Where will the stock market go?, After the official announcement of the heavyweight benefits

Today, A-shares opened high and closed low, with the Shanghai Composite Index narrowing from an opening gain of over 5% to a closing gain of about 1%.

As of the close on the 28th, the Shanghai Composite Index closed at 3098 points, up 1.13%; The Shenzhen Component Index closed at 10233 points, up 1.01%; The ChiNext Index closed at 2060 points, up 0.96%. The market transaction volume has significantly increased, exceeding 1.1 trillion yuan today, and the net sales of northbound funds have exceeded 8 billion yuan. Most industry sectors saw gains, with real estate development, real estate services, coal industry, and securities sectors ranking among the top performers.

Zhao Qingming, Vice President of China Foreign Exchange Investment Research Institute, said in an interview with China News Agency's Guoshi Express reporter that the four major policy benefits announced last weekend have greatly boosted the capital market. Today, the Shanghai Composite Index opened up more than 5%. However, the above policies are focused on the capital market itself, while the stock market is more of an economic barometer. Currently, some investors have weak expectations for the economy, which has dragged down the market's performance today. However, it should be emphasized that although the A-share market opened high and closed low, the positive effect of last weekend's policies should not be denied.

Guo Xin Securities analyst Shao Xingyu also pointed out that overall, the reduction of stamp duty and the adjustment of a package of policies in the capital market have implemented important instructions from senior management to "activate the capital market and boost investor confidence", focusing on comprehensive measures from the investment side, financing side, trading side, etc., which is conducive to boosting market confidence.

Transaction side: Halving stamp duty is beneficial for attracting incremental funds

The Ministry of Finance and the State Administration of Taxation announced on the 27th that in order to activate the capital market and boost investor confidence, the stamp duty on securities trading will be reduced by half from August 28, 2023.

This is the seventh time that China has lowered transaction stamp duty since the introduction of stamp duty in 1990, with the last reduction being in 2008. The previous reduction in stamp duty rates for securities transactions has brought a good boost to the A-share market.

Zhang Tianyu, an analyst at Bank of China International, believes that the halving of stamp duty on securities trading will further reduce investor costs and is expected to attract incremental funds. The stamp duty on securities trading is the main component of the cost for A-share investors, taking the Shanghai and Shenzhen Stock Exchanges as an example, accounting for approximately 76% of investor trading fees. Based on the stamp duty revenue of 275.9 billion yuan in securities trading in 2022, the halved collection is expected to release 138 billion yuan of funds. The adjustment of stamp duty has a significant short-term boost to investor sentiment, directly benefiting securities firms and is expected to catalyze the rise of the securities sector.

Chen Li, an analyst at Dongwu Securities, said that the reduction in stamp duty is conducive to attracting quantitative funds and bringing incremental funds to A-shares. For institutions such as quantitative funds that mainly engage in high-frequency trading, the expected halving of stamp duty has a significant positive impact on their transaction costs, reducing transaction fees by about 37%. Therefore, the scale of quantitative funds that mainly engage in high-frequency trading is expected to further expand.

"Financing side": Periodic tightening of IPO rhythm,

Limited reduction of holdings by over 50% of companies

The China Securities Regulatory Commission announced on the 27th that relevant arrangements have been made to reasonably grasp the pace of IPO and refinancing, including: tightening the IPO pace in stages based on recent market conditions, and promoting dynamic balance between investment and financing. For large-scale refinancing of listed companies in the financial industry or other industries with large market capitalization, implement a pre communication mechanism, pay attention to the necessity of financing and the timing of issuance. The refinancing of real estate listed companies is not subject to restrictions on breakdowns, net losses, or losses.

At the same time, the China Securities Regulatory Commission has made the following requirements to further regulate the reduction of holdings by relevant parties: if a listed company has a situation of breaking through the stock market or net assets, or has not received cash dividends in the past three years, and the cumulative cash dividend amount is less than 30% of the average net profit in the past three years, the controlling shareholder or actual controller shall not reduce their holdings of the company's shares through the secondary market.

Mou Yiling, an analyst at Minsheng Securities, said that historically, China has temporarily suspended IPOs for a total of 6 times since 2000, with a maximum duration of over a year and a minimum duration of about one quarter. During the period from the suspension of IPOs to the reopening, the performance of the A-share market has fluctuated slightly. It is expected that the tightening of the IPO pace will alleviate the liquidity pressure on the market and improve the quality of issuance, both of which will help boost investor confidence. The relaxation of restrictions on refinancing for real estate enterprises also helps alleviate market concerns about systemic risks in the real estate industry, thereby improving expectations.

Chen Li analyzed that on the one hand, the above-mentioned reduction regulations will effectively control the outflow of industrial capital through cash out, while reducing the negative impact of industrial capital reduction on market sentiment, and playing an effective role in stabilizing the market and protecting investor rights. There have been multiple policies to increase or decrease holdings in history, but no adjustments have been made to the eligibility for reduction. This measure to restrict the eligibility for reduction is unprecedented and has a significant impact on maintaining market sentiment. According to calculations, under the new regulations of the China Securities Regulatory Commission, about 56% of the controlling shareholders and actual controllers of A-share companies are unable to reduce their holdings in the secondary market, mostly in growth oriented industries such as mechanical equipment, electronics, pharmaceuticals, and computers.

Investment side: Reduce the minimum proportion of financing margin

With the approval of the China Securities Regulatory Commission, the Shanghai Stock Exchange, Shenzhen Stock Exchange, and Beijing Stock Exchange issued a notice on the 27th to revise the implementation rules for margin trading, reducing the minimum margin ratio for investors to purchase securities through financing from 100% to 80%. This adjustment will be implemented after the market closes on September 8, 2023.

Liu Chenming, an analyst at Tianfeng Securities, said that the relaxation of the margin ratio for this financing will better meet the reasonable trading needs of investors, help to increase the balance scale of the two financing businesses, and promote the development of the two financing businesses. At the same time, under the premise of overall controllable leverage risk, reducing the financing margin ratio is conducive to increasing market liquidity, boosting trading sentiment, activating the capital market, promoting the stable and healthy development of China's capital market, and ultimately promoting high-quality development of the real economy.

The future trend of A-shares: "bottom" may come, accumulating upward momentum

Zhao Qingming believes that although A-shares opened high and closed low today, there is not much room for further decline, especially considering the market's full adjustment since August and the continuous policy support. In the future, as the Chinese economy continues to improve, A-shares will accumulate stronger upward momentum.

Shen Zhengyang, an analyst at Northeast Securities, believes that last weekend's policy benefits were concentrated, with a combination of policies such as halving and increasing stamp duty, controlling IPO and refinancing rhythms, regulating holdings reduction, and reducing financing margin ratios, demonstrating a strong direction of "activating the capital market and boosting investor confidence", which is beneficial to the market. Based on the pattern of market trends after the previous stamp duty reduction, combined with the positive significance of balancing supply and demand in the primary and secondary markets, slowing down IPO refinancing, and reducing holdings in the medium and long term, it is expected that the index will construct and confirm a medium-term bottom.

According to Huang Hongwei, an analyst at Caixin Securities, it has been almost a month since the A-share adjustment this round, and the market valuation is approaching an extremely pessimistic position. With the disappearance of the suppressive factors disclosed in the mid year report at the end of August and the implementation of heavyweight policies such as halving the stamp duty on securities trading, the bottom of the A-share market may come. In the future, we can actively long A-shares.