A-Shares Hold 2700: What's the Market Rescue's Ace?

The current decline in the A-share market is mainly due to two factors: first, investors' pessimistic expectations for incremental funds, and second, ongoing concerns about future economic uncertainty.

On September 18th, the A-share market temporarily fell below the 2,700 point mark.

However, it subsequently managed to hold the important threshold of 2,700 points, driven by a rapid rise in the real estate, automotive, banking, and non-bank financial sectors.

By the close, the Shanghai Composite Index reported at 2,717.28 points, up 0.49%; the Shenzhen Component Index reported at 7,992.25 points, up 0.11%; and the CSI 300 rose by 0.37%.

The STAR 50 and the ChiNext Index fell by 1.17% and 0.11% respectively.

The total turnover of the Shanghai and Shenzhen markets reached 479.3 billion yuan.

The market performance was weak.

In the two days prior, the performance of the Hong Kong stock market had once raised investors' expectations for the A-share market after the Mid-Autumn Festival.

During the Mid-Autumn Festival holiday when the A-share market was closed, the Hong Kong stock market did not close.

The performance of the Hong Kong stock market during the A-share holiday is often endowed with the significance of a "weathervane" by the market, becoming a window for investors to anticipate investment sentiment in advance.

On September 16th and 17th, the three major indices of the Hong Kong stock market rose for two consecutive days, especially the Hang Seng China Enterprises Index, which rose nearly 2% in two trading days.

The rise in the Hong Kong stock market during the Mid-Autumn Festival indicates that the external environment has a positive impact on the A-share market.

However, the performance of the A-share market on September 18th surprised the market somewhat.

The decline in A-shares has multiple factors.

Many institutional investors believe that the market's pessimistic expectations for incremental funds, this lack of confidence, is an important reason for the recent continuous decline in A-shares.

"At this time, it is difficult to find a reasonable explanation from the fundamentals.

The market has fallen into a negative feedback spiral of decline.

Before a complete clearing out, the concern about the re-emergence of a sharp decline at the end of the decline occupies the mainstream, and it is also the core reason for suppressing market confidence.

Driven by this sentiment, all bearish reasons are magnified several times."

said Xia Fengguang, fund manager of Rongzhi Investment Fund.

It is worth noting that in the early morning of September 19th Beijing time, the Federal Reserve will announce the latest interest rate decision, and the market expects the Federal Reserve to announce a rate cut at this meeting.

On September 18th, the Shanghai 50 plunged straight into the green, rising nearly 0.7% in the morning.

The important A-share indices also went down one-sided after the opening.

In the afternoon, the Shanghai Composite Index broke through the important threshold of 2,700 points, and nearly 4,600 stocks fell, and the market sentiment was very low.

However, after falling through the 2,700 points, A-shares began to rebound.

Driven by the strong performance of important sectors such as real estate, automobiles, banking, and non-bank finance, the Shanghai Composite Index rose significantly in a short period.

Subsequently, the Shanghai Composite Index, Shenzhen Component Index, and CSI 300 important indices all turned red.

By the close, the Shanghai Composite Index held the 2,700 points, reporting at 2,717.28 points, up 0.49%; the Shenzhen Component Index reported at 7,992.25 points, up 0.11%; the CSI 300 rose by 0.37%, and the Wind All A rose by 0.06%.

Although the STAR 50 and the ChiNext Index also rebounded, the strength was not great.

The final STAR 50 reported at 647.41 points, down 1.17%; the ChiNext Index reported at 1,533.47 points, down 0.11%.

In terms of sectors, among the 31 first-level industries of Shenwan, 14 sectors rose, with coal leading the rise by 2.42%, followed by home appliances and real estate, which rose by 2.37% and 2.36% respectively, the automotive sector rose by 1.22%, and banking and non-bank finance rose by 1% and 0.81% respectively.

It is worth noting that these sectors were rapidly lifted shortly after the afternoon opening, and under the drive of these sectors, A-shares also quickly turned red.

In terms of declining sectors, agriculture, forestry, animal husbandry, and fisheries fell the most, down 2.33%.

The next was food and beverages, down 1.49%.

The decline in environmental protection and electronics also exceeded 1%.

Why has A-shares continued to fall?

