Counterattack in the wilderness! Soaring!

Today is really an eye-opener! How long has it been since we've seen such a completely red market.

The market soared across the board today, with the Shanghai Composite Index up over 2% and the ChiNext Price Index up over 5%! Market turnover surged by 400 billion to 970 billion, with over 4900 individual stocks rising in the two markets. The performance of Hong Kong stocks was also very eye-catching, with the Hang Seng Index up over 3% and the Hang Seng Tech Index up over 4%.

On the news front, this morning the State Council Information Office held a press conference on the financial support for high-quality economic development, releasing a series of bullish news!

1

Bullish news is released in a chain reaction.

Reserve requirement ratio cut, interest rate cut, reduction of existing house loan rates, stabilization fund under research... bombarded by one after another series of bullish news this morning:

1. Lowering the reserve requirement ratio by 50bps, releasing 1 trillion liquidity; lowering the 7-day OMO rate by 20bps;

2. Lowering existing house loan rates to around new home loan rates (estimated at 50bps), reducing the minimum down payment ratio for second homes (from 25% to 15%);

3. Optimizing policies on re-lending for affordable housing;

4. Establishing mutual exchange convenience for funds and insurance companies;

5. Share buyback to increase special bond loans;

After multiple cloud-piercing arrows are shot, a certain chief seller is so excited that he immediately changes the group name to:

Counterattack!

Among the many bullish policies, the most noteworthy is the announcement by the central bank to create two structural currency policy tools to support the stable development of the capital markets!

PBOC's Pan Gongsheng stated: "This is the first time PBOC has created structural currency policy tools to support the capital markets."

The first tool is the interchangeability among securities, funds, and insurance companies. It supports eligible securities, funds, and insurance companies to use their held bonds, stock ETFs, CSI 300 component stocks, and other assets as collateral, swapping them with high-liquidity assets such as national bonds, PBOC bills from the central bank.

The governor of the central bank explained: "Many institutions hold assets, but due to the current situation, their liquidity is relatively poor. Through the swap with the central bank, they can obtain higher quality, more liquid assets, greatly enhancing the institutions' fund-raising and stock shareholding capabilities."

The initial size of this policy's interchangeability operation is 500 billion yuan, and funds obtained by institutions through this tool can only be used for investing in the stock market, significantly increasing the institutions' fund-raising and stock shareholding in the future.

Pan Gongsheng revealed, "I told Chairman Wu Qing of the CSRC that as long as this matter is handled well, in the future, another 500 billion yuan can be added, or even a third 500 billion yuan. We are open in our approach."

Minsheng Macro Team believes that although the central bank's balance sheet does not directly carry stock assets, stock assets have essentially become collateral for the central bank's liquidity injection and bank credit expansion. This is the first time in the history of China's monetary policy, with significant implications for the stock market.

The second tool is share buyback and shareholding repurchase loans. This tool guides commercial banks to provide loans to listed companies and major shareholders for share buybacks and shareholdings, applicable to listed companies of different ownership types such as state-owned enterprises, private enterprises, mixed-ownership enterprises, with an initial quota of 300 billion yuan.

Pan Gongsheng revealed: 'If this tool is used well, I have also discussed with Chairman Wu Qing that we can have another 300 billion yuan, and even another third 300 billion yuan, it is all possible.'

In addition, Pan Gongsheng responded to questions about the establishment of the stabilization fund, saying that the stabilization fund is under study.

2

Incremental funds have really arrived.

The evolution of ETFs in the past has always been discussing where the incremental funds for A-shares come from? Where are they invested?

There is no doubt that A-shares are expected to usher in a new batch of incremental funds. Looking at the initial scale of the two major innovative tools, it is expected to bring in no more than 800 billion incremental funds, and the specific implementation effect is yet to be observed in the follow-up.

Chen Guo of China Securities believes that, given the current funding situation of A-shares, if the scale of the new innovative tools exceeds 500 billion, it will create significant bullish news and drive a sharp rebound in A-shares.

From the perspective of the two innovative tools introduced by the central bank this time, one allows eligible financial institutions to leverage investments in the equity market, while the other encourages listed companies willing to increase the scale of share buybacks.

This requires us to analyze two issues: What kind of equity assets will financial institutions invest in after receiving funds? What kind of listed companies are motivated to borrow money for stock buybacks?

On one hand, the convenient tool for securities, funds, and insurance companies to swap will likely increase the market's risk appetite. Currently, investors with a low-risk preference hold relatively more funds. Given that government bond yields have fallen to low levels and the yield on actively traded ten-year government bonds has reached the 2% mark, there is limited downside space for long-term bonds. Investors with a high-risk preference are currently in a trapped state and relatively lack funds.

Now, by using the newly established tools to inject money and sell bonds to buy stocks, not only can the money in the existing bond market be squeezed out, but the squeezed out incremental funds can also be directed to the stock market, achieving two goals at once.

At this point, the further consideration is: What equity assets will the lending financial institutions invest in? Would they prefer assets with high dividends or growth assets with sufficient decline?

The second consideration is, what type of listed companies are willing to borrow to repurchase stocks? Currently, high-dividend companies or companies with strong fundamentals are likely to have this willingness, such as Kweichow Moutai and Contemporary Amperex Technology.

