The “policy package” continues to ignite the market

The ChiNext Index surges by 10%, setting a record for the largest single-day gain, as the Shanghai Stock Exchange system is overwhelmed... On September 27th, A-shares once again "witnessed history."

Continuing the upward trend, A-shares saw a transaction volume of over 1.4 trillion yuan today, with more than 5,200 stocks turning red. By the close, the Shanghai Composite Index rose by 2.89%, closing at 3,087.53 points; the Shenzhen Component Index jumped by 6.71%, closing at 9,514.86 points; the ChiNext Index soared by 10%, closing at 1,885.49 points.

Hong Kong stocks also performed impressively. The Hang Seng Index increased by 3.55%, regaining the 20,000-point mark, with intraday transaction volume exceeding 440 billion yuan, setting a new historical record.

The counteroffensive began on September 24th. In just four trading days, the Shanghai Composite Index accumulated an increase of 11.81%, surging from over 2,700 points to nearly 3,100 points. The Shenzhen Component Index and the ChiNext Index showed even stronger momentum, with cumulative gains of 16.72% and 21.58%, respectively.

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The "Policy Mega-Package" Ignites the Market

The release and intensification of the "Policy Mega-Package" have sparked this powerful rebound.

On September 27th, the central bank announced that, starting from today, the reserve requirement ratio for financial institutions would be reduced by 0.5 percentage points (excluding financial institutions that have already implemented a 5% reserve requirement ratio). After this adjustment, the weighted average reserve requirement ratio for financial institutions is approximately 6.6%.

This is the first favorable policy to take effect among the several major policies announced on September 24th. Further measures are on the way, including a 0.2 percentage point reduction in the 7-day reverse repo operation rate, a reduction in the existing mortgage loan interest rate (with an average decrease of 0.5 percentage points), and the creation of new monetary policy tools.

On September 26th, the Politburo meeting once again mentioned the need to invigorate the capital market. On the same day, the Central Financial Office and the China Securities Regulatory Commission jointly issued the "Guiding Opinions on Promoting Medium and Long-Term Capital into the Market." Huaxia Fund believes that this is in line with the series of capital market policies on September 24th, resolving market disagreements and conveying a significant determination to boost the capital market.

"In terms of investment strategy for the A-share market, during the continuous policy intensification period, it is expected that the market will remain in a golden time window for sustained recovery," Golden Eagle Fund mentioned. Since mid-September, after the index retraced to the low point of the year and gradually stabilized, internal and external catalysts favorable to the stock market began to emerge densely. Expectations for a soft landing overseas have heated up, the Federal Reserve's unexpected interest rate cut has opened up domestic policy space, and expectations for domestic growth-stabilizing policies have significantly increased.Golden Eagle Fund believes that, on the emotional and capital levels, under the catalysis of intensive significant policies, market risk appetite is significantly warming up, and right-side traders are beginning to re-enter the market quickly, driving the index to rise continuously. "At present, after the index has risen significantly with increased volume, it has already broken through the previous downward channel. The A-share market may usher in a new phase of dual-wheel drive where investor risk appetite continues to rise and expected corporate earnings are likely to improve."

Morgan Stanley Fund points out that after a short-term rapid increase, the valuation of the A-share market has been repaired to some extent. However, from an absolute level, the static PE of the CSI 300 index still has strong appeal, only 12.3 times, while the S&P 500 index is 28 times, and the Nikkei 225 is 20.9 times. Therefore, the A-share market still has significant room for repair.

"Subsequently, attention needs to be paid to the progress of policy implementation and the strength of fiscal policy. The political bureau meeting held yesterday proposed to increase the counter-cyclical adjustment strength of fiscal and monetary policies to ensure necessary fiscal expenditure. There is a high possibility of fiscal policy intensification in the fourth quarter. If it can be implemented, it will provide good support for the market." Morgan Stanley Fund said.

"Oversold sectors" attract attention.

With the continuous increase of policy, many fund companies suggest paying attention to "oversold sectors."

In terms of structural selection, Nanfang Fund is optimistic about the core assets of A and H shares, which are directly benefited from economic recovery and liquidity improvement in the medium and long term, and have stable operations and reasonable valuations, such as high-quality leading companies corresponding to A50 and Hang Seng Technology. In the short term, sectors such as consumer goods and real estate industry chains, which have fallen more before, have higher elasticity in short-term rebounds.

"Considering that the introduction and implementation of policies still require time, and the improvement of the economic fundamentals cannot be achieved overnight, while the market rises rapidly, the fluctuation is significantly amplified. It is recommended that investors control their positions and participate rationally." Nanfang Fund said.

Golden Eagle Fund believes that in the short term, it is sustainable to focus on oversold rebound sectors, with core dividends, going abroad & global resource products, and central leverage increase as medium-term directions. The reason is:

When A shares are oversold and repaired, the market reversal effect will be more significant in the short term - sectors that have fallen more before (mainly concentrated in the direction of domestic demand) are expected to rise more. Logically, this is the repair of risk appetite and the replenishment of liquidity. At the same time, the non-bank sector also greatly benefits from the significant improvement in transaction volume.

Core dividends, going abroad & global resource products, and central leverage increase sectors remain medium-term directions. Core dividend assets still have configuration value after sufficient adjustment in the previous period; going abroad & global resource products have cost-effectiveness, and when overseas soft landing expectations rise and domestic exports continue to be resilient, it is expected that the stock price will be repaired.Regarding the central leverage direction (military industry, home appliances, automobiles, etc.), as an important means for policy intensification, it is recommended to continue to focus on the increase in government orders (military industry, etc.), government subsidies to stimulate (home appliances, automobiles, etc. supported by the policy of exchanging old for new), and other directions that clearly benefit.

Huaxia Fund suggests paying attention to the non-bank sector, "Important meetings have spoken consecutively. At this stage, what is mainly repaired is the risk preference and liquidity pressure. Therefore, it is necessary to focus on industries that are not in a hurry to get a quick verification of the basic situation. The policy landing and playing a role still need time. The repair expectation, financial first, we believe that the non-bank sector is the core benefit sector of this policy's positive shift."

For this judgment, Huaxia Fund has provided two sets of data:

First, from the perspective of the basic situation, the basic situation of the securities industry has bottomed out. Each business line has been significantly affected this year, and the industry has entered the era of integration. The valuation after the rebound is still at 14% of the historical position.

Second, from the perspective of public fund holdings, the proportion of public funds allocated to securities has reached a historical low. In the second quarter, the proportion of active equity public funds allocated to securities A-shares was 0.28%, a decrease of 0.19pct quarter-on-quarter, and the lowest quarterly allocation ratio since 2011. The industry is under-allocated by 2.99pct, and the under-allocation ratio has expanded by 0.02pct quarter-on-quarter.

Huaxia Fund believes that the main reason for the ultra-low allocation of the securities sector is the previous strong industry regulation combined with the market downturn. However, the proportion of public holdings in the securities sector has reached a new low in nearly ten years, which may have fully reflected the bearish brought by strong regulation and market prosperity.