The first trading week after the National Day holiday has ended, with both the market and indexes experiencing varying degrees of retracement. Has the "fast come fast go" market trend come to an end? What is the rotational pace and relationship among policies, fundamentals, and indices?

This week, the Ministry of Finance continues to escalate its meetings. How should investors understand the changes and adjustments in policy orientation?

Is the "fast in fast out" foreign capital a key variable in the market or a disruptive factor that does not affect the overall trend?

At this critical and special juncture, in order to answer market doubts, Wall Street News has invited Chen Guo, Chief Strategy Officer of CSC Securities and Deputy Director of the Research Committee, to be a guest on the live broadcast room.

Below is a summary of the live dialogue between Wall Street News and Chen Guo on October 11th:

After the market retracement, some voices believe that this round of market trends may "come fast and go fast", with concerns about fundamentals and financial reports being constraint factors. How does Mr. Guo view this perspective? What is the rotational pace and interrelationship among market trends, policies, and fundamentals?

Throughout this round of market trends, there has always been a lot of skepticism. I believe that when considering the stock market, one should not only consider current profits, but also whether profits will improve and whether the valuation environment will improve.

Our view and confidence in the stock market cannot be based on the current market price - being bullish when the market goes up and bearish when it adjusts. From the current overall situation, I believe that the A-share market's profitability will be better next year compared to this year, and the valuation environment will also be better. The market's rise and pullback indeed come and go quickly, but this is in line with the law - rapid rise will come with a fast pullback. However, overall, considering the rise in this round, I think the current pullback is still reasonable. Looking ahead, the market is indeed entering the second phase, which is characterized by volatility.

From the perspective of sectors or structures, the market first needs to hold onto sectors with attractive fundamentals or valuations, then gradually consider some aggressive directions based on changes in the external environment. The overall market's risk preference has decreased from the very high sentiment before, so we should first focus on these high-quality and undervalued sectors. For example, some new directions from the third-quarter reports are related to exports or areas with both domestic and foreign demand, benefiting from previous policy directions, such as autos. In the mid-term, I am quite bullish on China's new energy vehicles, including electric vehicles, especially those related to the global AI industry chain.

In terms of valuations, the A-share market's valuation structure is highly differentiated, with a large number of companies having low price-to-book ratios. Regardless of the current asset shortage compared to the bond market, the relative attractiveness of the stock market, the tendency for water to flow downward, or the confidence revaluation trend of this logic, these low price-to-book ratio central SOEs are relatively abundant in terms of industries, including banks, insurance, many traditional industries, construction, etc. At this stage, our focus is mainly on stability. As the market gradually stabilizes and confidence starts to recover, the risk change in the market will rise again. We can pay more attention to thematic directions or areas related to future growth, such as new quality productivity, which is a crucial area. I also believe that mergers and restructuring of central SOEs are important themes to watch. Looking further ahead, if we see more policy signals, then the overall economic expectations might rise again, potentially leading to market opportunities expanding and reflecting in the form of index movements from oscillation to upward swings or stronger uptrends.

Firstly, in November, the US presidential election - we need to see changes in the overall US fiscal policy, tariff policy, and US-China relations. If there are changes, for instance, if the Republican candidate Trump takes office, there might be preparations or expectations for boosting domestic demand. There might even be more policy arrangements. The specific clarification of more policy arrangements may have to wait until the end of the year in the Central Economic Work Conference in December. At that time, there may provide a more positive, stronger, or clearer signal for boosting domestic demand, which is an important and worth-watching time point, especially considering the Fed's interest rate meetings in November and December, making the fourth quarter a crucial time.

Looking into next year, including the Two Sessions next year for economic goals, specific arrangements, fiscal allocations, and even considerations of the 15th Five-Year Plan, these are all important time windows. I believe this period won't be too lengthy because the overall trend indicates downward pressure on exports. At present, the policy level has clearly expressed the hope for a significant boost in the current economic situation. So, if under the current economic conditions, there is a downturn in external demand, in other words, the implicit message is that domestic demand next year needs to significantly improve compared to now, presenting some investment opportunities.

