In the recently concluded trading week (October 8th to October 11th), the A-share market provided a significant lesson in investment education for both new and experienced investors, with the well-known ten-character theme:
The stock market is risky; invest with caution.
Taking the Wind All A Index as an example, over the course of four trading days, the total market turnover exceeded 10 trillion yuan. From Tuesday's opening to Friday's closing, there was a cumulative decline of 13.3%, which is a 4.04% decrease compared to the pre-holiday period (September 30th).
Only 583 individual stocks ended the week higher, a stark contrast to the widespread gains seen in the two weeks prior (with only one trading day on September 30th).
Some investors believe that the market's turning point was the drop on Tuesday morning, which was related to the National Development and Reform Commission's press conference held that same morning. According to reports, although the conference did not explicitly propose the "major stimulus policy" anticipated by some market participants and suggested by some economists, it outlined the full picture of a "package of incremental policies."
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However, upon reflection, such a simplistic attribution may have misused expressions like "falling short of expectations" and overlooked the market's inherent patterns—the continuous rise before the holiday had accumulated a significant amount of profit-taking positions; and the "epic" gap-up on Tuesday stirred market sentiment to an unprecedented level, inevitably intensifying divergences.
Hindsight being 20/20, those who cashed out on Tuesday truly embodied the principle of "selling when the crowd is at its noisiest."
But, after this week's decline, is the bull market truly over? Clearly, many do not think so.
More importantly, this weekend, the Ministry of Finance's press conference also sparked debates over "whether it met expectations." From professionals to stock trading groups, everyone has their own perspective.
After all, looking back before the holiday, the "924" monetary and financial policy's relaxation beyond market expectations, the "926" Central Political Bureau meeting, and the introduction of a series of policies, all contributed to driving the market upwards.It can be said that policy expectations are closely related to the trend of this round of market movements.
Overall, as the news continues to ferment, the voices of "beyond expectations" or "in line with expectations" gradually become the mainstream, and the panic brought by the continuous adjustments this week has also eased to some extent.
Therefore, we clearly believe that at least at the beginning of tomorrow's market, there is a high probability that A-shares will see a recovery. However, there are also differences in the strength of the recovery, and what investors need to do is to carefully identify and follow the market: is it a strong counterattack, or "a ball bouncing three times after hitting the ground"?
1) How to understand the Ministry of Finance press conference on Saturday?
2) What impact will it have on the subsequent trend of A-shares?
On Saturday morning, the Minister of Finance, Lan Fuan, introduced the situation related to "increasing the counter-cyclical adjustment of fiscal policy and promoting high-quality economic development". There are already 14 concise points on the internet, if you are still relatively unfamiliar with it, you can briefly review it first.
1. China's fiscal has enough resilience, and through comprehensive measures, it can achieve a balance of revenue and expenditure and complete this year's budget target.
2. Introduce a package of incremental policies:
① Support local governments to resolve implicit debt;
② Support large state-owned commercial banks to replenish core tier-one capital;3. Support efforts to stabilize and reverse the decline in the real estate market;
4. Increase support and protection for key groups, etc.
3. In our work, we must raise fiscal revenue in accordance with laws and regulations, and avoid collecting "excessive taxes" to effectively protect the rights and interests of business entities.
4. In 2024, the central finance will arrange more than 10 trillion yuan in transfer payments to localities, using more funds to replenish local financial resources and support local efforts to ensure the basic "three guarantees" at the grassroots level.
5. Guide localities to use budget stabilization adjustment funds and other funds to ensure the needs of fiscal expenditures.
6. Plan to increase the debt limit on a one-time basis to a larger scale, replace the local government's existing hidden debt, and increase efforts to support localities in resolving debt risks.
7. Encourage localities with conditions to revitalize idle assets and strengthen the management of state-owned capital benefits.
8. Make full use of all types of debt funds. Currently, the issuance of government bonds is being accelerated for use, and ultra-long-term special government bonds are being issued for use in batches. In the next three months, there are 2.3 trillion yuan of special bond funds available for use across the country.
9. Plan to increase the debt limit on a one-time basis to a larger scale, replacing the local government's existing hidden debt.
10. We are urgently studying and clarifying the cancellation of the value-added tax policy that connects the standards of ordinary and non-ordinary residences.11. In 2024, the minimum standard for the basic pension for urban and rural residents was further increased, marking the largest adjustment幅度 in history. The overall level of retirees' pensions was raised by approximately 3%.
12. The next step for special-purpose bonds will focus on studying the expansion of their use and improving management mechanisms.
13. In 2024, the number of national scholarship awards will double.
14. It is planned to introduce a batch of mature and tangible reform measures in the next one to two years, such as improving the budget system and perfecting the fiscal transfer payment system.
China Galaxy Securities stated that this meeting summarized the implementation of proactive fiscal policies this year. Overall, the implementation of proactive fiscal policies has been effective. The Ministry of Finance will introduce a series of targeted incremental policies in the near future, demonstrating the government's positive response to the current economic situation, and subsequent incremental policies are expected to continue to intensify.
