• News
• 2024-07-25

Policy to Boost; China Assets Still Favored

A series of policies introduced at the end of September ignited market enthusiasm. After the National Day holiday, both A-shares and Hong Kong stocks experienced a significant correction. What are the main reasons for the correction? What is the long-term development prospect of China's economy? How do institutions view Chinese assets? On this matter, reporters from China Fund News interviewed several domestic and foreign institutional figures. They believe that the fundamentals of China's economy remain solid, and the government has proposed targeted solutions for a series of short-term obstacles to economic growth. As structural reforms continue to advance, the cultivation of new drivers and the transformation of old drivers gradually take effect, and the stock market will see more growth points.

Unexpected yet Reasonable

Regarding the noticeable correction in the market after the National Day holiday, Wang Yi, Chief Economist at Great Wall Securities, believes that the main reason is that the market's expectations for policies before the holiday were overly optimistic, and the actual policies introduced did not reach the market's expected level, leading to a shift in investor sentiment from hot to cold.

In addition, the market had a significant increase earlier, and some investors chose to take profits. The strengthening of financial regulation, such as strictly prohibiting credit funds from entering the stock market in violation of regulations and strictly controlling leverage, indicates that regulators intend to cool down the market, which also increases market uncertainty. The downward pressure on the macroeconomy still exists, with the decline in investment and consumption growth, as well as the weakening of corporate profitability, all exerting pressure on the long-term trend of the stock market.

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In terms of external factors, the global economy still faces many uncertainties, such as the Federal Reserve's interest rate hike expectations, which could trigger capital outflows and market fluctuations.

Moreover, after a rapid rise, the market has the need for technical adjustments, and the valuations of some stocks have deviated from the fundamentals, requiring time for the market to digest these gains.

Wang Yi emphasized that the policy orientation is changing, shifting from stimulating rapid market growth to pursuing a stable slow bull and long bull market, indicating that the policy prefers market stability rather than short-term overheating.

Wang Xinjie, Chief Investment Strategist of the Wealth Management Department of Standard Chartered China, believes that the sharp correction of A-shares on October 9 was unexpected, but also reasonable. This round of growth was a reversal of the market's guidance from the original pessimistic sentiment to the repair of the fundamentals, and the momentum accumulated on the sentiment side overran the reversal of the fundamentals too much, which is very likely to lead to a sharp transition from a significant rebound to a significant fluctuation.

Compared to the sharp rise in the A-share market on October 8, the correction in Hong Kong stocks came a bit earlier. Wang Xinjie pointed out that this was mainly due to profit-taking after the rise during the long holiday, and after the A-shares opened on October 8, some funds rotated to A-shares, resulting in a significant pullback.

The improvement of China's economic fundamentals is accelerating.Wang Xinjie told the reporter: "We maintain confidence in the medium to long-term growth of China's economy. From a series of policies introduced since the end of September, the government has proposed targeted solutions to a series of short-term issues hindering economic growth. For instance, to address the issue of endogenous demand, the government has lowered the interest rates on existing mortgages to reduce the debt burden on residents; for the difficulties faced by the real estate industry, a package of solutions has been proposed. At the same time, the government has introduced innovative tools to provide liquidity to the capital market. Under the targeted policy combination, the process of improving the economic fundamentals is accelerating."

HSBC Global Private Banking and Wealth Management China's Chief Investment Director, Kuang Zheng, pointed out that China's economy is at a critical transformation period. The old development model is facing adjustments, while the new development model is growing vigorously. In the short term, it is normal for structural reforms to bring about some pain, such as adjustments in the real estate market. However, in the medium to long term, structural transformation and new productive forces will lead the development of China's economy.

Wang Yi believes that, overall, the medium to long-term development prospects of China's economy are optimistic, and it is expected to achieve steady growth and high-quality development.

He stated that although the short-term market may experience some fluctuations and adjustments, in the long run, the fundamentals of China's economy remain solid. The government is stimulating economic growth through a series of counter-cyclical regulatory policies, including the coordinated efforts of fiscal and monetary policies, as well as promoting structural reforms to improve economic efficiency and innovation capabilities.

More supportive policies are expected to be introduced.

Wang Xinjie said that on the morning of October 12th, at a press conference held by the State Council Information Office, the Minister of Finance introduced the situation regarding "strengthening the counter-cyclical adjustment of fiscal policy to promote high-quality economic development." Various signs indicate that the fiscal policies expected by the market are being realized.

In addition, the People's Bank of China and the Ministry of Finance have established a joint working group for the central bank's government bond transactions. The profound implication is that under the condition of insufficient total demand, monetary and fiscal policies need to cooperate to achieve the support of monetary policy for fiscal policy.

Wang Yi believes that through the platform of the joint working group, the central bank and the Ministry of Finance can jointly study and promote financial reforms and improve the monetary policy toolkit. At the same time, they can strengthen cooperation in government bond issuance and debt management to improve the efficiency of fiscal fund use. Moreover, the joint working group can also play an important role in maintaining financial market stability, preventing and resolving financial risks, and providing more powerful support and protection for the development of the real economy.