If we extend the viewpoint to 3-6 months, I believe the main theme would be the recovery of domestic demand or trading in expansion of domestic demand. However, as I mentioned earlier, in the very short term, the market may still need to wait for more signals to verify. We can first focus on the current prosperous chains, some of which are related to exports and undervalued areas, but the general situation will see the transition from external to internal.

"924" since igniting the market, the intensity and height seem to have exceeded the expectations and imaginations of most people. What are the significant differences in this round of policy changes and strategies compared to previous measures to boost the capital markets? How should investors understand the change and adjustment in policy tone?

The background of the important meetings of 924 and 926 is that many of China's economic data are noticeably below market expectations. Currently, the Q3 GDP growth rate seems to be quite distant from the annual GDP target of 5% we hope to achieve.

At the same time, we also see the main indices of the Chinese stock market showing a gradually downward trend in July, August, and September. Even in late September, there was a risk of hitting new lows. In this context, externally, we see the Fed starting a certain interest rate cut, and basically outlining continuous interest rate cuts over the next two years.

Against the backdrop of the international financial market, how should we price RMB assets in terms of USD assets and RMB assets? I think it's shrouded in a relatively pessimistic expectation. On Wall Street, the most crowded trades are longing U.S. stocks and shorting China. In China's domestic capital market, we see that the yield on government bonds, the 40-year yield on Chinese government bonds was previously lower than Japan's, and of course lower than the United States, and also lower than the major economies of Europe. This is extremely pessimistic, or what I consider to be quite an extreme pricing. In China's stock market, the popular approach is cluster dividends, investing in high dividend-paying stocks in clusters. Some say that Chinese bond investors are worried that their careers are entering the final countdown, while Chinese stock market investors are turning the stock market into a bond market. This actually reflects an extreme lack of confidence in the capital markets.

Furthermore, after a series of policies were introduced, the market indeed reacted very intensely. When confidence reaches an extreme low, if some strong policy signals emerge, the market reaction will be very intense, sometimes even faster or more frequent than the fundamentals, which may lead to normal corrections. Overall, the environment we are facing now, under the support of policies, is better than before the policies were introduced. Hence, it will not completely fall back.

Looking specifically at these policies, as the host said, the market is indeed relatively focused on new monetary policy tools. Essentially, these new monetary policy tools provide liquidity support to the capital markets through swaps, but it should not be simply understood as encouraging institutions to lever up for stock trading. I believe the two main effects are: First, in the Chinese stock market, if a liquidity crisis occurs, for instance, institutions at this time do not want to sell stocks; they appreciate the value of the stocks and see potential for growth. However, due to regulatory requirements or redemption pressure, they are forced to sell and close positions. This further pressures the market, increases the downward pressure on stocks, or worsens the stock liquidity. At this point, more stocks may be sold to obtain liquidity, causing the liquidity crisis to spread from one institution to more, and may even become a systemic risk faced by the market. Therefore, in this scenario, we can say that the market to some extent is dysfunctional. Institutions know that the pricing is irrational, but because the market is dysfunctional, it needs external support. So, by using the central bank's swap tools, institutions can swap suboptimal assets, such as individual stocks like CSI 300 weighted stocks, which may not have good liquidity in a market crisis, to assets like government bond bills that have very good liquidity. This way, they can liquidate, turn it into cash, and use the cash to buy stocks. So, on one hand, I have not sold the cost stocks, like the CSI 300, I have used them as collateral. On the other hand, through this process, I see liquidity issues leading to pricing errors so I buy, which helps alleviate the liquidity crisis and better realize the market's pricing function, reducing the risk of market dysfunction.