For the current decline in A-shares, Cheng Liang, fund manager of Thirty-Three Degrees Capital Fund, believes that the current decline in the market is caused by the dominance of bearish forces and concerns about future economic uncertainty, which is characterized by a lack of confidence and a contraction in trading volume.

Huang Cendong, a strategy analyst at Guojin Securities Wealth Center, told Caijing that the tourism and consumption data during the Mid-Autumn Festival period were all lower than in 2023; the inflation, finance, and macroeconomic data recently announced all point to a weakening of the current macroeconomic recovery, and these factors have all affected the performance of A-shares.

"At the end of the close, the Shanghai Composite Index was able to turn red, and the driving force for the rise may come from the market's positive expectations for recent economic meetings, as well as policy support for the financial and real estate industries.

In particular, the expectation of reducing existing mortgage interest rates may have a positive impact on the recovery of the consumer market."

said Chen Xingwen, Chief Strategy Officer of Heishi Capital.

Recently, the global capital market has focused on the Federal Reserve's interest rate decision and economic outlook summary.

In the early morning of September 19th Beijing time, the Federal Reserve will announce the latest interest rate decision, and the market expects the Federal Reserve to announce a rate cut at this meeting.

The market generally predicts that the Federal Reserve will make a rate cut decision at this meeting, and the key question is whether it will cut by 25 basis points or 50 basis points.

Considering the basic factors of the U.S. economy, industry insiders believe that the Federal Reserve is still very likely to start this round of interest rate cuts by 25 basis points.

"In the short term, the market may gamble on domestic interest rate cuts.

However, it is necessary to weigh the backlash brought by policy expectations."

said Huang Cendong.

In fact, after reaching a high of 3,174.27 on May 20th this year, the Shanghai Composite Index has been falling all the way.

Chen Xingwen believes that the deep-seated reason is the market's doubt about the incremental space of the stock market and the long-term strategic determination, and fundamentally, it is a lack of market confidence.

After the central banks of Europe and the United States successively entered the interest rate cut cycle, the global market risk preference has increased, but A-shares have continued to fall.

Xia Fengguang said that it is difficult to find a reasonable explanation from the fundamentals at this time.

To some extent, the current market has fallen into a negative feedback spiral of decline.

Before a complete clearing out, the concern about the re-emergence of a sharp decline at the end of the decline occupies the mainstream, and it is also the core reason for suppressing market confidence.

"The lack of market confidence is an important reason for the continuous decline of A-shares."

said Chen Xingwen.

"Driven by this sentiment, all bearish reasons are magnified several times, and the positive factors are taken as a signal to exit when the rebound occurs.

The tension of the sentiment often means the approach of the bottom, and this spiral of decline is like a spring that is repeatedly suppressed, and the correction may erupt at any time after being suppressed to the extreme."

said Xia Fengguang.

Chen Xingwen believes that the low sentiment may come from multiple factors.

First, there is a lack of policy incentives that can significantly enhance investor confidence and real strong market increments; second, the instability of the international political situation has increased the uncertainty of the market.

These factors work together, which may lead to the continuous decline of the stock market, even if some stocks show investment value.

"When will the bottoming out end?"

For the next performance of A-shares, Chen Xingwen believes that the market may be in a relatively bottom area at present, and investors can wait patiently for the improvement of market sentiment and the clarification of policies.

In his view, after the introduction of multiple favorable policies, the market will usher in a more certain rebound opportunity.

After all, it is now at a historical low, and investors can adopt a strategy of "more looking and less moving, waiting for action" to "eat the middle section of the fish."

Any large position of bottom-fishing may be caught at the "halfway up the mountain" at this time, and it can be gradually increased.

Now is the period of confidence repair, there will definitely be ups and downs in the middle, so it's better to take some time to wait patiently.

It is worth noting that no matter what view is held, in the case of low stock market sentiment, whether to moderately guide expectations and boost confidence has become the key during the bottoming out period.

"Standing at the current point, although the market is weak and has not yet seen a clear main line, it is not too pessimistic from a relatively longer time dimension.

First, the high probability of the Federal Reserve's interest rate cut in September is expected to open up the flexibility of the RMB exchange rate and domestic interest rate policy; second, the stimulus to domestic demand represented by real estate policy is expected to continue to increase; finally, the new quality of productivity represented by artificial intelligence and low-altitude economy is just beginning."

said Wu Haijian, fund manager of Western Lide Fund.