Morgan Asset Management's Deputy General Manager and Chief Investment Officer in China, Du Meng, pointed out that at this NDRC meeting, the capital market was listed as a separate item, reflecting the policy layer's attention to this field. The market is looking forward to the fiscal end's increased efforts, which will lead to the expansion of incremental policy capacity.

Kuang Zheng believes that fiscal policy is still the key factor in reversing China's structural growth prospects. On October 12th, the Ministry of Finance pointed out the direction of fiscal policy's focus at the press conference, and specific plans such as increasing debt limits and raising the deficit ratio are expected to be announced at the end of the month's Standing Committee of the National People's Congress or after the Central Economic Work Conference in December.HSBC Global Research estimates that there is still about 2 trillion yuan of fiscal policy space left for this year, with 1 trillion yuan directly used for economic stimulation and another 1 trillion yuan allocated for potential bank capital restructuring funds and local government refinancing bonds. In addition, the central bank's previous announcement to create stock buyback and increase re-lending, guiding commercial banks to provide loans to listed companies and major shareholders for the purpose of repurchasing and increasing holdings of listed company stocks, is a policy worth paying attention to. The swap facilities for securities, funds, and insurance companies in the innovative structural monetary policy tools are also anticipated; the implementation and use of the stabilization fund are under study.

Wang Yi believes that as policies are gradually implemented, more measures will be introduced to support infrastructure investment, promote consumption, and encourage technological innovation. These policies will help stabilize economic growth, accelerate the pace of industrial upgrading, and create conditions for the cultivation of new drivers. At the same time, the government is continuously promoting financial market reforms, increasing the proportion of direct financing, and reducing corporate financing costs, which is crucial for stimulating market vitality and promoting high-quality economic development.

Chinese assets are expected to perform well in the medium to long term. Despite potential short-term market fluctuations, Wang Yi believes that the stock market is expected to achieve steady growth in the medium to long term. On the policy front, the coordinated efforts of fiscal and monetary policies will help stabilize market expectations and support economic growth. The deepening of financial market reforms will further stimulate market vitality and attract more foreign capital.

Fundamentally, as structural reforms continue to advance, the cultivation of new drivers and the transformation of old drivers will gradually show results, providing growth points for the stock market. Consumption upgrades, technological innovation, and green development will become new engines driving economic growth. At the same time, China's vast domestic market and ongoing urbanization process provide a solid foundation for economic growth.

In terms of market sentiment, Wang Yi believes that as investors' understanding of policy effects deepens and the economic fundamentals gradually improve, market confidence is expected to recover gradually. The uncertainty of the global economic situation may affect market sentiment, but the Chinese government has already taken measures to address these challenges and is enhancing the economy's internal growth dynamics through reforms.

Wang Xinjie stated that in the medium term, as the overall market rises rapidly, volatility will also expand. After trading sentiment gradually returns to normal, the market will sift through the sand, leading to a differentiation between good and bad stocks. From an external perspective, the likelihood of the U.S. cutting interest rates is defensive, which to some extent ensures China's external demand. Additionally, as the Federal Reserve opens the interest rate reduction channel, more funds will flow out of the U.S., providing liquidity support for Chinese assets.

Du Meng believes that currently, A-share valuations are still in a relatively low range. With the implementation of incremental policies and the introduction of incremental funds, emerging industries and green technology fields, which are directed towards high-quality development, may usher in new investment opportunities. In the future, policy support for the capital market and the stable development of the capital market are expected to strengthen investor confidence and promote market stabilization and recovery. Over the long term, high-quality companies are expected to show more sustainable upward trends, and the market may present opportunities to achieve excess returns.

As for which industries deserve special attention, Kuang Zheng believes that the policy's willingness to underpin growth is strong, and significant incremental fiscal policies can be expected in the fourth quarter. According to the latest policy direction, the following themes can be selected for preferential allocation: First, high-growth technology industries and leading enterprises going global; second, under policy stimulus, consumption may be expected to maintain resilience; third, some undervalued dividend assets with state-owned enterprise reform as the main line still have configuration value.Du Meng stated that under the dual impetus of economic transformation and policy support, some outstanding growth companies will return to a reasonable pricing environment, and new quality productive forces such as strategic emerging industries and green technology may become important growth points in the market.

Wang Xinjie believes that investors should consider which industries and companies are more likely to benefit from policy support when allocating stocks. Currently, the government's stimulus and reform measures mainly focus on monetary easing, promoting state-owned enterprise reform, encouraging mergers and acquisitions, and increasing scientific and technological innovation. Therefore, in the early stages of the market trend, the financial services and information technology industries perform better due to their high elasticity to policy changes. In addition, mergers and acquisitions events have become the core factor driving the rise of individual stocks. In the later stages of the market trend, industries and companies with event catalysts and better performance stand out even more.