We also know that certain non-bank financial institutions in the market, such as insurance companies and brokerages, are willing to consider using their own funds for purchasing high-dividend stocks, whether through financing or purchase, and hold them in OCI accounts. These OCI accounts do not impact the overall profit and loss of non-bank financial institutions through daily fluctuations. In fact, they can be held in the medium term. So, we only look at the dividends. This is why some institutions continue to allocate high-dividend stocks. This is also encouraged and supported at the policy level. It encourages long-term holdings and allocation of companies, and also encourages listed companies to increase dividends and enhance shareholder returns. Of course, to sustain dividends or higher dividends, there is a requirement for companies to improve profitability or free cash flow, which in turn optimizes the overall market ecosystem.

If a non-bank financial institution has relatively high financing costs, but can obtain funds at lower or very low costs through central bank swap tools, it can then purchase a high-dividend, relatively stable-performing company and hold it in an OCI account for the medium term. The dividends reflected on the entire statement will be higher than the funding cost. For non-bank institutions, you could consider it as a form of arbitrage or interest rate trade. However, for the whole market, it is positive as it strengthens the pricing mechanism and support for high-dividend stocks, leading to quicker stock price appreciation for dividend-paying stocks, encouraging more companies to follow suit, and considering improving profits or increasing dividend payouts.

In any case, I believe overall, it is one of the tools that boost the capital markets. When we combine this background with the September 26 Political Bureau meeting, you can see that the meeting, of course, is more extensive, including monetary policy, fiscal policy, mentions a halt to the decline in the real estate market, boosting the capital market, and also mentions promoting the private economy law. So, you see the overall picture of this meeting is extraordinary, with a wide coverage and many considerations. Why? Because the current economic issues are not just simple economic issues, not just short-term issues of oversupply, what we see now behind deflation is long-term, including factors of debt cycles. Or if we talk about balance sheet deflation, to resolve this deflation or the various issues caused by the current deflation, we need to address the balance sheet issues directly, we need to solve asset price problems to resolve debt problems. Hence, this is why we see the policy level giving so much importance to asset prices, whether it's boosting the stock market or aiming to stabilize the real estate market's decline. This is unprecedented because the current economic issue is no longer just a simple economic issue, it is intricately linked with the entire financial market, capital market, and asset prices. Therefore, we need to look at the significance of policy meetings from this perspective. In other words, I think we cannot simply compare this policy with historical policies, this time we truly need to address and solve balance sheet deflation or debt deflation, these kinds of debt deflation have occurred many times in history, and it can be said that developed countries have all experienced it.

Because the current economic problem is not a simple economic issue, not a simple short-term issue of oversupply; what we currently see behind deflation has long-term elements, including debt cycle factors. Or we talk about balance sheet deflation, to address this deflation or the issues caused by it, we need to resolve balance sheet problems directly, we need to solve asset price issues to resolve debt problems. Hence, this is why we see such a focus on asset prices at the policy level, whether it's boosting the stock market or aiming to stop the real estate market's decline. This is unprecedented because the current economic issue is no longer just a simple economic issue, it is intricately linked with the entire financial market, capital market, and asset prices. Therefore, we need to look at the significance of policy meetings from this perspective. In essence, I believe we cannot simply compare this policy with historical policies. This time, we really need to confront and solve the issues of balance sheet deflation or debt deflation, issues that have occurred many times in history and have been experienced by developed countries.

The United States in 1929, Japan in 1989 or 1990, and Europe in 2012 have all experienced instances where dealing with an issue at once is better than gradually. During the time of the United States, there was a significant economic decline with a substantial increase in unemployment rate. In reality, I don't think the approach was particularly well-done, it was more of a kind of deleveraging resembling a clearance sale.

By the 90s, the Japanese economy was relatively stable, with a relatively consistent employment rate. It was actually quite good because they began to implement some countercyclical monetary and fiscal policies. However, at that time, they were not aware of the overall deterioration of the balance sheet, hence Japanese stocks continued to decline, reaching a low point in 2012 after almost 20 years of decline. Many people say they lost 20 years, but economically, Japan was still relatively stable.

