The recent package of policies is conducive to improving domestic liquidity and will also promote a further recovery of the economic fundamentals by stabilizing the capital and real estate markets.

Under the joint efforts of multiple departments to stabilize market expectations, the A-share market has witnessed a long-awaited surge.

On January 25th, the A-share market continued its rebound throughout the day, with 4,884 stocks rising, accounting for 91.5%. By the close, the Shanghai Composite Index successfully reclaimed the 2,900 point mark, closing at 2,906.11 points, up 3.03%, marking the largest increase since March 2022. The Shenzhen Component Index rose by 2%, and the ChiNext Index increased by 1.45%. The turnover of the Shanghai and Shenzhen stock markets reached 891.5 billion yuan, an increase of 124.6 billion yuan compared to the previous trading day. Northbound capital net purchased 6.294 billion yuan throughout the day.

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On that day, stocks with "China" in their names collectively exploded, with China Petroleum achieving its first daily limit up since July 2015, and more than 20 stocks including China Unicom, China Communications Construction, and China Railway Construction & Engineering soared to their daily limit.

Multiple pieces of positive news have boosted market confidence. On January 24th, the State-owned Assets Supervision and Administration Commission (SASAC) emphasized that central enterprises should strengthen market value management, focusing on shareholding increases, buybacks, and dividends. Wang Jiangnan, the vice chairman of the China Securities Regulatory Commission (CSRC), responded to stock market fluctuations, clearly proposing "to build a capital market centered on investors." In the afternoon of the same day, the People's Bank of China (PBOC) announced a reserve requirement ratio (RRR) cut. Governor Pan Gongsheng stated that a 0.5 percentage point reduction in the reserve requirement ratio on February 5th would provide 1 trillion yuan in long-term liquidity to the market.

"After the State Council Executive Meeting (referred to as 'the Executive Meeting') listened to the report on the operation of the capital market and work considerations, the CSRC, PBOC, Financial Regulatory Administration, and State-owned Assets Supervision and Administration Commission have successively introduced a package of policies, leading to a significant repair in the expectations of the capital market," said Zhang Jun, Chief Economist at Galaxy Securities.

Dong Zhongyun, Chief Economist at AVIC Securities, told Caijing that the concentrated release of a series of policy benefits fully demonstrates the government's firm determination to maintain the stable operation of the capital market, aiming to reverse the pessimistic sentiment in the capital market and boost the confidence of domestic and foreign investors in the long-term and healthy development of the capital market.

"Looking at the economic data recently, there has not been a significant change. The rapid decline of the Shanghai Composite Index should mainly be the release of pessimistic sentiment. Therefore, the recent rapid rebound in the market should be more driven by the repair of sentiment and expectations after the policy side has intensively released positive signals," Dong Zhongyun said.

After bottoming out and a deep V-shaped rebound, the A-share market has seen a strong rebound. After recently falling to over 2,700 points, the A-share market once made headlines due to continuous short-term declines. However, since January 23rd, the A-share market has shown signs of counterattack, with the Shanghai Composite Index closing in the red on that day, closing at 2,770.98 points, up 0.53%, stopping the downward trend. The next day (January 24th), the A-share market staged a deep V-shaped rebound, reclaiming the important 2,800 point threshold, with the Shanghai Composite Index closing at 2,820.77 points, up 1.80%.What factors have driven the recent counterattack in A-shares? Analytical viewpoints suggest that intensified policy efforts have provided further support for market sentiment.

Where does the capital for the strong counterattack come from? Some market observers believe it may be related to the entry of the national team.

Wang Tao, Head of Asian Economic Research and Chief China Economist at UBS, stated that this reserve requirement ratio (RRR) cut will release long-term liquidity of 1 trillion yuan, which will help maintain overall liquidity and ease the seasonal liquidity demand pressure before the Spring Festival, as well as ensure the large-scale concentrated issuance of government bonds.

Hua Jin Securities analysis suggests that the RRR cut will release a large amount of liquidity, becoming an important factor supporting the current market sentiment, "Recent policy expectations have continued to be strong, and the spring market may start around the Spring Festival."

The market is also looking forward to more robust policy stimulus.

"Due to the continued sluggish economy and the real estate market not yet bottoming out, investors are looking forward to more proactive policy support to stabilize economic growth," Wang Tao said, indicating that the central bank's stance may be interpreted by investors as a positive change from a previously more passive and fragmented policy model, and will continue to monitor signs and plans for further policy support.

