A-Shares Injection of Confidence: What Comes Next? (AI Translation)

A股强心针来了，然后呢？

Financial support for economic development benefits the capital market significantly. On September 24, officials from China's "One Bank, One Bureau, One Commission" announced measures to bolster the stock market, including a new monetary policy tool and initiatives to encourage capital inflows and mergers. The Shanghai Composite Index surged to 2863.13 points, the highest single-day gain since 2020, driven by these policy measures. However, on September 25, it retreated below the 2900-point mark, ending with a total trading volume of 1.1574 trillion yuan, the highest since May 6 [para. 1][para. 3].

The Political Bureau of the CPC Central Committee analyzed economic conditions on September 26. The meeting emphasized addressing new economic challenges and maintaining confidence. Policies discussed included fiscal and monetary measures, real estate support, enterprise relief, consumer stimulation, livelihood improvements, and employment stabilization. The Shanghai Composite Index then surpassed 3000 points with a trading volume exceeding 1.1 trillion yuan [para. 4].

Following the Federal Reserve's interest rate cut, foreign investment in Chinese stocks increased. On September 26, trading volume through the Stock Connect rose to 190.278 billion yuan, comprising 16.37% of the market turnover. However, a surge in buy orders on September 27 caused system outages, highlighting the impact of recent policies on investor sentiment. Consecutive surges in the stock market have raised optimism about a potential bull market [para. 5-7].

David Tepper expressed strong optimism about Chinese assets, indicating a belief in their undervaluation. Yú Xiáng from China International Capital Corporation is optimistic about forthcoming market rallies. However, some believe the current excitement is due to strong policies rather than improved asset quality, with a true performance bottom expected by mid-2025. The stock market's long-term growth will depend on substantial policy support, particularly in fiscal measures [para. 9-11].

Goldman Sachs noted a gap between policy implementation and market expectations since 2024, increasing market volatility. The current policy mix may not suffice to reverse fundamental downturns, although it helps reduce policy risk premiums. The real estate sector remains critical for sustainable market recovery [para. 12-13].

A press conference on September 24 focused on market support and liquidity replenishment. New tools included a 500 billion yuan swap facility, enabling liquidity for securities, fund, and insurance companies using assets as collateral. This facility can be expanded if successful. Historical precedents show such tools boost institutional participation and market stability. However, many believe their impact depends on a clear profit-making market effect [para. 15-18].

Stock buybacks are seen as market-stabilizing signals akin to cash dividends. Pan Gongsheng mentioned a refinancing rate of 1.75% for commercial bank loans supporting stock buybacks, aiming to enhance investor satisfaction [para. 20].

The establishment of a stabilization fund, still under research, could directly address market fluctuations more flexibly. This method has been used successfully in various countries during periods of economic distress. However, the precise approach for implementing such a fund in China remains under discussion [para. 21-24].

Policy initiatives to support long-term capital inflows were highlighted, with the China Securities Regulatory Commission (CSRC) proposing measures to bolster medium- and long-term investments. Despite efforts, total long-term funds and their optimal structure remain inadequate. Proposals include further development of equity public funds, reducing comprehensive fee rates, and expanding insurance fund investments. Structural reforms aim to increase long-term capital utilization and stabilize the market [para. 26-27][para. 30].