In terms of market impact, it believes:
(1) Increasing the counter-cyclical adjustment strength of fiscal policy and promoting high-quality economic development is conducive to improving macroeconomic expectations, boosting investor confidence, and leading to an initial increase in A-share market valuations. As the economic fundamentals improve, the repair of listed company performance will further drive the A-share market upward.
(2) Special treasury bonds supporting large state-owned commercial banks to replenish their core tier-one capital are directly beneficial to large state-owned commercial banks, helping to drive an increase in bank stock valuations and fostering a rise in bank stocks.
(3) Regarding real estate policies, on one hand, they are conducive to enhancing expectations for the real estate market to stop falling and stabilize. On the other hand, after the policies are implemented, they are beneficial for promoting stable development in the real estate sector. As real estate policies are adjusted and market mechanisms are gradually improved, the market is expected to gradually recover.
(4) Studying the expansion of the use of special-purpose bonds highlights the long-term allocation value in strategic emerging industries and future industries.Huajin Securities believes that the overall tone of the press conference was positive, with active expressions regarding the implementation space of fiscal policy and the resolution of local debt risks.
The points that exceeded expectations were: debt resolution, real estate, replenishment of bank core capital, private enterprise taxes, and the "three guarantees" policy expressions.
What was in line with expectations were the expressions regarding policies on healthcare, education, and consumption.
It proposed that the clear tone of fiscal effort may boost the short, medium, and long-term trends of the A-share market.
(1) In the short term, after the A-share market rises and falls, it is expected to stabilize due to policy stimulation. First, historically, the market's trend after a significant increase in volume is mainly influenced by policy and fundamentals; second, the policy expressions at this press conference were positive, which is expected to dispel investors' concerns about policy effort and the weaker economic fundamentals.
(2) In the medium term, the medium-term logic that policy effort leads to an increase in stock market valuation is further confirmed.
(3) In the long term, the possibility of meeting the fundamental conditions required for a bull market increases. First, both policy and liquidity conditions are in place. Second, fundamentally, fiscal policy effort may increase profit growth and promote the confirmation of the fundamental conditions for a long-term bull market.
The Tianfeng Securities Wu Kaida team referred to this press conference as a "timely rain after a long drought", stating:
Last July, the Politburo meeting proposed a "package of debt resolution plans". This press conference had many expressions on local debt resolution, among which Minister Lan mentioned that the Ministry of Finance arranged more than 2.2 trillion yuan of local government bond quotas for 2023 to support localities, especially high-risk areas, in resolving existing debt risks and clearing overdue corporate accounts. This year, 1.2 trillion yuan of funds have also been arranged. At the same time, Minister Lan stated the intention to increase the debt limit on a one-time basis to replace the existing implicit debt of local governments and to increase support for local debt risk resolution.
"This is undoubtedly a timely policy rain, which will greatly reduce the pressure on local debt resolution. We believe that in combination with previous expressions such as the increase in the deficit ratio, the National People's Congress may announce the local debt resolution plan and how the central finance will achieve the budget target this month."Additionally, due to the need for the Standing Committee of the National People's Congress (NPC) to approve budget adjustments and the issuance of additional government bonds, it is necessary to closely monitor the NPC. "We anticipate that the Central Economic Work Conference in December is likely to build upon the Q4 foundation and further set the tone for counter-cyclical measures for next year."
On the fund company front, Invesco Great Wall Fund stated to the media that although the press conference did not directly mention the specific scale of incremental fiscal tools that the market was expecting, the overall stance was quite positive, with several new expressions and an emphasis on expectation management. It is anticipated that this will boost market confidence and clearly demonstrate the government's determination to intensify counter-cyclical adjustments. The Ministry of Finance has clearly indicated that it can achieve the annual budget targets, which suggests that fiscal expenditure intensity in the coming months is expected to increase, better supporting economic stabilization and recovery.
"A more proactive stance is the Ministry of Finance's indication that there is still significant room for central government debt and deficit, which is what the market has been looking forward to in terms of increased central fiscal efforts. Although no specific scale was mentioned, it fully demonstrates to the market the fiscal capacity and willingness, and market confidence is expected to be enhanced."
JPMorgan Asset Management believes that this press conference conveyed the government's positive side in fiscal policy. In addition to the already planned high-scale fiscal expenditure, it emphasized that there is still considerable room for central government debt and deficit expansion, reserving space for future fiscal policy reinforcement.
Returning to the market itself, Zheshang Securities stated that with the market's recent fluctuations, the first rapid phase of the "924 market" has most likely passed. Currently, with the rapid decline in trading volume and the outflow of short-term profit-taking, the market has entered the second stage of consolidation.
However, they are not pessimistic about the medium-term market. At present, the Shanghai Composite Index has retraced to the 0.5 Fibonacci level of this round of increase, and the adjustment space is already quite sufficient. It is expected that there is no further significant downward risk in the short term, and the current focus is on the gradual improvement of time and structure.
In terms of position allocation, based on their continued optimism about the continuity and height of this round of the market, it is recommended that investors who have reduced their positions at high levels after the holiday and those who have insufficient positions previously, can take advantage of this round of pullback to allocate at lower levels.
Regarding industry allocation, they believe that after the first phase of a general rise, industry sectors have already differentiated. It is important to adhere to the "finance + technology" main line and closely monitor the directions that fiscal policy may benefit.