"China-centric" market boom

After the State Council, the China Securities Regulatory Commission (CSRC), and the central bank have successively spoken, A-shares have welcomed a strong rebound.

On January 25, A-shares rose all the way after the opening. By the close, the Shanghai Composite Index had increased by 3.03%, rising by 85.34 points to 2,906.11 points, successfully standing above 2,900 points.

The Shenzhen Component Index rose by 2%, the STAR 50 by 2.07%, and the ChiNext Index by 1.45%. The Wind All-A Index rose by 2.65%. The two markets had a total turnover of 891.5 billion yuan.Northbound capital saw a massive inflow. Wind (Wang De) data shows that on that day, the net inflow of northbound capital totaled 6.294 billion yuan, with Shanghai-Shenzhen Stock Connect inflow amounting to 4.834 billion yuan, and Shenzhen-Hong Kong Stock Connect inflow amounting to 1.459 billion yuan.

In terms of sectors, petroleum and petrochemicals led the gains with a 5.66% increase. The real estate sector rose by 5.39%, construction decoration by 5.33%, and social services by 4.33%. National defense, military, environmental protection, and communications all saw increases of over 4%.

The large financial sector continued to perform well. Among securities stocks, Hua Xin Shares achieved two consecutive trading day price limits, and China Galaxy Securities rose by 7.60%; in insurance stocks, China Pacific Insurance increased by 8.17%, China Life by 6.46%, and New China Life by 5.87%; among bank stocks, Ningbo Bank's increase was 7.36%, with CITIC Bank and Postal Savings Bank both rising over 3%.

Looking at concept stocks, central and state-owned enterprises with "China" in their names saw a comprehensive surge. Wind data indicates that on January 25th, the China Shipbuilding Industry Index rose by 7.71%. The China-headquartered central enterprise index increased by 6.82%, the large infrastructure central enterprise index by 6.34%, and the top ten military industry group index by 6.05%.

The Shanghai state-owned enterprise sector strengthened. The Shanghai State-owned Assets Index, Shanghai State-owned Enterprise Reform Index, and State-owned Enterprise Reform Index all saw gains close to 6%. Multiple stocks such as Aton Shares, Shanghai Phoenix, and Waigaoqiao achieved price limits.

Particularly noteworthy is the rare price limit of China National Petroleum Corporation, marking its first price limit since July 2015. In terms of individual stocks, China National Pharmaceutical, China Power, COFCO Capital, and China Communications Construction all achieved price limits, with Sinopec rising by 7.88%, and CNOOC increasing by 5.68%.

The comprehensive eruption of "China" stocks may have been directly triggered by changes in the performance assessment mechanism of central enterprises. On January 24th, Xie Xiaobing, the head of the State-owned Assets Supervision and Administration Commission's Property Rights Bureau, stated at a press conference held by the State Council Information Office that further research would be conducted to include market value management in the performance assessment of central enterprise leaders.

"The weight of 'China' stocks is relatively large, and their leading increase can form a significant pulling effect on the index, which is conducive to driving the repair of market sentiment," said Dong Zhongyun. In the short term, the market rebound driven by sentiment repair still has room, but from a medium-term perspective, for the market to have a sustained upward trend, further improvement in fundamental expectations is needed. The driving force may come from a new round of economic stimulus policies or better-than-expected repair of actual data in January.

CITIC Securities believes that including market value management in the performance assessment of central enterprise leaders will help increase the importance central enterprises place on market value management and enhance the investability of listed central enterprises.

Several Shanghai-listed central enterprise companies, including Sinopec, CNOOC, China Communications Construction, and China Telecom, have responded, stating that they will actively engage in value operation and value communication activities, regularly use market value management tools to maintain company value, and enhance shareholder returns.China Petrochemical Corporation's Vice President and Secretary of the Board, Huang Wensheng, stated that this will further promote central state-owned enterprise (SOE) controlled listed companies to strengthen value management and enhance shareholder returns. "In the future, the company will focus on strengthening and optimizing its main business while achieving high-quality development, and will regularly use market value management tools to maintain company value and improve shareholder returns."

Where does the recent strong counterattack in the A-share market come from? Some market observers believe it may be related to the entry of the national team.

