The second round of the bull market has begun!

Yesterday at 15:21, the content briefing of the important conference was officially released, causing Hong Kong stocks to surge instantly, with the Hang Seng Index reversing from a 0.33% decline to a 2.76% increase.

Chinese concept stocks celebrated overnight, with the Chinese concept Index closing up 8.5%, marking the best single-day performance since the end of September, while the three-times leveraged FTSE China ETF soared 24% overnight.

Today, the A-share trading volume skyrocketed to 500 billion, breaking through 2 trillion again, marking the 50th consecutive trading day surpassing 1 trillion yuan, setting a record for the longest duration in history.

What triggered the explosive reaction in Chinese assets from the important conference briefing?

01

Important signal! Dual easing of fiscal and monetary policy.

CITIC SEC's chief economist Mingming believes that important meetings have released multiple significant signals:

First, macroeconomic policy is 'more proactive and effective', proposing 'moderately loose monetary policy' again after many years, and for the first time suggesting 'strengthening extraordinary counter-cyclical adjustments';

Second, for the first time proposing to 'stabilize the real estate and stock markets', making the stabilization of the stock market one of the key focuses of economic work next year;

Third, 'greatly boosting consumption' has been placed in a more prominent and important position. The space for monetary easing is opening up, with more proactive fiscal policies, emphasizing comprehensive expansion of domestic demand, and extraordinary counter-cyclical adjustment policies expected to be introduced.

The wording of multiple policies is historically rare, and following the release, Hong Kong stocks and the FTSE A50 Index rapidly surged. What does this mean?

'Extraordinary' counter-cyclical adjustments have appeared for the first time, with market expectations that next year's policies will not only increase in intensity but are also likely to surpass the existing policy tools.

With the determination of 'more proactive' fiscal policies, next year's fiscal policy strength is expected to be significantly higher than this year.

The position of monetary policy has shifted from 'stable' to 'moderately loose'. Historically, domestic monetary policy only adopted a 'moderately loose' stance during the global financial crisis in 2009 and 2010.

At this point, the entire market has finally welcomed the long-awaited U.S.-China monetary easing cycle!

If we look back at the policy shift since September 24, we will find that the Federal Reserve's interest rate cut of 50 basis points on September 19 was a very important moment, leading to significant changes in many aspects.

In August, it was quite alarming when the 10Y government bond yield approached 2%. Now the 10Y government bond yield has entered the 1% era, hitting a new historical low of 1.867% today, which is why the market is more attentive to the monetary policy mentioning 'moderate easing' after 14 years.

What is even more eye-catching is that the meeting has placed 'greatly boosting consumption' in a more forward and important position, and it has rarely emphasized 'stabilizing the real estate and stock markets', once again validating the shift in policy thinking.

As is well known, insufficient effective demand is a key factor constraining the economy, and inadequate effective demand is further constrained by the real estate and stock markets dragging down residents' asset income.

Therefore, the September meeting mentioned 'stabilizing the real estate market and stock market' and 'efforts to boost the capital market' for the first time in history in December, reflecting the policy's desire to improve the asset side of the private sector, thereby supporting the real economy.

Focusing on investment, the market will still worry about the fundamentals, believing that if profits do not improve, how can there be a big market?

The premise of this issue is that the stock market must rise alongside an economic recovery; is this really the case?

From the perspective of Historical Data, this is not the case. The US stock market in 2009 and the Japanese stock market in 2012 both led the economy during an environment of abundant liquidity and low valuations, rebounding before the economy. The recent rebound in the A-shares since September 24 also belongs to 'valuation leading the way.'

From the chain of policy bottom → market bottom → profit bottom, if there is a profit bottom, the market is expected to see it appear at the earliest by the third quarter of next year, while profit expectations generally lead earnings by three quarters. Approximately around March-April next year will be the crucial time to determine if profit expectations will reach an inflection point. Policy aspects will similarly need to wait until the major meeting in March next year for the final decisions.

This means that before then, profits and policies do not need to be verified. However, each crucial meeting or economic data release may be moments of intense capital competition, which will likely lead to increased market volatility.

02

The historical performance of broad-based ETFs has been impressive.

As market uncertainty grows, broad-based indices provide investors with balanced, simple, and direct investment tools. Reviewing past rounds of bottom rebounds, broad-based indices have demonstrated outstanding historical performance due to high capital utilization (with ETF positions exceeding 95%) and coverage of leading mainstream stocks.

Taking the A500 Index and the equity hybrid fund index as examples, looking at the period from one month before to one year after four lows of the SSE Composite Index (up to October 31, 2024), the CSI 300 Index and A500 Index have outperformed the equity hybrid fund index three times significantly, with an average increase of over 50% during four rebounds from the bottom.

Before this meeting was announced, Wall Street funds also chose to Buy SHEN300ETF and the Futures to triple leverage FTSE China ETF in advance. According to EPFR data, from November 28 to December 4, 0.21 billion dollars of passive funds net inflowed into A-shares, ending a continuous five-week net outflow.

