layout."

For investors, Yang Delong suggests shifting from a bear market mindset to a bull market mindset. The bear market mindset considers every market rebound as an opportunity to reduce positions, while the bull market mindset sees every market adjustment as an opportunity to increase positions. Investors who have not yet fully positioned can adjust flexibly according to market conditions. If the market rises too quickly in the short term, they can consider operating with the existing half position. If the market experiences a pullback, they can appropriately increase their positions.

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A large amount of capital has driven the first round of A-share market movement.

1: On October 10th, the 500 billion yuan swap facility was officially applied for. What impact will this have on the stock market?

Yang Delong: On September 24th, at the State Council's press conference, the central bank governor Pan Gongsheng mentioned the creation of two tools to support the development of the capital market.

On October 10th, the first phase of the 500 billion yuan swap facility began to accept applications, reflecting the central bank's substantial support for the capital market. Securities, funds, insurance, and other institutions use their held assets (such as bonds, stock ETFs, Shanghai-Shenzhen 300 constituent stocks, etc.) as collateral to exchange for more liquid assets (such as national bonds, central bank bills, etc.) from the central bank, and further monetize these assets for stock purchases. This not only helps to improve the liquidity of these institutions but also stabilizes and boosts the capital market through the injection of funds. The main purpose of this policy is to implement the requirements of the 20th Central Committee's third plenary session on enhancing the inherent stability of the capital market and to ensure the long-term healthy development of the capital market.

In addition to the swap facility, the central bank has also created a re-lending tool, which is to provide re-lending credit lines to listed companies and major shareholders for repurchasing stocks. This is also a substantial support for the capital market.

It should be noted that the central bank's creation of these two tools is not the central bank directly buying stocks, but institutions obtaining liquidity from the central bank by mortgaging their held assets and securities. Such a mechanism can inject a large amount of "real money" into the market, forming substantial financial support, thereby promoting the development of the stock market and enhancing market confidence.2: What are the highlights of the policy combination box introduced on September 24th in boosting market confidence and improving economic operations?

Yang Delong: The recent dense introduction of a series of policies indeed reflects the Chinese government's determination and confidence in boosting the economy. From the favorable policies released by the State Council's press conference on September 24th, to the National Development and Reform Commission's emphasis on stimulating consumption to drive the economy on October 8th, and then to the upcoming Ministry of Finance press conference, the intensity and rhythm of the policies have exceeded market expectations. This policy combination box not only covers monetary policy and fiscal policy but also involves the reform and support of the financial market, showing that the central government is deploying the path of future economic development from a global strategic height.

Especially in the capital market, this round of policy benefits has triggered a strong response. Both A-shares and Hong Kong stocks have seen a significant increase, and market confidence has been significantly enhanced. A-shares have risen from over 2600 points to over 3600 points in a short period, and the Hang Seng Index has risen by about 35% this year, becoming one of the most eye-catching markets globally. This performance is not only a reflection of the market's response to short-term policies but also a full reflection of expectations for future economic recovery.

This round of policies is expected to reverse the trend of slowing economic growth in China and bring a longer-term economic recovery. In particular, the valuation repair caused by the long-term decline in the capital market has provided investors with a good layout opportunity. Even after this round of increases, many high-quality stocks are still undervalued, even only 30% to 50% of the past high points, which provides space for the market to continue to rise.

From an investment perspective, the current market is indeed full of opportunities. There is a joke on the Internet saying, "The cost of people getting on the car now is lower than those on the car," which means that although the market has risen, the prices of many stocks still have a large repair space and are far from a bubble state. Seizing high-quality chips during market corrections may be the most critical investment strategy in this bull market.

3: The market is active, and A-shares have broken through 1 trillion yuan in transaction volume for several consecutive trading days. How do you think the short-term and long-term effects of these policies will affect the market trend respectively?

