DDN Business Insider | Turning point for stock appears after property-related policies implemented: Will its upward momentum continue?

Editor's note: There has been a series of continuous positive news for the market in the past few days. Last week, the Central Bank of China announced a series of policy changes, including Reserve Requirement Ratio (RRR) cuts, interest rate cuts, discounts on existing mortgage rates, and the establishment of new policies. Later, the Central Political Bureau held a meeting to deploy further economic tasks.

【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. There has been a series of continuous positive news for the market in the past few days. Last week, the Central Bank of China announced a series of policy changes, including Reserve Requirement Ratio (RRR) cuts, interest rate cuts, discounts on existing mortgage rates, and the establishment of new policies. Later, the Central Political Bureau held a meeting to deploy further economic tasks. How will these regulatory measures impact the Chinese economy? To discuss this topic, we have invited renowned finance professional Li Daxiao;

Dong Shaopeng, Senior Researcher at the Renmin University Chongyang Institute for Financial Studies, policy expert in the Chinese stock market;

and Lu Bingjun, Chief Strategist at Futu Securities (Hong Kong), to provide commentary and analysis. Welcome, everyone!

【Anchor】A series of stimulus measures are driving the Hong Kong and A-share markets to capture a significant portion of lost ground. Considering the recent overall performance of the stock market, I would like to ask Mr. Li how you view the impact of these measures on the Hong Kong and A-share markets and what the future trends might be.

This week's market performance can be described as a buying frenzy. The impact of these market stimulus measures is not a short-term reaction but rather a reaction from the comprehensive set of policies. I believe the overall stock market has entered into a reversal trend from earlier declines, rather than just a rebound. The Hong Kong stock market has already shown clear signs of support and revitalization, which is a relatively evident reversal from before.

I think the combination of new policies has really exceeded market expectations. Measures such as interest rate cuts and the central bank's establishment of new financial tools to support the stock market contribute to a positive outlook for the future.

【Anchor】Alright, Mr. Dong, how do you evaluate the impact of the central bank's series of measures on the capital market?

After the China Securities Regulatory Commission and the People's Bank of China released their new policies in quick succession, the capital market experienced a significant upward shock. This indicates that the stock market is about to enter a turning point. In the past few months, the capital market has faced severe liquidity shortages, and contradictions related to supply and demand imbalances have become particularly pronounced. By releasing monetary liquidity and creating the new policies aimed to serve the capital market, such as repurchasing and increasing loans and swap facilities, the government has allowed more access to more funds and liquidity for market participants. This can, in turn, alleviate the pressures of insufficient tools and fund in the capital market.

【Anchor】Yes, after the central bank governor Pan Gongsheng announced the series of economic stimulus measures last week, both the Hong Kong and A-share markets surged, with the Shanghai Composite Index posting its largest single-day gain in over four years. Mr. Lu, how do you view the impact of these stimulus measures on the Hong Kong stock market?

The series of measures in the mainland, including rate cuts and discounts in overall mortgage rates, have had a positive impact on the Hong Kong stock market. These measures aim to release liquidity and to reduce financing costs, thereby boosting market confidence and economic activity. For example, the interest rate cuts serve to improve the credit environment for banks, which then leads to an increase in loan growth and subsequently stimulate the economy. Meanwhile, lowered mortgage rates may help to alleviate the financial pressure of real estate owners, stabilizing the demands of the real estate market.

【Anchor】Alright, Mr. Lu, do you believe that the Hong Kong stock market has already shown signs of a "bottoming out" rebound? What are your predictions for the market'sshort-term trends?

After a period of adjustments, the Hong Kong stock market has recently shown significant gains. I believe this is mainly due to the policy measures that are providing a substantial boost for market confidence, leading to increased capital inflow. This trend seems to be more than just a rebound; it indicates the beginning of a larger upcoming upward trend. However, it's still early to call it a bull market, as the effects of these measures will take time to materialize. Currently, the positive impact of the policies is more of a feedback effect rather than an immediate outcome, so we need to observe whether this trend can be sustainable in the long term.

【Anchor】Alright, Mr. Dong, do you believe the overall market has achieved a reversal?

We still need to further streamline our fundamental regulatory systems, particularly regarding IPOs, and improve the supporting mechanisms related to pricing and long-term capital investments. The market imbalance has persisted for some time, and will need to go through a process to rectify. It's not possible to achieve a complete reversal with simple policy changes.

