GMTEight Exclusive | Strategic good news! Chinese stock market launches a major comeback! Who will be the vanguard of the rebound?

This morning's press conference by the three major players, the central bank, the financial regulatory authority, and the securities regulator, injected a dose of optimism into the market, with the Shanghai and Shenzhen stock markets both rising by over 4%. China Securities Co.,Ltd.'s chief strategist even changed the name of their client group to "China Securities Co.,Ltd. Strategy Offensive," showing a clear bullish attitude. Renowned macro analyst Hong Hao, who was once praised for his accuracy, posted on Weibo today: "It turns out that from extreme pessimism to cheering and jumping for joy, all it takes is a press conference." The Hong Kong stock market, which stabilized earlier than the A-shares, also rose by 4.13% today. However, there were still some skeptical opinions circulating, such as the economic environment still being bad, etc. While it's true that the fundamentals won't change because of a press conference, all financial products are based on expectations, and today's trading volume of 970 billion yuan on the A-shares indicates the quality of the rebound. In addition to the stock market, the previously uncooperative government bonds saw a drop during the one-day market surge, indicating that even the most conservative funds are starting to flow back into the equity market. This influx of conservative yet smart money provides confidence in the market's sustainability. The futures market, which reflects economic expectations the most, also saw a broad upward trend in the afternoon, with the commodities index rising by 4.92%. Copper, aluminum, rebar, rubber, and other commodities showing strong economic expectations also saw significant increases in prices. The foreign exchange market also confirmed this, as despite the rate cuts and reserve requirements reductions, the Renminbi exchange rate continued to rise, indicating a vote of confidence from the foreign exchange market. When a currency loosening doesn't affect the economy, only then will it undergo major devaluation. If monetary easing changes growth expectations, it will lead to an influx of funds instead. When a real market opportunity arises, it will be awe-inspiring and awaken those who are not pretending to be asleep. On a lighter note, the market experienced a temporary drop earlier today due to bear market inertia, but the statement by Pan Gongsheng that 500 billion yuan must flow into the stock market and the restructuring of bullets once again lifted the market. Some joked: "Tearful, after thirty years in the industry, I've only heard, 'These funds are not allowed to flow into the stock market.'" The fundamental reason is that with the Federal Reserve starting large rate cuts and possibly continuing them, China's monetary policy space has opened up. There is still 3 trillion yuan in debt issuance capacity left for this year, indicating that there are more stimulus measures to come. Additionally, the market's biggest concern is the house, which makes up 70% of people's wealth. In a situation where house prices are declining, consumers are bound to have doubts. The long-rumored rate cut for existing home loans has finally set, easing pressure on consumer end and reducing the risk of further declines in the real estate market. Of particular note is the increase in the People's Bank of China's support percentage from 60% to 100% for the 300 billion yuan housing loan created in May, meaning that the previously stuck funds will be quickly distributed. After all, everyone knows the pressure on local finances is high, and without the support, even a 5% support would have been insufficient. This money is crucial for stabilizing the real estate market. Many believe that monetary easing has limited impact on asset prices, but in the short term, the relationship between market sentiment and fundamentals is not significant. Emotional impact is key to breaking the negative loop between pessimistic expectations and the real economy. Looking back to the end of 2014, after the change in monetary policy, it gave rise to the bull market of 2015. There is reason to believe that this policy shift will have a similar effect. In 2014, the central bank began a series of reserve requirement ratio cuts and interest rate cuts, with reserve requirements cut by a cumulative 3% over five times and interest rates cut by a total of 165 basis points over six times. The shift in policy was accompanied by economic downturns, and it can be expected that there will be continuous policy stimulation in the future. Goldman Sachs continued to emphasize today that it expects the reserve requirement ratio for deposits in the fourth quarter of 2024 to be cut by 25 basis points, and maintains the prediction of further reductions in 2025 for the reserve requirement ratio and policy rates. Specifically, the reserve requirement ratio will be lowered by 25 basis points in the first and third quarters of 2025, and policy rates will be reduced by 10 basis points in the second and fourth quarters of that year. Direct catalysts for the stock market - the convenient swap policy and the repo increase re-lending policy 1. Convenient swap policy For the stock market, today's adjustment to the policy on securities, fund, and insurance company swaps is significant in two ways. The policy allows the central bank to provide a certain degree of collateral rights to securities firms and other financial institutions, enabling these firms to obtain funding through collateral such as securities, bonds, stock ETFs, and components of the Shanghai and Shenzhen 300, and specifies that these funds must be used for market configurations, injecting a large amount of liquidity into the market. Furthermore, the implementation of this policy will help optimize the asset allocation structure of financial institutions and improve the overall efficiency of the financial market through collateral such as securities. 2. Repo increase re-lending policy The stock repurchase and increase re-lending policy is an unexpected and targeted policy for the stock market. It allows commercial banks to provide loans to listed companies and major shareholders for the purpose of repurchasing and increasing their holdings of listed company stocks. The implementation of this policy will bring new sources of funding to listed companies. The initial scale is 300 billion yuan with low interest rates, which not only alleviates the pressure of tight market funds but also affects the equity structure of listed companies. It has been calculated that for a listed company owner with a 4% dividend yield, borrowing 200 million at a 2.25% interest rate to increase holdings can earn 8 million in dividends, with an interest of 3.5 million. As long as the company's operations are good and dividends are consistently paid, this is very beneficial for major shareholders, and even further increasing the dividend rate to 5% would result in more earnings. Most importantly, this income is tax-free. While the market used to focus on capital interest differentials, this policy change means that dividend distribution is not only a policy requirement but also activates internal motivation for major shareholders. The company's performance, in the future, can also be seen from its dividend distribution. 3. Relaxation of mergers and acquisitions The policy supports cross-industry mergers and acquisitions for transformation and upgrade, increasing the regulatory tolerance for valuations and performance commitments in reorganizations, and supporting listed companies' phased issuance of shares. Currently, mergers and acquisitions are encouraged.One relatively certain direction is the restructuring of state-owned enterprises, especially in the financial industry.N 4. (600276)(002007)(300142)(02196)(000962) The stock prices of N companies have all broken through previous highs today, reaching new highs for the year.These companies are generally of a relatively large size. There are many derivatives in Hong Kong, through warrants and bull/bear certificates, which can generate excess returns for these companies.