Given that any type of Fund product has applicable investment scenarios, we cannot expect it to cure all ailments, and this applies to broad-based ETFs as well. Chinext Price Index, MSCI China A50, SSE 50, CSI 300 Index, CSI 500 Index, FTSE China A50 ETF, China Southern CSI 1000 ETF, SSE Science and Technology Innovation Board 50 Index each have different logics. What we need to focus on is how to penetrate the most core essence.

Historically, when macro policies intensify and the economic situation improves, large-cap style ETFs such as SSE 50 ETF (510050), FTSE China A50 ETF (159601), and HUAXIA300 (510330) tend to outperform.

From the distribution of primary industries, SSE 50 and CSI 300 Index are more focused on traditional large financial and large consumer industries, while the new economy accounts for a higher proportion. MSCI China A50 Connect Index combines traditional finance sectors with high-growth sectors, with a higher proportion of the new economy.

The new generation core broad-based A500 is of the Large-Mid Cap style, covering 35 CSI secondary industries, featuring both large-cap style and comprising leading stocks in new quality productivity sub-industries, better representing the context of China's economic transformation. A500 has become the fastest broad-based fund to break the 100 billion mark in history, with A500ETF Fund (512050) raising 11.3 billion yuan since its listing.

Compared to the A50, the CSI 500 Index selects constituent stocks ranked 301-800 by market cap in the Shanghai and Shenzhen stock exchanges, belonging to Middle Cap stocks with a growth orientation. The CSI 1000 and Chinext Price Index represent small cap growth styles.

Recently, the market style has clearly favored small cap growth stocks due to several reasons: when the overall market is under wide monetary and fiscal policies, the risk appetite for funds rises, and M1 growth and GDP growth are expected to bottom out and rebound. Coupled with the new technology cycle represented by AI, the market tends to give higher valuations to high-growth indices like CSI 1000, SSE Science and Technology Innovation Board 50 Index, and SSE 100.

As of December 10, only the CSI 1000 Index achieved gains after October 9, with funds actively flowing into the growth-oriented broad-based ETFs. The CSI 1000ETF (159845), CSI 500ETF (512500), and GEM 100ETF HUAXIA (159957) saw net inflows of 13.979 billion yuan, 5.989 billion yuan, and 2.074 billion yuan respectively this year.

Looking back at historical trends, when A-share listed companies confirm the turning point of profits, the growth style remains strong during market upswings and oscillations at the top, while the value style tends to catch up during the market's final surge.

03

Summary

Reviewing today's A-shares, the market opened high and then fell, with the close showing the SSE Composite Index up 0.59%, the Shenzhen Component Index up 0.75%, and the Chinext Price Index up 0.69%. Fortunately, the trading volume expanded to 566.7 billion, reaching 2.2 trillion yuan, proving that market trading is still active.

Behind the market's hesitation may be concerns about whether nominal GDP can improve. However, investment is based on expectations, which reflects marginal changes; trends are difficult to establish and, once formed, are hard to change.

The Federal Reserve has begun its first rate cut cycle in four years, which will profoundly impact our investment logic for the next two to three years. There is no doubt that domestic policy ideas are changing, and after 14 years, monetary policy is once again advocating for 'moderate easing,' making the resonance of monetary easing between China and the U.S. a reality.

Currently, the yield on 10-year government bonds has officially entered the ‘1’ era. The arrival of a low interest rate environment means that more and more deposits will 'move.' After the policy shift in September, resident deposits sharply decreased by 570 billion yuan in October. Where will the released funds go?

The return of Real Estate to its residential attributes means that, in addition to buying bonds, the equity market is likely to become a new vehicle for residents' wealth. This also provides important context for the historic first appearance of the expression 'stabilize the real estate and stock markets.'

Policies are guiding medium- and long-term funds, as well as patient capital, into the market to stabilize the ecological structure of A-shares. Today, there are reports that mainstream broad-based index products are expected to add individual pension Y shares, including 300 Index, CSI 500 Index, and Chinext Price Index products.

By examining the high-frequency economic data since the policy shift in September, a positive marginal trend in the economy can be observed. Leading indicator PMI has shown significant improvement, with China's manufacturing PMI achieving 'three consecutive increases' in November. Prices of second-hand houses in first-tier cities have stabilized somewhat. The latest released data for November shows a reversal in PPI from decline to growth, but CPI data still needs improvement.

In a thousand words, one can only earn money within their own understanding. Recognizing one's own capability boundaries and choosing suitable investments, while steadily advancing with each step, ultimately belongs to you.

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The above content only reflects the current market situation and may change in the future. It does not represent any investment opinions or suggestions. Past performance of the Index does not indicate future performance and does not guarantee any investment returns of the Fund or any investment advice. The Index has a relatively short operational history and cannot reflect all stages of market development. Index funds may experience tracking errors, and past performance of the Fund does not indicate future performance. Please read the "Fund Contract", "Prospectus", and other legal documents before purchasing any Fund products, and choose the products suitable for you based on your risk tolerance and investment goals. The market has risks, so investment should be cautious.