The Central Huijin Company, known as the “national team,” issued an intraday announcement on February 6 stating that it fully recognizes the current allocation value of the A-share market, has recently expanded the scope of increased holdings of traded open index funds (ETFs), and will continue to increase its holdings and expand the scale of holdings to resolutely maintain the smooth operation of the capital market.

On February 6, the Shanghai and Shenzhen 300 ETF, Shanghai Stock Exchange 50 ETF, GEM ETF, China Securities 500 ETF, and China Securities 1000 ETF funds all increased significantly. The total turnover of the top ten index ETF funds exceeded 46 billion yuan. Judging from the trading situation over the previous few days, the cumulative turnover of various ETF funds reached hundreds of billion yuan in the past month.

Bosch Fund emphasizes that Huijin has taken timely action and increased its efforts to increase its holdings. On the one hand, it also provides liquidity, which is also conducive to quickly reversing declining expectations, boosting market confidence, and stabilizing the market.

Huafu Securities pointed out that as the effects of the policy are released one after another, the market is expected to recover steadily, and the characteristics of the bottom of the market are very obvious, whether from the perspective of fundamental liquidity or valuation:

1. The bottom of the performance of listed companies is likely, and the profits of listed companies are expected to rise in 2024. In the third quarter of 2023, the net profit growth rate of A-share listed companies in a single quarter was 2.2%, changing from negative to positive. Judging from historical data, the year-on-year growth rate of PPI is highly correlated with the profit of A-share companies. As PPI's year-on-year growth rate picks up, the price factor's suppression of corporate profits gradually weakens, and the profits of A-share listed companies are expected to rise.

2. Currently, the overall valuation of A-shares is at the bottom of history. As of February 6, the price-earnings ratio of the Wandequan A Index was 15.05, and the net price-earnings ratio was 1.33 times, all of which are at the bottom of history since 2010. Furthermore, the valuations of broad-based indices such as the Shanghai Composite Index, the Shanghai and Shenzhen 300, and the China Securities 500 have also been at historically low levels since 2010.

3. Liquidity easing is expected to catalyze the denominator side market. As of February 6, interest rates on 1-year and 10-year treasury bonds were 1.88% and 2.47%, respectively, at historically low levels since 2010. It is expected to catalyze the denominator side of the market in an environment of easy liquidity.

The Shen Wan Hongyuan Research Report points out that the bottom of market history, the transformation of bulls and bears is essentially a shift in market-driven logic. The emergence of absolute market lows is somewhat incidental, and improvements in microstructure and catalysis of favorable events may all be triggering factors; however, the process of getting out of the bottom of the market requires the accumulation of effective improvements, including verification of key inflection points in fundamentals, continuous catalysis of reform clues, and generally the catalysis of emerging industries; currently, the cost performance ratio of the market has reached a high historical level. After the microstructure is improved, it is not very difficult for the market to experience a decline and rebound, but currently the market is not there It has clues to immediately get out of the volatile market pattern.

History doesn't simply repeat itself, but it always follows the same rhythm. When the stock market fluctuated greatly in 2015, Central Huijin also came to the rescue and bought tradable open index funds (ETFs) in the secondary market.

Minsheng Securities resumed entering the market in 2015 with balanced forces represented by securities companies and Central Huijin:

Since June 2015, due to market liquidity pressure, Wandequan A once declined by more than 40% from mid-June to early July. In this process, Ping Chun Force, represented by securities companies and Central Huijin, entered the market to provide liquidity for A-shares.

Initially, the strategy to equalize capital was to increase holdings in large-market broad-based ETF funds. Central Huijin made it clear in its announcement on July 5, 2015 that it has recently purchased ETFs in the secondary market and will continue to operate in the relevant market.

Judging from the ETF transaction situation, since June 25, 2015, there has been a marked expansion in the trading volume of large-cap index ETFs related to the Shanghai Stock Exchange 50 and the Shanghai and Shenzhen 300.

In late June 2015, small to medium capital-style assets represented by the GEM Index, the China Securities 500 Index, and the China Securities 1000 Index generally did not perform well, but the decline in large-cap weighted stocks represented by CNPC was relatively small, and the banking sector even bucked the trend.

As investors' calls for equalization to increase liquidity support for small-cap stocks grew stronger, the strategy for leveling capital also began to change, and positions on small to medium capital-style assets began to increase.

Since the beginning of July 2015, there has been a marked increase in the trading volume of ETFs related to the GEM Index and the China Securities 1000 Index. Furthermore, judging from the positions of securities companies and Central Huijin in individual stocks in the 3rd quarter of 2015, the Shanghai and Shenzhen 300 Index constituent stocks accounted for about 75% of the new positions added during the major adjustment period in the A-share market, and constituent stocks of the China Securities 500, China Securities 1000 Index and other small and medium capitalization assets accounted for about 25%.

Judging from market performance, after equalizing capital began to increase holdings in small and medium capitalization assets in early July 2015, the rebound in the small market style surpassed that of the large market style.

The process of leveling up capital's large-scale holdings of A-share assets in 2015 came to an end in mid-August. On August 14, 2015, the Securities Regulatory Commission issued an announcement clearly stating, “The market gradually moves from severe abnormal fluctuations to normalized fluctuations; the function of securities companies to stabilize the market will not change in the future, but they will generally not operate in the market.”

It is worth noting that after the influence of equalization forces on A-shares gradually weakened, investors' preferred small to medium capitalization assets did not consistently outperform large-cap stocks: during a period of sharp fluctuations in the A-share market in August 2015 and early January 2016, small market capitalization style assets represented by the China Securities 1000 declined even more.

The real reason behind this transformation is a fundamental change: after supply clearance in 2014-2015 and supply-side reforms in 2016, the value of industry leaders gradually became prominent after demand improved; in 2014-2015, small companies were favored by the market and poured into emerging industries through mergers and acquisitions, but later faced problems such as impairment of goodwill.