The National Standing Committee proposed that more effective measures should be taken to stabilize the market and confidence. The central bank cut the reserve requirement ratio and "cut interest rates" to release liquidity; The China Securities Regulatory Commission emphasized the need to build an investor-oriented capital market; The State-owned Assets Supervision and Administration Commission (SASAC) will study the inclusion of market value management in the performance appraisal of the person in charge of the enterprise. A series of policies to stabilize the market have been intensively introduced, will A-shares form a real reversal?
Liao Zongkui.
Since the beginning of the year, the market has been filled with a strong sense of pessimism, and the "good start" ** of the past year has not only not appeared, but the market has fallen sharply. The Shanghai Composite Index fell all the way to a low of 2,724 points, exceeding 8% in just three weeks. The economy slowed slightly in the fourth quarter of 2023, and the twists and turns of the economic trend made the market lack confidence in the strength and sustainability of the future economic recovery, coupled with the failure of the expectation of "interest rate cuts" in mid-January, which exacerbated the contagion of pessimism.
On January 22, the National Standing Committee emphasized that "it is necessary to further improve the basic system of the capital market, pay more attention to the dynamic balance of investment and financing, vigorously improve the quality and investment value of listed companies, increase the entry of medium and long-term funds into the market, and enhance the internal stability of the market." It is necessary to strengthen the supervision of the capital market, have zero tolerance for violations of laws and regulations, and create a standardized and transparent market environment. It is necessary to take more effective measures to stabilize the market and confidence. It is necessary to enhance the consistency of macroeconomic policy orientation, strengthen the innovation and coordination of policy tools, consolidate and enhance the positive trend of economic recovery, and promote the steady and healthy development of the capital market. This is the first time since the establishment of the new ** to study the operation of the capital market, releasing a clear policy signal.
On January 24, the central bank announced that it would cut the reserve requirement ratio of financial institutions by 05 percentage points, and at the same time announced a reduction of 025 percentage points. The central bank's RRR cut and "interest rate cut" undoubtedly exceeded expectations, and the Shanghai Composite Index fell from a low of nearly 80 points in the afternoon, and recovered 2,900 points in the following two trading days.
Various ministries and commissions have also intensively released policies to stabilize the market. The China Securities Regulatory Commission said that it would build an investor-oriented capital market. In the design of the system and mechanism, investors are more reflected. The State-owned Assets Supervision and Administration Commission (SASAC) said that it is necessary to include market value management in the performance appraisal of the person in charge of the enterprise. The Ministry of Housing and Urban-Rural Development said that it is necessary to accelerate the implementation of the urban real estate financing coordination mechanism; In Guangzhou, the purchase restriction of more than 120 square meters has been lifted.
A series of policies to stabilize the market and stabilize confidence have been intensively introduced, as if bringing a spring rain to the long-drought market, and A-shares then ushered in **, and the Shanghai Composite Index returned to around 2900 points. Could this be a complete reversal?
Higher-than-expected RRR cuts
There are two unexpected RRR cuts: one is the unexpected at the point in time. Due to the disappointment of the previous MLF and LPR cuts, the market's expectations for the total operation of monetary policy before the Spring Festival are not high. The other is that the strength exceeds expectations. The RRR cut before 2021 is usually 05 percentage points, but the four RRR cuts in 2022 and 2023 will all be 025 percentage points. This is the first time in two years that there is a 0The 5 percentage point RRR cut exceeded market expectations.
The central bank's RRR cut may be based on several considerations:
First, we need to release long-term capital and improve the liquidity structure of the banking system. The RRR cut will provide long-term liquidity of 1 trillion yuan to the market. CITIC** believes that in the past few months, the central bank has mainly injected liquidity through MLF and reverse repo. From September to December 2023, the central bank will have a net MLF injection of 188 trillion yuan, and the MLF balance in December 2023 has reached 708 trillion yuan at an all-time high. The banking system lacks longer-term, stable funding**. The RRR cut can release long-term funds, partially replace the maturing MLF, and improve the liquidity structure of the banking system.
Second, alleviate the liquidity pressure before and after the Spring Festival. Before the Spring Festival, enterprises pay bonuses and residents have a strong demand for cash withdrawals, so they need to replenish liquidity in a timely manner. Previously, the central bank had also cut the RRR before the Spring Festival many times. GF** estimates that under normal circumstances, the loss of liquidity before the Spring Festival is about 16 trillion - 18 trillion yuan.
Third, it will provide support for fiscal policy and credit delivery at the beginning of the year. Pan Gongsheng, governor of the central bank, said at a press conference that "monetary policy has sufficient conditions in maintaining reasonable and abundant liquidity, ensuring the large-scale centralized issuance of ** bonds, and supporting the construction of investment projects." Tianfeng ** believes that the RRR cut can not only cooperate with fiscal policy, but also convey a positive signal of monetary policy, which is conducive to ensuring the reasonable growth of the total scale of social financing and monetary credit.