In 2012, during the Eurozone debt crisis, the European Financial Stability Facility (EFSF) was established as the Eurozone did not have a real finance department. The EFSF allowed financially constrained European countries, or the five countries at that time facing debt and deficit issues, to receive financial assistance and relax fiscal deficits. This resolved the problem, so after 2012, Europe saw positive performance in terms of deflation, economic growth, and even the stock market. Major stock market indices saw increases ranging from 50-200% in those years, with Greece having the strongest increase of over 150% and Germany with over 50%. This shows that human cognition is constantly evolving. We should not still find problems difficult to solve that we believed were challenging 30-40 years ago; in reality, progress is continuous. Even in Japan, under the Abenomics policy in 2012, Japan actually emerged from the deflation quagmire.

Some narratives that short China or take a pessimistic view of Chinese assets are based on demographic cycles. We must not forget that after 2012, Japan's population did not grow but continued to shrink, with an aging population and a worsening dependency ratio by 2012. Birth rates were declining, and the number of births was decreasing annually. This has been the situation in Japan since 2012, and it has not been reversed. Yet, the Japanese stock market has experienced over a decade of bull market rising from around 7000 points to over 30000 points, a significant increase. Even when per capita GDP is at a high level with limited room for growth in industries and external influences on currency policy, Japan's artisan spirit is strong. Japan has many advantages, but overall, whether in the internet age, the current era of artificial intelligence, or the era of automotive electrification and intelligence, it is not leading in the industrial revolution. The artisan spirit is strong, but I believe the innovation capability is generally not as good as China's.

In such a scenario, Japan has been able to sustain a bull run in its stock market with considerable space. Today in China, we have many conditions that are better than Japan, such as independent monetary and fiscal policies, clearer historical examples, better trends in industrial development and innovation capabilities, as well as the potential for increasing per capita income. In this situation, as we are just beginning to address the issues of the current balance sheet or deflation in the stock market with a recent surge, with the Japanese index tripling, we are actually just starting this trend and discussing whether this bull market is ending prematurely seems overly conclusive.

Overall, I am very optimistic about the current fundamentals because China has opened the progress bar to address deflation. I believe that as this progress bar completes, many people will have doubts about what will happen next or if the progress bar slows down or even stops, they will also doubt. This is normal because many people need to see the final scene to believe. But as investors, we need to be proactive, not waiting for everyone else to catch up before we do. This is what we need to consider.

Whether domestic or foreign investment, there are differing views on the outcomes of the fiscal meeting on October 12. Some believe it will fall short of expectations, while others think that a shift in policy tone will lead to stronger stimulus measures. How do you think investors should reasonably set their expectations? What surprises might happen in the future? What details are truly worth long-term attention and focus?

I have previously mentioned that this bull market will have three stages, with the second stage involving confusion in policy and fundamental validation. Sometimes policies exceed expectations, sometimes they fall short, as the market rhythm is not always consistent. Market expectations can sometimes be overly high and can change rapidly. We really need to pay attention to the concept of the "progress bar" mentioned above.

First, has the progress bar been started? Second, is the progress bar moving forward? Is the speed very slow? We should not set a hypothetical expectation too high at once, then say that in reality, the expectation is lower; this is unreasonable. To some extent, I believe it is normal for the progress bar to move slowly or even stop at certain stages during the process. It is important to remain patient throughout this process and not assume that slow progress means it will reverse or be abandoned.

In terms of specific fiscal policies, first of all, in my opinion, the overall progress is actually very fast:

On September 24, we held a leadership meeting in the financial sector; on September 26, a political bureau meeting; then National Day; and quickly followed by a meeting of the National Development and Reform Commission. This pace is actually very fast, relentless, and essentially reflects the synergy of the entire system, with the central bank, fiscal, and the NDRC working together closely, which I consider a very positive signal unless we deliberately raise our expectations first and then claim that the reality is lower. In my view, this approach is not very practical because the real policy considerations should be relatively steady and gradual. Of course, when it comes to fiscal policy, I personally believe we do need a relatively large-scale fiscal policy.

