Huajin Securities: Major positive policies implemented in A-shares to welcome valuation recovery. Technology and finance are the main themes.

Huajin Securities released a research report stating that on September 24, the State Council Information Office held a press conference. This round of multiple favorable policies introduced by the central bank and the China Securities Regulatory Commission have boosted both the capital market and the economic fundamentals. In the short term, significant positive policies will drive short-term rebounds. In the medium term, strengthening policies are needed during credit bottoming, and A-share valuations may recover. Financial real estate, technology, and core asset industries are expected to benefit. Event: On September 24, the State Council Information Office held a press conference where the Governor of the People's Bank of China, Pan Gongsheng, the Director of the China Banking and Insurance Regulatory Commission, Li Yunze, and the Chairman of the China Securities Regulatory Commission, Wu Qing, introduced the financial support for high-quality economic development. This round of multiple favorable policies introduced by the central bank and the China Securities Regulatory Commission have boosted both the capital market and the economic fundamentals. (1) Under the intensified monetary policy control by the central bank, multiple favorable factors have been formed on the fundamentals and liquidity. Firstly, actively increase the easing policies in the real estate market. Secondly, interest rate cuts release liquidity. Thirdly, the central bank proposed to create new monetary policy tools, pointing to the possibility of the establishment of a stabilization fund. (2) The China Securities Regulatory Commission has issued guidelines for the entry of medium and long-term funds into the market to promote high-quality development. Firstly, policies are expected to stimulate micro liquidity improvement: firstly, the China Securities Regulatory Commission proposed to vigorously develop equity public funds; secondly, perfecting the system environment for long-term investments, insurance funds, social security funds, enterprise annuities, etc., may increase the proportion of equity allocation; finally, support for sovereign wealth funds, among other medium and long-term funds, to increase their holdings in the capital market. Secondly, through mergers and acquisitions, regulatory strengthening, and other means to boost investor confidence, further stimulating the recovery of risk appetite. (3) Focus on mergers and acquisitions, market value management-related targets. Firstly, the China Securities Regulatory Commission will support listed companies to carry out mergers and acquisitions around strategic emerging industries, future industries, etc., focusing on 8 targets that have been undergoing mergers and acquisitions within the new quality productivity industries in the last 6 months. Secondly, the China Securities Regulatory Commission recently invited public opinions on market value management guidelines, focusing on 210 companies that maintained PB valuations in the 0-1 range during 2021-2024Q2 period, as well as requiring key index constituent companies to bear responsibility under the market value management system. A-share short-term rebounds may occur. (1) In the short term, significant positive policies have been implemented to drive short-term rebounds. Firstly, strong policies launched when the market hits rock bottom are the core of reversal: significant positive policies or external events have catalyzed before and after each major market bottom, improving the subsequent fundamentals; by comparison, the combination of policies by the central bank and the securities regulatory commission in this round has positive effects on subsequent economic recovery, loose liquidity, and improved market sentiment, a short-term rebound may occur. Secondly, rebound may continue under limited risks during the National Day holiday. (2) In the medium term, strengthening policies are needed during credit bottoming, and A-share valuations may recover. Firstly, currently in the stage of stable profits in the mid to late stage, credit bottoms, and strong policies are the core of raising credit and valuations. Secondly, compared to the present, this round of policies is expected to raise bottom credit and valuations: firstly, the current fiscal policy combined with industrial policies jointly promotes, and there are signs of marginal stability in the increase of medium and long-term loans; secondly, A-share valuations are still relatively low, expected to benefit from the introduction of the strong policies in this round and rebound. Financial real estate, technology, and core asset industries are expected to benefit. (1) Financial real estate sector: firstly, the central bank's reduction of reserve requirements and the significant improvement in institutional funding acquisition ability and stock-holding capacity have benefited state-owned large banks, high-quality city commercial banks, securities firms, and other financial industries; secondly, under the lower mortgage rates and down payment ratios in existing homes, industries such as real estate, building materials, construction, and home decor are expected to benefit; thirdly, under the significant relaxation of real estate policies, which is expected to boost infrastructure demand, and with the weakening US credit, the copper and non-ferrous metals sector's prosperity may continue to improve. (2) Technology sector: firstly, domestic and foreign monetary easing provides liquidity for technology growth. Secondly, the China Securities Regulatory Commission will support listed companies to carry out mergers and acquisitions around strategic emerging industries, benefiting industries related to future industries. Lastly, during the rebound period after stabilizing at the bottom, the high prosperity of technology growth takes precedence; at present, based on the short-term policy catalyzation, the market is expected to stabilize at the bottom, pointing towards technology growth with high prosperity and continuous short-term catalyzation. (3) Core asset sector: firstly, under the vigorous efforts of domestic real estate policies and the Federal Reserve rate cuts, foreign capital may flow back; secondly, looking at the fundamentals, core assets in booming industries such as electronics, pharmaceuticals, food and beverages are worth paying attention to.