Yang Delong: The start of this round of the market is very sudden, and the transaction volume has significantly increased. Especially during the National Day holiday, stocks have become a hot topic, and many people hope that the holiday will end early and the market will open. According to statistics, more than 1 million new stock accounts were opened during the National Day holiday. After the holiday, the market transaction volume grew rapidly, reaching 3.5 trillion yuan on the first trading day. Although there was a correction on the second day, the transaction volume still reached 3 trillion yuan, showing the enthusiasm of investors.

The sources of this large amount of capital entering the market include: old investors increasing positions, as some old investors reduced or emptied their positions during the previous market decline, and quickly increased positions after the market started; new investors entering the market attracted by the profit effect; institutional investors increasing positions, although public funds have a high position, but as the fund net value rises, future subscription volume may increase, attracting more capital to enter the market, in addition, insurance, pension funds, social security funds, corporate annuities, private equity funds, etc., also increased positions; foreign capital inflow, especially after the Federal Reserve cut interest rates, the renminbi entered an appreciation trend, attracting foreign capital to accelerate the return flow.

Overall, a large amount of resident savings funds began to shift to the capital market after the market started. In the past four years, A-shares and Hong Kong stocks have declined, and real estate investment opportunities have decreased, leading many investors to turn to deposits. As the trend of A-shares changes, funds will gradually flow to the stock market.

4: What is the difference between this round of "10 trillion" market rescue and the previous 4 trillion?Yang Delong: This round of economic stimulus has adopted a dual approach of monetary policy and fiscal policy. In terms of monetary policy, the central bank has reduced interest rates, lowered reserve requirements, and cut the interest rates on existing housing loans to alleviate the interest burden on residents and businesses, and to lower the long-term loan prime rate (LPR). At the same time, it is expected that a stimulus package of about 10 trillion yuan will be introduced over the next few years, including the issuance of ultra-long-term government bonds, about 2 to 3 trillion yuan per year, to stimulate investment and promote consumption. This will not only help to increase GDP but also create more job opportunities. In addition, the government plans to enhance the consumption capacity of low- and middle-income groups through cash subsidies or consumption vouchers, increase residents' income, and drive consumption growth.

Unlike the 4 trillion yuan stimulus plan introduced in 2009 to cope with the global financial crisis, which mainly focused on infrastructure investment, this time, in addition to traditional and new infrastructure, the focus will also be on resolving the debt burden of local governments and vigorously boosting consumption. Since our country's high-speed rail and highways and other infrastructure have basically been completed, the main driving force of current economic growth is consumption. In the past two years, the contribution of consumption to GDP growth has exceeded the sum of investment and exports, reaching more than 50%, and last year it was as high as 80%. Therefore, this stimulus plan will exceed the 4 trillion yuan of that year in scale, and its driving effect on our country's economy will also be more significant.

Embrace the bull market mindset to welcome the second round of the market

5: You proposed the viewpoint "Investors should shift from a bear market mindset to a bull market mindset", what is the reason?

Yang Delong: The current market trend has completely shifted from a bear market to a bull market, and investors' thinking also needs to shift from a bear market mindset to a bull market mindset. In a bear market, each market rebound is seen as an opportunity to reduce positions or even "escape". In a bull market, the market trend is continuously upward, with each round of high points and low points of adjustment higher than the previous round. At this time, each significant market adjustment should be seen as an opportunity to increase positions.

It can be seen that the characteristics of the current A-share bull market are very obvious, mainly manifested as:

- Trading volume continues to expand, even during adjustment periods, daily trading volume remains around 3 trillion yuan, far exceeding the usual trading volume of 1 trillion yuan, showing that the market is very active.

- Fast rise and sharp fall, in a bull market, investors trade actively, and emotions fluctuate greatly. When rising, the mood is optimistic, driving the market to rise rapidly; when falling, the market panics, leading to significant adjustments. This violent fluctuation helps the market to clean up floating chips, making it more stable. Holding positions firmly and having confidence is particularly important in a bull market, and frequent trading may lead to losses due to fluctuations.

In such a market environment, value investment is particularly crucial. Investors should have confidence, focus on holding the stocks of excellent companies in the medium and long term, rather than being affected by short-term fluctuations. Frequent chasing and killing not only misses the opportunity of the bull market but may even lead to losses in the bull market.