Fourth, stabilize the market and stabilize confidence. At a time when confidence in the capital market is sluggish, the unexpected RRR cut will help boost confidence, which is also a rapid response to the National Standing Committee's proposal to "take more powerful and effective measures to stabilize the market and stabilize confidence".
The fall of the rate cut in January does not mean that the probability of future rate cuts has decreased. PBOC Governor Pan Gongsheng said at a press conference that the reduction of deposit rates by banks in November and December 2023, and the reduction of relending and rediscount rates for supporting agriculture and small enterprises will help push the LPR downward.
More notably, the central bank has given more attention to facilitating the recovery. Pan Gongsheng pointed out that cross-cyclical and counter-cyclical adjustments will be strengthened to create a good monetary and financial environment for economic growth and price stability. "Maintaining stability and promoting a moderate rebound is an important consideration for grasping monetary policy. GF** believes that this expression points to nominal growth, that is, monetary policy will promote the recovery of nominal growth and the normalization of the inflation center as a goal, which is right to the key point of the current economic operation.
Wu Ge, chief economist of the Yangtze River, believes that it is not easy to get rid of the negative cycle by relying on market forces alone, and it is often necessary to rely on strong policy external forces. Only in this way can the "animal spirit" of micro subjects be stimulated and investment and consumption promoted.
Investor-oriented capital markets
In addition to the central bank's liquidity care, some policies of other ministries and industries have also been intensively introduced to form a multi-dimensional joint force to stabilize the market.
On January 24, Wang Jianjun, vice chairman of the China Securities Regulatory Commission, was interviewed by **, emphasizing the need to build an investor-oriented capital market. In the design of the system and mechanism, investors are more reflected.
First, vigorously improve the quality of listed companies. We will further improve the quality evaluation standards of listed companies, highlight the return requirements, and vigorously promote listed companies to better return investors through repurchase and cancellation, increasing dividends, etc. Support listed companies to inject high-quality assets, market-oriented mergers and acquisitions, and stimulate business vitality. Consolidate and deepen the normalized delisting mechanism.
The second is to give full play to the role of the best institutions. Improve the evaluation mechanism of sponsor institutions, highlight the quality assessment of their sponsor companies, especially the assessment of investor returns, and cannot bring companies with no long-term returns to the market. Improve the institutional arrangements such as product registration and investment and research ability evaluation, guide investment institutions to change the concept of "emphasizing sales over service", enhance professional management capabilities, increase product and service innovation, and better meet the wealth management needs of investors.
The third is to sort out and improve the basic institutional arrangements. Comprehensively evaluate the issuance pricing, inquiry and other mechanisms to support more investors to participate. Improve the quantitative trading supervision system suitable for national conditions and market conditions, and optimize and improve the system rules such as **, securities lending, and refinancing.
On January 24, the State-owned Assets Supervision and Administration Commission (SASAC) said at a press conference held by the State Council Information Office that it would "further study the inclusion of market value management in the performance appraisal of the heads of the leading enterprises", "guide the heads of the leading enterprises to pay more attention to the market performance of the listed companies they control, and timely convey confidence and stabilize expectations through the application of market-oriented holdings and repurchases, increase cash dividends, and better return investors". From January 25 to 26, the 2024 system work conference held by the China Securities Regulatory Commission emphasized that "accelerate the construction of a valuation system with Chinese characteristics, support listed companies to become better and stronger through market-oriented mergers and acquisitions, and promote the inclusion of market value in the assessment and evaluation system of central enterprises and state-owned enterprises." ”
CICC believes that in the past, the assessment system of central enterprises was mainly based on fundamental indicators, and this adjustment means that the value realization dimension is taken into account. This will help guide the person in charge of the enterprise to pay more attention to the interests of shareholders while attaching importance to the efficiency of operation and management, and is expected to explore diversified market value management methods such as increasing holdings, repurchases, and dividends, which is of positive significance for improving the return of shareholders of listed central enterprises.
The inclusion of market value management in the assessment system is a key link in the construction of the valuation system with Chinese characteristics. The results of SOE reform over the past decade have been significantly reflected in the improvement of SOE fundamentals, with significant improvements in profit margins and profitability, easing debt problems and improving free cash flow, but valuations have continued to decline further and remain at a low level, not only at a discount to private enterprises, but also significantly lower than those of leading overseas companies. As of January 26, the overall PE(TTM) PB valuation of listed SOEs was 11.65 times 103 times, the overall listed central enterprises are 999 times 091 times, compared to the valuation of non-state-owned enterprises at 300 times 206 times, the current listed central enterprises are still in a broken state, and the dividend yield is as high as 35%。This study incorporates market value management into the performance appraisal of the heads of central enterprises, which is expected to become a key part of solving the valuation structure problem.