"Despite the net outflow of Northbound funds, the market is still rising, mainly because the national team has recently been buying a large number of shares of the Shanghai 50 ETF and the CSI 300 ETF, which is a clear sign of market support. In recent trading days, these funds have flowed in massively, directly driving the index rebound and playing an important role in stabilizing market confidence," said Ma Cheng, Chairman of Juze Investment, in a previous interview with Caijing.

UBS China Equity Strategy Research Chief Wang Zonghao believes that the potential balancing force brought by the national team's entry seems to provide some stability and confidence that value investors urgently need.

"Although historically, the entry of the national team does not necessarily lead to an immediate market rebound, based on the stock market from 2015 to 2016, this marks a 3-5 year market bottom," Wang Zonghao believes.

Multiple departments have recently issued positive signals in a concentrated manner.

In addition to capital support, multiple departments have recently made statements, sending out strong signals to care for the market.

On January 22, the State Council's regular meeting heard reports on the operation of the capital market and work considerations, emphasizing the need to "take more effective measures to stabilize the market and confidence."

On January 24, relevant persons in charge of the China Securities Regulatory Commission, the State-owned Assets Supervision and Administration Commission, and the People's Bank of China made intensive statements around the macro economy and the stock market.

At noon that day, in response to the recent fluctuations in the stock market, Wang Jianjun accepted media interviews, stating that he would build a capital market centered on investors.On the afternoon of that day, at a press conference held by the State Council Information Office, Xie Xiaobing introduced that the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council will further study the inclusion of market value management in the performance assessment of central enterprise leaders. This will guide the heads of central enterprises to pay more attention to and value the market performance of the listed companies they control, to use market-oriented means such as increasing holdings and share buybacks in a timely manner to convey confidence and stabilize expectations, and to increase cash dividends to better reward investors.

In the evening of the same day, Pan Gongsheng stated that the reserve requirement ratio would be reduced by 0.5 percentage points on February 5th, providing the market with long-term liquidity of 1 trillion yuan. On January 25th, the interest rates for re-lending and re-discounting for agriculture and small businesses would be reduced by 0.25 percentage points, and efforts would continue to stabilize and moderately reduce the overall financing costs in society.

"The reserve requirement ratio cut is basically in line with our expectation of a 25-50 basis point reduction. We believe there may be another small cut (25-50 basis points) within the year," said Wang Tao. UBS expects the central bank to lower the policy interest rate (MLF) by 10-20 basis points within the year.

At the same time, Wang Tao mentioned that policies will further increase support for the financing of real estate developers.

On the evening of January 24th, the People's Bank of China and the General Office of the Financial Regulatory Authority jointly issued the "Notice on Strengthening the Management of Commercial Property Loans," calling for further support for the financing of real estate developers. The regulation encourages banks to issue commercial property loans to real estate companies that meet the standards, with the commercial properties as collateral.

"We believe this is an important step for the regulator to increase credit support for developers. To fundamentally and continuously improve the financing issues of developers, it is necessary to see a stabilization and recovery in real estate sales, which requires further policy reinforcement to stabilize the real estate market," Wang Tao believes.

Zhang Jun analyzed that in the package of policies on January 24th, the China Securities Regulatory Commission emphasized "protecting investors, especially small and medium investors," the State-owned Assets Supervision and Administration Commission emphasized the inclusion of market value management effectiveness in the assessment of central enterprise leaders; the joint issuance of documents by the People's Bank of China and the General Office of the Financial Regulatory Authority to optimize the policy of commercial property loans and improve the liquidity of high-quality real estate companies will help stabilize housing prices and stock prices, stabilize terminal consumption through the wealth effect, and solve the problem of "insufficient effective demand and overcapacity in some industries."

"According to our 'economic fundamentals + domestic liquidity + global liquidity' asset allocation analysis framework, this package of policies is not only beneficial for improving domestic liquidity but also promotes the further recovery of the economic fundamentals by stabilizing the capital and real estate markets," Zhang Jun mentioned. In addition, after the U.S. Treasury yield began to fall in October 2023, China's exports also began to stabilize and rebound, and the global environment is gradually improving; under the current situation where the domestic stock and bond yield ratio has reached a historical position, it is expected that equity assets will usher in a relatively good layout opportunity.

Institutions believe that future policies are expected to continue to intensify.

Wang Tao said that the initial market reaction was relatively positive, and future policies are expected to continue to intensify. It is expected that fiscal policy will moderately expand, with a more explicit budget expansion, and real estate policies are expected to intensify, including further reducing mortgage interest rates.