For investors in A-shares, the entire third quarter was probably a back-and-forth between hope and disappointment.
After the tone was set by the 20th Central Committee's third plenary session and the mid-year Politburo meeting, the period from late August to September was seen by the market as an intense policy rollout period. After all, given the current economic performance, to achieve the annual economic growth target of "around 5%," policy stimulus is indispensable.
Moreover, in a series of meetings, the market could also see the official continuous release of policy expectations. For example, the Central Politburo meeting in July proposed "to reserve and timely introduce a batch of incremental policy measures"; the central bank clearly stated "to start introducing some incremental policy measures to further reduce corporate financing and resident credit costs" when interpreting the financial data in August; on September 19, the National Development and Reform Commission (NDRC) stated at a press conference "to strengthen policy pre-research and reserve, and timely introduce a batch of incremental policy measures with strong operability, good effects, and tangible benefits for the public and enterprises" and a series of expressions.
But in reality, after the real estate "May 17th new policy," from the end of the third plenary session in July to now, the market has not felt much about the availability of policies. Since the second quarter, in the face of economic slowdown, the fiscal policy mainly focused on "two news" (large-scale equipment updates and consumer goods exchange for the old). After the State Council's executive meeting on July 19, a long-term special treasury bond was introduced to promote the "two news" work, with the NDRC leading the arrangement of about 148 billion yuan in long-term special treasury bonds for large-scale equipment updates; about 150 billion yuan in long-term special treasury bonds were allocated to localities to support the exchange of old cars and home appliances. Compared to the past, a new subsidy project for home appliance exchange for the old was added. The monetary policy mainly focused on the interest rate cut of 10BP in July.
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In addition to this, the interest rate cuts and adjustments to the existing mortgage interest rates mentioned in the widely circulated "small compositions" have not been realized. At the same time, after the Federal Reserve's unexpected interest rate cut of 50BP, although the domestic policy space has opened up, there has been no further action.
Therefore, from the perspective of the third quarter's policies, the policy is a combination of "strong expectations + weak reality." The market has surged in the "small composition" market一次又一次, and has fallen back under the unmet policy expectations, continuously setting new lows.
Apart from policy, the next is the economic data that is worse than market expectations, which further reduces the market's risk preference.
Entering the third quarter, more high-frequency economic data has set new lows. The actual performance of the economy is also weaker than market expectations. Among the three engines of the economy, in addition to exports maintaining strong resilience and good growth, consumption and investment have weakened across the board.
The total retail sales of social consumer goods, which reflects domestic demand, has been "gone without return" since the beginning of 2024. In July and August, entering the summer vacation, with the intensified policy stimulus of "two news," the环比 growth rate of the total social retail sales in August still turned from an increase of 0.27% in July to a decrease of 0.01%. The weakness of domestic demand has become one of the core issues constraining economic growth.More importantly, weak domestic demand has brought about another issue, namely the decline on the production side. This is reflected in prices as a more significant drop in the Producer Price Index (PPI) compared to the Consumer Price Index (CPI). In terms of output, it manifests as a gradual decline in the industrial added value. Although a series of meetings, including the Political Bureau meeting, have emphasized "the need to strengthen industry self-discipline to prevent involutionary vicious competition. Strengthen the market's survival of the fittest mechanism, and smooth the channels for the exit of backward and inefficient production capacities," there is no doubt that the market-driven capacity clearance is a long and tortuous process. The stickiness of supply will not reflect in the supply and demand as quickly, and during the process of capacity clearance, it will inevitably lead to a decline in output in specific areas.
So, what about the investment that the market expects to support the economy? It is still somewhat disappointing.
According to data from the National Bureau of Statistics, from January to August, domestic fixed asset investment grew by 3.4% year-on-year, compared to 4.5% as of the first quarter and 3.9% as of the first half of the year. In August alone, it was only 2.2%. This means that the investment the market expected to support the economy did not show a significant increase, and to some extent, it even dragged down the economic performance.
Entering the third quarter, consumption and investment have weakened across the board, with only exports providing support. The strong external demand has become one of the few bright spots in the economy.