6: We have seen many individual investors rushing into the market, while some shareholders or executives of listed companies issue announcements to reduce holdings. How to interpret this phenomenon?Yang Delong: Recently, the market has been rising rapidly, and many controlling shareholders of listed companies have issued announcements about reducing their holdings. This has caused some investors to worry that the reduction of holdings by controlling shareholders might lead to the end of this bull market.

Most share reductions are driven by self-interest, taking advantage of high stock prices to cash out funds. However, this does not have a direct relationship with whether the market can continue to rise. The long-term trend of the market depends more on the combined effects of policies, economy, and capital. Of course, investors should be cautious about companies where controlling shareholders are reducing their holdings, as this may mean that in the eyes of the controlling shareholders, the company's stock price is overvalued.

On the contrary, companies where shareholders are buying, increasing, or repurchasing shares should attract more attention from investors. This indicates that the controlling shareholders believe the company's stock price is undervalued, and the company has value and long-term development potential. Therefore, the behavior of controlling shareholders in increasing or decreasing their holdings can be an important reference for investment, but it is not the key factor in determining whether the bull market can continue. Investors need to be clear about this.

7: What investment opportunities are there for ordinary investors in the current market environment? What risks need special attention?

Yang Delong: The bull market trend in the current market is gradually being established, and many investors are eager to try. However, it is still necessary to pay attention to the rhythm in investment, and the following points are particularly important:

Buy good assets on the rebound: Try to avoid chasing highs, as the cost of establishing a position is very important. Therefore, choose to buy high-quality assets during market adjustments.

Focus on medium and long-term opportunities: Don't focus on short-term operations, as most short-term investments will result in losses. Only by buying at a good buying point in the market and holding for a longer time can you truly seize the opportunities of this bull market.

Never use leverage: Don't harbor illusions. As Buffett said, once leverage is added, time is no longer a friend but an enemy. In the past few years, many investors who used leverage failed to wait for the dawn and fell before the dawn, especially the stampede caused by deleveraging in 2015 is still fresh in memory. Therefore, never borrow money to speculate in stocks.

Treat the stock market as a place for asset allocation: Don't treat the stock market as a tool for short-term speculation. The golden investment period of China's real estate market has passed, and the wealth gap in the future will be more reflected in whether to hold the equity of high-quality companies or high-quality funds. Treating the stock market as a place for equity investment can have a better mentality, grow together with high-quality companies or funds, and achieve wealth growth.

8: On the one hand, stock trading is active, and on the other hand, there are large transfers of certificates of deposit and early withdrawals for stock speculation... Investors are very excited. From the perspective of risk prevention and control, what proportion of family disposable assets is more appropriate for individual investors to enter the market to speculate in stocks?Yang Delong: The significant surge in the stock market has attracted a phenomenon of transferring savings, with many investors who previously did not allocate stocks and funds also hoping to seize the opportunity to make a profit, withdrawing their deposits or large certificates of deposit to open accounts. This behavior of pursuing higher returns is understandable, after all, the interest rates on bank deposits are relatively low, but it is important to pay attention to risks when investing.

Many novice investors lack investment experience and have limited knowledge about stocks and funds. For beginners, it is recommended to allocate no more than 30% of investable funds to stocks and funds, while keeping the majority of funds in low-risk products, such as deposits, money market funds, or bond funds.

For experienced investors or those with a higher risk tolerance, it is appropriate to increase the allocation of equity assets, but it is best not to exceed 50% to avoid the risk of putting all funds into the stock market at once.

Furthermore, some individuals are even considering resigning from their jobs to trade stocks full-time, which is also a high-risk behavior. Market fluctuations are inevitable, and resigning to trade stocks can put individuals in a passive situation. Stock trading should be conducted when there is spare capacity and should not completely deviate from one's main occupation; most people are not suitable to become professional stock investors. Therefore, maintaining a stable job and treating stock investment as a tool for asset allocation and wealth appreciation is a more prudent choice.