Qiu Xiang, co-chief strategist of CITIC Securities, said that from the stage of market bottoming out, in the past two weeks, the Central Huijin has continued to reduce the scale of purchasing stock ETFs, and the reduction of "bottoming" funds may speed up the progress of stock prices fully reflecting market expectations and sentiment, and shorten the bottoming out period of A-shares.

In addition, from the perspective of allocation strategy, in the environment where the economic fundamentals are still weak and the long-term Treasury bond interest rates continue to fall, the value of dividends still exists, but it is necessary to avoid varieties with fundamental fluctuations in structure; at the same time, excellent companies in the export sector that have fully reflected the risks of overseas recession and trade frictions have configuration value.

CITIC Construction Investment Research Report believes that China's policy has entered a key observation window period, and the short-term A-share market sentiment is extremely low, and the strong stocks have made up for the decline, with the characteristics of the market bottom.

The subsequent market trend still depends on the increase in domestic demand expansion policies.

In the past three years, the platform economy has actively rectified and accelerated transformation, entering a new starting point, and the online growth rate has been repaired first, focusing on the Internet platform economy; the stage of a sharp decline in real estate sales is gradually passing, and relevant support policies can be expected; the domestic demand expansion policy represented by the old for the new has achieved initial results, waiting for the continuous effort of domestic demand expansion policy.

This round of the stock market bottom itself is difficult to compare with the historical bottom in 2018, etc., and it needs to wait for the Federal Reserve to cut interest rates or profits to rise, forming a driving force for the numerator and denominator.

In addition, the regulatory authorities have obviously increased the control of the stock market supply, but the means to expand foreign capital are still limited, and new means are needed to provide incremental funds, such as the recent establishment of private equity funds by insurance companies, the promotion of the issuance of Beixinjiao-themed funds, and the acceleration of listed company buybacks.

Finally, the market's most concerned about several changes have not been fully seen, including the recovery of core sectors such as real estate, the overall improvement of A-share profits, new domestic technological achievements, the Federal Reserve's monetary policy turning to ease, the central government's positive attitude towards the capital market, and whether the economic transformation can be successful.Here is the translation of the provided text into English: In the history of A-shares, there are several patterns observed when the market emerges from a bottom, as summarized by Huatai Securities' research report: First, the top-level "prescription for the disease" is a policy prerequisite, and the time to emerge from the bottom depends on the comparison between the market's own attractiveness and the strength of the policy; Second, in most cases, the most direct reason for emerging from the bottom is the improvement of the supply and demand relationship; Third, the policy bottom and market bottom are not the most critical information, and the bottoming period is also influenced by the background of the times and is difficult to predict.

Drawing on history, Huatai Securities believes that for this round of A-shares to emerge from the bottom, it still needs to wait for core changes such as the Federal Reserve's interest rate cuts, the rise in profits, and the increase in funds.

The judgment that the Federal Reserve is likely to start the interest rate cut cycle in September has been recognized by most institutions.

So, what impact has the interest rate cut had on the Chinese market in the past?

Yang Fan, Chief Analyst of Macro and Policy at CITIC Securities, said that in the past, the United States had two rounds of interest rate cut cycles: from 2007 to 2008, the Federal Reserve implemented a recessionary interest rate cut, the financial crisis broke out leading to a sudden cooling of the Chinese economy, and then China launched the "four trillion" plan to successfully boost the economy, but the improvement in exports had to wait until the interest rate cuts supported the recovery of the US economy.

In 2019, the Federal Reserve initiated a preemptive interest rate cut, and the decline in China's external demand was generally controllable.

With the increase in domestic stable growth policies and the improvement of the US economy in the fourth quarter boosting China's exports, the Chinese economy showed signs of stabilization at the end of the year.

Focusing on the present, Yang Fan believes that this round of the US interest rate cut cycle tends to be a preemptive interest rate cut, and it is expected that China's export growth will moderately decline in the fourth quarter.

However, what is different about this round of the interest rate cut cycle is that the problem of insufficient domestic demand in China is more prominent, so the necessity of increasing stable growth policies is higher, and there is a possibility of monetary and fiscal policies being implemented within the year.