CITIC ** believes that the SASAC has made it clear that it will study the inclusion of market value management in the performance appraisal of the person in charge of central enterprises, which can enhance the importance of market value management of listed companies of central enterprises, which is conducive to boosting investor sentiment, increasing the allocation of listed central enterprises, and contributing to the stable development of the capital market.
Judging from the relative changes in market value, the annual growth and growth rate of the total market value of central enterprises in the future may become an important indicator for the assessment of the heads of central enterprises. From the perspective of the absolute level of valuation, the price-to-book ratio (PB) or an important tool for the market value management target of central enterprises, because PB can fairly reflect the market's recognition of the operating efficiency of enterprises, so for enterprises with low PB, especially less than 1, the person in charge of central enterprises may assess or strengthen the assessment of valuation.
In terms of the industry, the weakness of the real estate market has been a problem for the market for a long time in the past. Recently, real estate-related support policies continue to be introduced.
On January 26, the Ministry of Housing and Urban-Rural Development held a meeting on the deployment of the urban real estate financing coordination mechanism, making it clear that it is necessary to accelerate the implementation of the urban real estate financing coordination mechanism, support the development and construction of real estate projects, meet the reasonable financing needs of real estate enterprises of different ownership systems without discrimination, and promote the stable and healthy development of the real estate market. On January 27, Guangzhou issued the "Notice of the General Office of the People's Government of Guangzhou Municipality on Further Optimizing the Policies and Measures for the Stable and Healthy Development of the Real Estate Market", which proposes that within the scope of the purchase restriction area, the purchase of housing with a construction area of more than 120 square meters (excluding 120 square meters) will not be included in the scope of the purchase restriction.
In the second half of 2023, Guangzhou took the lead in adjusting regional purchase restrictions in September, followed by Shenzhen, Beijing, and Shanghai. This time, it is Guangzhou that has also taken the lead in carrying out a region-wide purchase restriction adjustment, and it is estimated that other key cities will gradually follow suit.
Stimulated by the above series of policies, market sentiment has finally picked up, and the Shanghai Composite Index has returned to around 2,900 points. From January 22 to 26, the top gainers were mainly real estate, construction and decoration, petroleum and petrochemical, coal, non-bank financial and banking sectors. Small- and mid-cap stocks remained sluggish, and the start-up wrench continued to hit new lows.
The bottom has appeared, and spring ** is on
In the past six months, the market has also had many policies to help the market, but in the end it has not changed the trend. The Politburo meeting in July 2023 proposed to activate the capital market, and the market only had a brief upward rush at the end of July; The reduction of stamp duty at the end of August ushered in a sharp increase in the market; At the end of October, the issuance of trillions of yuan of treasury bonds aroused the market's expectation of stable growth with fiscal leverage, but the market did not last long, and the market weakened again after late November.
This time, the policy is intensively trying to protect the capital market, can the market really get out of the bottom? Historically, every time the market bottoms out, there are many conditions, such as a significant improvement in the external environment, a tendency to loose liquidity, the introduction of strong policies to stabilize the economy and the market, the marginal improvement of economic and corporate earnings, and the low market valuation.
From the perspective of the external environment, the Fed's continued interest rate hikes in 2023 will push up the US dollar and slow down the global economy, which is an important external factor suppressing A-shares. At present, this factor has reached a turning point, the Federal Reserve has entered the warm-up stage in the early stage of interest rate cuts, the interest rate on US 10-year Treasury bonds has begun to fall sharply, the US dollar index has also weakened, and the external depreciation pressure on the RMB will be greatly eased in the future.
From the perspective of liquidity, the central bank's unexpected RRR cut and structural interest rate cut are both caring for the current liquidity in the capital market.
From a fundamental point of view, although the short-term trend of the economy may still have twists and turns, the long-term recovery trend remains unchanged. The weighted economic growth target for each province in 2024 is about 55%, which means that the national economic growth target in 2024 will most likely be set at about 5%, and without the interference of a low base, this growth rate will represent higher-quality growth. In particular, the central bank has made it clear that in order to promote the recovery of prices, nominal economic growth is expected to recover better in 2024, and the corresponding corporate profits will perform better.
China Merchants ** believes that the current growth rate of new social finance and economic entities is positive, which is expected to gradually confirm the bottom of this round of profit cycle. With the increase in spending, corporate profit margins are expected to return to relatively high levels. After the disclosure of the annual report performance forecast, the market is expected to form an expectation of a bottom in earnings.
From a valuation perspective, the CSI 300 Index has lasted for 35 months from its high point in 2021, with a maximum decline of 47%, and the adjustment has been very large. The valuation of A-shares is already at an all-time low, with the Shanghai Composite Index and the SSE 50 PE both below the 20th percentile of the past 20 years, and the ChiNext Index at the lowest valuation area in history.
With the cooperation of many conditions, the possibility of the market bottoming out is greater, and a wave of reversal in the spring ** is slowly starting.