DDN Business Insider | Positive signals show after NDRC & Ministry of Finance take actions: Will upward trend continue?
Editor's note: Last week, the National Development and Reform Commission (NDRC)and the Ministry of Finance held press conferences in succession. On October 12th, the Minister of Finance Lan Fo'An stated that a comprehensive policy package will be launched soon. With policies strengthening continuously, what changes can we expect in the market? Will the stock market rise sustainably? What factors will influence this?
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang.
The Hong Kong stock market fell sharply at the beginning of last week, while the A-shares had its largest pullback midweek. Last week, the National Development and Reform Commission (NDRC)and the Ministry of Finance held press conferences in succession. On October 12th, the Minister of Finance Lan Fo'An stated that a comprehensive policy package will be launched soon, which will include the below:
- Strengthening support for local governments to mitigate debt risks, with a significant increase in debt quotas.
- Issuing special national bonds to support state-owned large commercial banks in replenishing their capital, enabling better service for the development of the real economy.
- Utilizing local government special bonds, special funds, tax policies, and other tools in conjunction to support the stabilization and recovery of the real estate market.
- Increasing support for special groups, particularly for students in poverty.
With policies strengthening continuously, what changes can we expect in the market? Will the stock market rise sustainably? What factors will influence this? To discuss these topics, we have invited: Ren Libing, founder and president of Beijing Yuanda Investment Co., Ltd., a renowned investor; Song Qinghui, a well-known economist and Guo Shilian, a financial commentator. Welcome, everyone!
【Anchor】The NDRC held a press conference on the 8th and proposed a "package of incremental policies," while A-shares surged and then pulled back after the holiday. Some analysts believe this drop is related to new policies falling short of market expectations. Ms. Ren, what are your views on this? How do you view the strength of the related policies?
The volatility in the A-share market is influenced by numerous factors, including market expectations of the policy strength, macroeconomic data, and international externalities. Short-term market fluctuations do not fully reflect the strength of the policies. We should pay more attention to the long-term effects of the policies as well as changes in market fundamentals. In terms of policy content, recent measures have mainly focused on 5 areas: enhancing macroeconomic policy adjustments, expanding effective domestic demand, increasing support for construction enterprises, stabilizing the real estate market, and boosting capital market. These policies reflect our government's high awareness and proactive approach to new conditions and problems in economic operations.
In addition, these policies focus on pinpointing and addressing both current challenges and medium to long-term economic developments in a systematic manner. Moreover, they reflect a forward-looking and problem-oriented strategy, aiming to provide robust support for a sustained recovery of the economy.
【Anchor】Mr. Song, how do you view the series of policies introduced by the NDRC?
On October 8th, the NDRC introduced a package of incremental policies at their press conference, aimed at promoting a sustained economic recovery. I believe the effects of these policies will be positive, but the implementation will take time. Hence investors might feel that A-shares' pullback is due to the policies failing to meet expectations. Overall, the NDRC's policies are unprecedented in their strength. For instance, medium to long-term capital is guided directly into the market, connecting the dots between social security, insurance, and wealth management industries, supporting mergers and acquisitions of listed companies, and steadily advancing reforms in public funds. It will greatly boost the capital market and investor confidence, but the process will take some time. Investors should be patient while waiting for the market to recover.
【Anchor】Indeed, JP Morgan noted that since mid-September, the forward P/E ratio of the Chinese stock market has rebounded close to historical averages, reflecting decent expectations for fiscal stimulus policies. Mr. Song, do you think market sentiment is more influenced by the strength of policy?
I think that the market can indeed be described as a "policy market". First, policy adjustments directly affect market sentiment and trends. Second, signals released by relevant institutions regarding economic policies significantly impact the market - the stronger the policy support, the greater the investor confidence. Given that the A-share market is predominantly constituted by retail investors, a "policy market" phase is somewhat inevitable to protect their interests. In fact, I would even go so far as to say that all global stock markets, including the U.S., are currently "policy markets."
【Anchor】There is an opinion that the current A-share market is a "policy market." Mr. Guo, what are your thoughts on this view? Besides policy factors, what do you think might influence market trends?
To a certain extent, the A-share market is indeed influenced by the policy environment, but it is not entirely a policy-driven market. For instance, after the reduction in stamp duty last year, the A-share policy environment substantially improved. However, this improvement did not lead to an upward trend in the stock market. In fact, A-shares hit a new low of 2635 in February 2024. This indicates that the A-share market is not entirely a policy-driven market, but rather one that is predominantly led by capital. Therefore, when there is a significant change in capital dynamics, the influence of economic fundamentals and policy environments may weaken. Thus, the A-share market is primarily a capital-driven market.
【Anchor】So, Ms. Ren, do you think the current market is a "policy market"?
China's financial market has been established for a relatively short amount of time, and the relevant laws, regulations, and market mechanisms are still evolving. Policies play an important guiding role in the development and stability of the market. However, the market's trend is ultimately determined by a combination of factors, including economic fundamentals, corporate profitability, and investor expectations. Policies are just one factor influencing the market and cannot entirely dictate its direction.
【Anchor】Currently, market sentiment is quite buoyant. Last week, trading volumes broke records on multiple days, and new investors rushed to enter the market. Ms. Ren, how do you view the current changes in market sentiment? Is there a risk of overheating?