Other high-frequency economic data also reflect a weak economic performance. For example, in terms of employment data, the unemployment rate for the labor force aged 16-24 in urban areas across the country, excluding students, was 18.8% in August, an increase of 1.7 percentage points from the previous month, rising for two consecutive months and reaching a new high this year. It also set a new high since the statistical data口径 was adjusted. The growth rate of M1 in August continued to exceed expectations, falling to -7.3%, continuously declining since the beginning of the year and setting a new low since the statistical data has been recorded.
"Weak expectations and an even weaker reality" have led to a continuous decrease in market risk appetite, with market sentiment reaching an ice point, and the total market turnover entering a normalized level of 500 billion to 600 billion yuan.
The third reason lies in the changes in the market's liquidity. From the beginning of the year to now, various types of funds in the market have been continuously flowing out. In terms of Northbound capital, as of the last announced date of August 16, the net outflow of Northbound capital for the year was less than 2 billion, but looking at the data from mid-August to now, the proportion of typical individual stocks held by Northbound capital, through the Shanghai-Shenzhen Stock Connect, has decreased to varying degrees, reflecting to some extent that Northbound capital may still be continuously flowing out. The two-way financing funds, which reflect investors' risk appetite, have dropped to a new low in nearly four years, reaching 1.3614 trillion yuan (as of the close on September 20), with a net outflow of more than 220 billion yuan in 2024. Other public and private funds face significant redemption pressure as the market continues to hit new lows, with the only incremental funds coming from social security, insurance, and national team's support funds.
Looking at the most important support funds, the main targets for purchase are the four largest Shanghai-Shenzhen 300 ETFs (Huatai-PineBridge Shanghai-Shenzhen 300 ETF, Yifangda Shanghai-Shenzhen 300 ETF, China AMC Shanghai-Shenzhen 300 ETF, Harvest Shanghai-Shenzhen 300 ETF). Taking the largest of them, the Huatai-PineBridge Shanghai-Shenzhen 300 ETF, there have been two periods of the strongest support this year. The first was around the Spring Festival, and the second was around the Third Plenary Session of the Central Committee. Although the scale growth for the entire third quarter seems significant, it was mainly concentrated in July, with little incremental capital entering the market in the first and second ten days of September.
The partial absence of support funds is also one of the important reasons for the widespread decline in the market over the past two months.
Unmet policy expectations, economic performance weaker than the market, and the absence of support funds are all reasons for the recent poor market performance.How should we view the future market trends?
Firstly, incremental policies remain the focal point of the current market game. Although there have been a series of official statements recently, the implementation of policies from research to actual deployment still requires a considerable amount of time. The period before a long holiday has always been a time for the dense release of policies. If policies still fail to materialize before the long holiday, a more important decision-making observation point may need to wait for the Central Political Bureau meeting and the Central Economic Work Conference at the end of the year.
Secondly, the market has long been expecting the implementation of policies such as interest rate cuts and adjustments to the interest rates of existing housing loans. Currently, the Federal Reserve's unexpected interest rate cuts have opened up space for domestic monetary policy, and tools such as reserve requirement ratio cuts and interest rate cuts are all options on the table.
Thirdly, a series of bottom signals have already appeared. Looking at several indicators such as the net asset value break rate of all A-shares, the risk premium of the index, and the stock-bond yield ratio, market risk appetite and sentiment are already in a large bottom area. The PE valuation is also in the lowest historical range, and the proportion of trading volume to free float market value is also close to the historical low. At present, the dividend yield of many representative companies in A-shares has far exceeded the risk-free rate (10-year government bond yield), with the dividend yield of the CSI 300 index approaching 3.4%, while the 10-year government bond yield is only 2.03%.
Although these bottom signals do not mean that a rebound will come immediately, they also represent the increasing potential for future appreciation of equity assets. Market irrationality may exceed the expectations of the vast majority of investors. If you believe in the return of cycles, what needs to be done now is to be patient and wait for the arrival of the next cycle.