【Anchor】OK, the recently announced measures have brought many surprises to the market. Mr. Li, what are your thoughts on the background and considerations for launching these stimulus measures at this time?

There are several contexts for these measures. First, A significant goal of these measures is to provide support for the relatively weak real estate market. The include lowering the mortgage rates for existing homeowners, reducing the down payment ratio for second-home owners, and accumulating land for real estate. All these activities help stabilize the real estate market. A strong support for the real estate market can accelerate the process of "bottoming out". For the stock market, these considerations can lead to a reversal, which will play a crucial role in stabilizing the economy.

【Anchor】Yes, Mr. Li, amongst the series of measures announced this time, which new policy tools are noteworthy and what effects are expected?

The central bank's recent comprehensive set of policy packages is quite unprecedented. I believe the initial 800 billion yuan, including loans and swap tools, represents a significant innovation and strong support for the stock market. The stock market is expected to react very positively to it, and this reaction will not just last a fleeting moment. Instead, It will provide unprecedented support for liquidity flow, as these funds have been designated specifically to be used in the stock market. This is in stark contrast to previous instances where bank credits could not flow back into the stock market. This unprecedented policy will fundamentally affect the trajectory of the stock market. It should be a long-term effect, helping to attract long-term capital, and significantly improving the overall market liquidity. Thus, this can be viewed more as a reversal rather than a rebound.

【Anchor】Alright, Barclays economists have suggested that the central bank may release more positive measures through interest rate cuts and RRR reductions in the coming months. Coincidentally, last week, the People's Bank of China announced a 300 billion yuan MLF operation. Mr. Li, what policy measures do you anticipate will be introduced in the future?

I believe we may soon implement a 0.5% cut in the reserve requirement ratio, and there may be additional reserves for a 0.25% to 0.5% cut in the RRR. These policies will provide more support and assurance for subsequent policy operations, significantly improving market confidence and expectations. More importantly, these discussions about stabilization funds and other measures are unprecedented. We can also see the commitment from various ministries, showing confidence, determination, and capability to achieve these annual goals. In the next phase, there may be further incremental policies that are tangible and observable. I believe these incremental policies will greatly enhance market confidence and ensure the completion of the annual targets, providing significant support for stability.

【Anchor】Good, I would also like to ask Mr. Dong about the key measures introduced for the real estate market. How do you evaluate them, and what impact do you expect will they bring to the mainland real estate market?

In the real estate sector, long-term accumulated issues have concentrated to materialize in the past couple of years. The main issues include long-termed elevated housing prices, over-leverage in the market, and high turnovers and inventory of the industry. Now, digesting the existing housing inventories of small and medium-sized real estate companies will be necessary going forward. Local governments are raising funds to purchase these unsold properties for affordable housing projects, this is the solution for the problem. However, it is unrealistic to purchase all poor performing properties. Therefore, debt issues caused by the real estate sector and the risks faced by real estate companies will require some time to resolve. These policies can only provide assistance and guidance.

【Anchor】Yes, Mr. Li, do you believe that the measures concerning real estate will have a positive impact on the weak market?

Overall, the strength of the policies aimed at the real estate sector is relatively significant. In fact, the impact is quite substantial for not only the real estate market, but also the stock market and the overall economy. The concentrated releases of such strong policies should have very positive effects on the real estate market, the stock market, and bring stability to the overall economy.

【Anchor】Good. After the announcement of recent policies, Hong Kong-listed real estate stocks have seen a series of jumps. Mr. Lu, do you think that domestic housing stocks will see a turning point for the better?

I believe the policies announced on September 24th regarding the bull market will have a tremendous impact on Hong Kong-listed real estate stocks. Lowering the overall mortgage rates, standardizing the minimum down payment ratio, and extending the duration of real estate financial policy documents are all aimed towards stabilizing the real estate market and reducing financing pressure on real estate companies, thereby improving market expectations. Specifically, lowering the overall mortgage rates will ease the burden on homebuyers and will lead to a sales rebound, which can improve the cash flow of real estate companies. Additionally, policies supporting the acquisition of land by real estate companies will help to mitigate risks and drive the industry into a positive market cycle. However, investors also need to be aware that the inventory of unsold properties in the mainland is still substantial. The structural issues cannot be easily changed solely by policies. We need to wait for the bull market to build confidence and to digest enough housing inventories before the mainland real estate market can sustainably recover and grow.

【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.

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