Indeed, the current market sentiment is quite fervent, reflecting a sudden surge in investor confidence. A series of national policies and adjustments in monetary policies exceeded all market expectations, and led to a trading frenzy. However, this enthusiasm accumulates risks such as asset price bubbles and irrational investor behaviors. While a heated market sentiment may drive short-term price increases, investors should remain cautious, avoid the blind following, and focus on fundamental analysis while managing risks effectively.
【Anchor】Mr. Guo, do you believe there is a risk of overheating in the current market?
Indeed, we observed that on the first trading day after the holiday, the A-share market's single-day trading volume reached 3.45 trillion Yuan. Many new investors opened their accounts during the National Day holidays, and started to trade as soon as market reopened on October 9th. Since new investors just entered the market, the excitement is still fresh. Currently, while the market is showing strength, if it does not fall below the bull-bear demarcation line or the five-day moving average, it remains in a bullish trend. According to the bull-bear demarcation definition, if the market rises 20% from 2689 points, it reaches 3226.8 points, marking a critical position. In my view, if the A-share market does not drop below significantly this bull-bear line, and the average daily trading volume remains above one to two trillion yuan, the market will continue to display a strong oscillation trend.
【Anchor】According to personnel from mainland brokerage firms, over 70% of newly opened accounts recently are from investors born in the 2000s and 1990s. Some brokerages even arranged staffing during the National Day holiday for account openings. Mr. Song, do you think investors have overly high expectations for the market? What characteristics does this reflect in the behavior of young investors?
Currently, there is indeed a problem of overheating in the market. First, a series of favorable policies have changed investors' expectations of the market, greatly boosting their confidence and encouraging them to invest. It is evident from the phenomenon of new investors rapidly opening accounts and entering the market. Secondly, market sentiment is high, with significant enthusiasm from leveraged funds and individual investors. At the same time, regulatory authorities are closely monitoring the situation. For example, some departments are concerned that bank credit funds entering the stock market may become trapped and cause irrevocable risks.
【Anchor】Yes. Multiple press conferences were held last week. Mr. Song, how do you view of these official actions?
This year, the basis for recovering the Chinese economy is not yet solid, and the market has great expectations for the next steps in fiscal policy. It can be seen from the recent series of official actions that the resilience of the Chinese economy remains strong. The goal of around 5% economic growth is achievable.
【Anchor】Mr. Guo, what impact do you think the upcoming fiscal policies will have on the A-share market?
Recently, the central bank is actively working on monetary policies, but fiscal measures still need to be established. If fiscal policies can work together with key policy measures, it could bring substantial uplifting effects to the A-share market and extend the current market rally. Overall, the policies and monetary environments for the A-share market have changed, especially following the Fed's interest rate cuts.
【Anchor】Mr. Song, which information from the series of meetings after the holiday do you think investors are paying the most attention to?
I believe that the focus on preventing and resolving local debt risks should be of particular concern, as it is an important task for China. It impacts the overall development of the Chinese economy and fiscal security. Currently, China is facing the challenge of resolving local debt, such as the urgent need to restructure bad debts and to lower interest rates below inflation and public growth rates. Only by addressing local debt issues can the vitality of the Chinese economy be further unleashed, thereby allowing the A-share market to stabilize and thrive.
【Anchor】OK, last week, Hong Kong stocks displayed a high level of volatility. Mr. Song, what do you think is the reason behind this? How do you view the future trend of Hong Kong stocks?
The pullback in Hong Kong stocks last week was primarily caused by the significant fluctuations within the technology and real estate sectors, which greatly affected overall market sentiment. In general, although there may be some fluctuations in the short term, the future trend of Hong Kong stocks is likely to maintain an upward trajectory. I previously emphasized that investors should not overly focus on daily stock market fluctuations; a diversified investment strategy remains crucial in today's capital market.
【Anchor】Yes, last Tuesday, the Hang Seng Index and the Hang Seng Technology Index nearly erased the gains made during the National Day holiday. With such large fluctuations, how do you see the future of Hong Kong stocks, Ms. Ren? Can the market maintain an upward trend?
Previously, Hong Kong stocks experienced substantial gains due to a series of favorable policies. Some investors chose to reduce their holdings to lock in profits, leading to price corrections. Looking ahead, Hong Kong stocks still hold investment value and upward potential in the long term. On the one hand, as the U.S. dollar interest rates decline, Hong Kong stocks have become more attractive to foreign capital, which is expected to improve liquidity. On the other hand, the continued recovery of the Chinese economy and supportive policies will provide a favorable development environment for companies in the Hong Kong market. Additionally, there are some high-quality companies in the Hong Kong market with strong competitiveness and profitability, and their stock prices should continue to recover. However, in the short term, the Hong Kong market may be jerky, affected by various factors.
【Anchor】For A-shares, Mr. Guo, do you think they will continue to rise or enter an adjustment phase? What factors do you believe will lead to this?
The A-share market is currently above the bull-bear demarcation line. However, since the A-share market first broke through 3000 points in 2007, it has oscillated around the 3000-point mark for 17 years. The range from 3000 to 3500 points has been an important operational pivot for the A-share market over the past two decades, and this pivot point is gradually rising. However, a significant accumulation of capital is trapped between positions the range of 3400 to 3700 points. I believe that with the market now finally gathering a trading volume of two to three trillion yuan, it needs to make a strong push to break through this dense area of trapped positions. Otherwise, the market could enter an adjustment phase once again, and if trading volume falls back below one trillion yuan, it will significantly increase the difficulty of breaking through the positions in the future.
【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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