Previously, Kweichow Moutai, which has been listed for 23 years, made its first move to buy back shares, planning to invest 3 to 6 billion yuan of its own funds to repurchase shares for cancellation. Regarding this buyback plan, Duan Yongping commented: "This may be a groundbreaking event."

Similarly, the new policy of stock buyback increased special bonds loans is also of great significance to A-shares, encouraging more listed companies to repurchase and cancel shares. Looking back in several years, today is likely to be a day worth recording in the history of A-shares.

Unexpectedly, the incremental funding in the A-share market this year is actually dividends. According to Wind data, as of August 2024, the total dividend amount in the A-share market is significantly higher than the total fundraising amount, marking the first time in the history of A-shares. If this trend can continue, it means that dividends from listed companies will gradually become a source of funds for A-shares.

The latest news on the 50 billion insurance funds has arrived. Li Yunze, director of the China Banking and Insurance Regulatory Commission, announced that the 50 billion private equity investment fund initiated by China Life Insurance and New China Life Insurance has officially started its operations.

In the first half of the year, the 'national team' has accumulated over 460 billion yuan in market entry funds through stock ETFs, with the four major CSI 300 index ETFs increasing their holdings by over 310 billion yuan. Wu Qingwu, chairman of the China Securities Regulatory Commission, also expressed support for further increasing the holdings by the China Investment Corporation and expanding the investment scope.

Furthermore, on September 23, the first batch of 10 CSI A500 ETFs have all completed fundraising or early redemption, with a total fundraising size of about 22 billion. The industry expects that these ETFs will be listed in mid-October.

This means that as of yesterday, this 22 billion has already begun to establish positions.

At the current point in time, the A-share market has indeed attracted incremental funds from multiple sources.

3

A-shares see a rare sharp rise.

Watching the sharp rise in A-shares today, there is indeed a feeling of sailing through all the vicissitudes of life.

A-shares surged on heavy volume all day, with all three major indexes rising over 4%. The Shanghai Composite Index saw its largest single-day increase since July 6, 2020, with a trading volume of 971.3 billion yuan in the two markets, significantly higher than the previous trading day's 420.3 billion yuan volume.

Hong Kong stocks also surged across the board! At the close, the Hang Seng Index rose by 4.13%, while the Hang Seng Tech Index rose by 5.88%. As of the time of writing, the FTSE China A50 Index futures widened their gains to 6%.

In terms of ETFs, the large financial sector performed strongly throughout the day. CNI Xiangmi Lake Fintech Index ETF Huaxia, Boshi Fund Fintech ETF, and Huabao Fund Fintech ETF rose by 8.5%, 7.7%, and 7.44% respectively. The ChiNext led the counterattack, with the ChiNext 100 ETF Huaxia and ChiNext 50 ETF rising by 6.98% and 6.21% respectively.

ETF options have seen a surge in implied volatility and prices, with a total of 4 contracts rising by over a hundredfold by the close, and over 30 contracts rising by over tenfold, with the 50ETF September 2400 call option seeing a huge increase of 239 times, the largest gain.

(The content of this article is a list of objective data and information and does not constitute any investment advice)

In terms of the decline, it is interesting to note that cross-border ETFs and ultra-long-term government bond ETFs are all down, while US stock-related ETFs are all in the green despite the rise in overnight US stocks. The S&P biotechnology ETF and the Nasdaq biotechnology ETF fell by 2.14% and 1.67% respectively.

The Nikkei 225 Index closed up 0.57% today, while the Nikkei ETF, Nikkei 225 ETF e fund, and the China Southern Peak Topix ETF all fell by 1%, with the latest premium discount rates at 3.33%, -0.37%, and 0.3% respectively.

Ultra-long-term government bond ETFs all closed down today, with the 30-year government bond index ETF and the 30-year government bond ETF falling by 0.91% and 0.86% respectively.

The high-to-low retreat of long-term government bond yields implies the need to observe whether there will be a stock-bond see-saw effect in the future. This morning, long-term interest rate bonds surged at one point, with the 10-year government bond yield dropping by 3.45 basis points to 2% and the 30-year government bond yield dropping by 3.75 basis points to 2.1%. However, the long-term interest rate bonds later retraced gains, and the 10-year yield failed to break through the 2% integer mark.

Regarding the financial policy combination on September 24, the latest analysis by China Securities Co.,Ltd. points out that today's central bank and CSRC moves have heralded the introduction of heavyweight policies, sounding the clarion call for an A-share counterattack. We determine the policy: "Monetary policy first, fiscal policy later", the market: "rebound first, then reversal", the bottom has been established, and the correction is an opportunity.

On the question of whether fiscal policy will take over the 'relay baton' of monetary policy, the central bank governor mentioned at a meeting today: "We emphasize the coordinated cooperation of monetary and fiscal policies to better support the effective implementation of an active fiscal policy."

China Minsheng Securities macro team believes that the current fiscal end is more concerned with how to make good use of existing policies. Of course, monetary policy has already shown a loose trend. When the fiscal stock policy is used well and exhausted, perhaps the continuation of fiscal looseness is also on the way.