However, we should not only focus on fiscal policy when it comes to the stock market; stock investment dimensions are very complex. In the short term, it looks at funds; changes in supply and demand after the holiday can easily lead to a correction. In the medium term, policies are important, as the market agrees that policies are part of the fundamentals, with policies having a significant impact on the fundamentals, so monetary policy, fiscal policy, and industrial policies will all have a significant impact. But in the long term, it is the companies that are the most crucial. Are the companies innovating? Are they making progress? Are the entrepreneurs themselves correct and wise? These are more crucial in the medium to long term.

Compared to fiscal policy, personally, I have been paying more attention recently to the Law on Facilitating Private Economy. I am more focused on the fact that we are currently making great efforts to improve the overall business environment, as mentioned in the NDRC leadership meeting, while fiscal policy is indispensable. Therefore, we now need to address the issues with the balance sheet. Firstly, we need to address the debt, ensuring that the debt conversion funds are sufficient to ensure that problems at the local debt level do not affect normal investment operations.

Secondly, in addition to debt conversion, we indeed need to provide a certain level of support and subsidies for enterprises and residents. Of course, there may be specific target groups, perhaps the middle and low-income groups, or perhaps we need to encourage more childbirth because there are concerns about the population, so we need to provide more incentives for childbirth, including providing more subsidies to mothers with second children or even multiple children. This includes encouraging and stimulating consumption, which can indeed consider more consumption vouchers, as well as support and subsidies for some businesses. Of course, we should not reinforce overcapacity; we should support more new quality productivity.

So, indeed, there are likely to be many categories included in this, and in my opinion, we may not immediately play all cards or lay them all out at once; perhaps it will be implemented in batches and steps, including what the optimal scale should be, may not be settled right away, constantly summarizing experiences in practice is the best approach. For example, which categories the consumption vouchers are most effective for actually, some may buy without discounts, however, discounts may help in enhancing marginal decisions and driving consumption, internal circulation may be very helpful. Ultimately, what types of categories, what amounts, and how to approach are most appropriate, should be continuously optimized and iterated through trials and experimentation, there is no need to reveal all amounts or completely finalize the numbers, the same goes for monetary policy itself, whether it is the People's Bank of China or the Federal Reserve, we gradually cut interest rates, implement policies. I believe fiscal policy operates in a similar manner, so if we have such an expectation, for investors, firstly, the focus should be on the content of fiscal investment. Of course, I do not expect there to be an immediate announcement of the total scale amount on Saturday, but I believe, regardless of the amount, we should not consider that amount as the whole, but rather focus on the purpose, the effectiveness of the purpose is the key.

I just mentioned Japan as an example, Japan implemented two fiscal stimuluses back in 1992-1993, the first batch was 10 trillion yen, and the second batch was 13 trillion yen, which led to an economic rebound in Japan and a 50% increase in the Japanese stock market index. However, I believe its structure was not ideal, as it mainly leaned towards infrastructure, but by the 1990s, Japan's infrastructure was already very developed, so the return on investment was actually very low. Moreover, after the infrastructure projects were completed and jobs were created, the impact was essentially over, unlike supporting consumption and new quality productivity, which can have more medium to long-term effects.

The most important thing for the economy is not just subsidies or support but the entire ecosystem. Continuous improvement of the business environment and continuous encouragement of entrepreneurs play a vital role in driving business innovation. Overall, these are all policy implementations. I do not feel that the current policies have low expectations. The progress is actually very fast. The only issue may be that the stock market did rise a bit too quickly before, so there might be a pullback. Once it stabilizes, we will further observe whether the fundamental conditions improve marginally. In general, I believe this bull market is still on the way.

How to view foreign capital's 'fast in and out' approach to Chinese assets? Is foreign capital a key variable in the market, or just a disruptive factor that does not obstruct the overall trend? Should investors focus on foreign capital's statements, opinions, and capital trends?

In this round, foreign capital indeed appears very active. As the host mentioned, whether it's inflows and outflows or statements, it is worth paying attention to. Sometimes different perspectives can validate each other or provide inspiration. We do not need too many conspiracy theories, to either deify or demonize foreign capital. Overall, a relatively clear strategy, continuously advancing and validating, will eventually lead to sustained inflows of foreign capital into Chinese stock market.

Recently, I do see significant differences in foreign capital, and there is indeed some speculative foreign capital involved. This is actually normal. It is not only foreign capital, but also domestic institutional and individual investors who generally have many differences, or engage in some rapid trading.

Personally, I summarize that, in terms of commonality, the current enthusiasm in the Chinese stock market is excessive, with a lot of enthusiasm but insufficient confidence. It seems there are great opportunities in the stock market, excessive enthusiasm is spreading widely, but the real concern is the lack of confidence in the continuous improvement of the Chinese economy. Therefore, I believe, as I mentioned, the key to the bull market is confidence reassessment. The market has not truly reached its peak. The recent market highs are just emotional highs, not true confidence highs in the economy, nor in fundamental profitability, nor in valuation.

This is why I don't see this round as the peak of the bull market. I think foreign capital itself does not have a consistent or particularly strong opposing sentiment. If the fundamentals continually confirm that there are considerable investment opportunities in the market, foreign capital will flow in. Of course, the ones who truly understand the Chinese economy and companies are still domestic investors. We don't need to solely focus on foreign capital. Some foreign capital can express their opinions through funding or statements. I think for Chinese investors, having more references to consider is beneficial and outweighs the disadvantages.

How can investors maintain a stable mindset? Continuously optimistic like you?

I am not a 'permanently bullish' investor. From late May to late September, we actually expressed a cautious view on the market. Of course, I am relatively optimistic about the medium-term economy and market. As the host rightly pointed out, confidence does not come from what we hear others say, or from whether stocks are rising or falling today. It is difficult for this kind of confidence to be truly firm. Without a solid belief or opinion, you are easily disturbed by the market and other people's short-term influences. This is not conducive to making investments or to your overall mindset.

Confidence should come from our understanding of the entire Chinese economy, Chinese industry, Chinese companies, and the Chinese stock market, including the liquidity environment, funding environment, and valuation position it faces. If we feel very confident, in fact, short-term price trends and public opinion will not change our views.

For ordinary investors, it may be quite difficult, but I think everyone should consider a few questions. Firstly, can we calm down and re-examine the press conference on September 24th and the full text of the Politburo meeting on September 26th? I believe you can conclude that the policy deployment is comprehensive and systematic, aiming for significant improvement. If you expect significant improvement and better profits next year, it is an optimistic reason in itself.

Second, we need to look at the relative valuations of A-shares, Hong Kong stocks, and major global stock markets. Sometimes, the same company, for example a commodity company, may have a much lower PE ratio in the Chinese stock market than overseas. Many Chinese state-owned enterprises, banks, and traditional industries have low PB ratios, even below 1. In contrast, Chinese new energy car companies, consumer goods companies, and internet companies have more attractive valuations globally with strong competitive advantages.

The progress of China's new energy vehicle industry is rapidly evolving. Apart from Tesla, I believe the future of most American, Japanese, European, and South Korean car companies is at risk, while Chinese car companies will lead the intelligentization of automobiles. The market share of companies like Tesla will continue to shrink, which requires special attention.

We also need to pay attention to internet companies. While we must respect American internet companies, Chinese internet companies are significantly ahead globally. With strong innovation capabilities and a focus on international expansion, Chinese internet companies are leading in innovation and dedication among the youth. It is important to evaluate whether these fundamentals are progressing.

In my view, at least in many areas in China, many companies are undervalued on a global scale. We are making efforts from entrepreneurs to employees, but are not fully evaluated based on a global standard. In terms of capital market pricing, a reassessment is necessary to avoid being influenced by short-term market fluctuations or others' opinions.