Zhongtai: Short-term policies may effectively boost market sentiment, benefiting dividend and quasi-dividend assets.

Zhongtai released a research report stating that the "one line, one bureau, one meeting" series of policies may effectively boost market sentiment in the short term and restore market liquidity. In terms of the subsequent market trend, dividend-oriented and broad dividend asset classes may benefit relatively. 1) Dividend-oriented and broad dividend assets have more stable and abundant cash flow, and may have more future repurchase strength or relative benefits. 2) Amid a loosening liquidity environment leading to a decline in market interest rates, the attractiveness of dividend assets' dividends may continue. Event: The State Council Information Office will hold a press conference on Tuesday, September 24, 2024, at 9:00 AM. People's Bank of China Governor Pan Gongsheng, China Banking and Insurance Regulatory Commission Director Li Yunze, and China Securities Regulatory Commission Chairman Wu Qing will introduce the financial support for high-quality economic development and answer questions from reporters. A number of heavyweight policies will be announced during the press conference, increasing the intensity of monetary policy regulation to further support economic stability. Comments: 1. Unexpected reserve cuts by the central bank, comprehensive monetary policy easing. Governor Pan Gongsheng announced a reduction in reserve requirement ratio and policy rates. The reserve requirement ratio will be lowered by 0.5 percentage points, providing about 1 trillion yuan in long-term liquidity to the financial market; there may be further reductions of 0.25-0.5 percentage points. The 7-day reverse repurchase operation rate will be lowered by 0.2 percentage points, from the current 1.7% to 1.5%. With the trend of declining investment returns in China, loose monetary policy may boost economic recovery and promote household credit expansion. Additionally, under the "stable exchange rate" requirement, the Fed's interest rate cuts objectively expand China's monetary policy space. Further easing policies could effectively provide ample liquidity support for the real economy, lower corporate financing costs, stimulate corporate investment, and trigger consumer spending. 2. Lowering existing home loan rates and down payments to improve household cash flow. Governor Pan Gongsheng proposed reducing existing home loan rates and unifying the minimum down payment ratio for home loans, guiding commercial banks to lower existing home loan rates to levels near the rates for new loans, with an average expected reduction of about 0.5 percentage points. The minimum down payment ratio for first-time and second-time home loans will be reduced to 15%. Lowering existing home loan rates can effectively reduce the burden on households, improve household cash flow constraints, and help promote increased consumption and investment. Furthermore, lower rates can reduce debt costs, alleviate forward loan repayments, and to some extent ease the current credit contraction pressure. Although lowering the minimum down payment ratio can to some extent release household demand for home purchases, the actual policy effects remain to be observed given the weak current property market expectations. 3. Introducing exchange convenience and repurchase support re-lending to drive expectations for incremental funds into the market. Regarding the capital market, Governor Pan Gongsheng proposed creating new monetary policy tools to support the stable development of the stock market. The first is to create a facility for securities, funds, and insurance companies to exchange convenience, supporting eligible securities, funds, and insurance companies to obtain liquidity from the central bank through asset pledging, significantly enhancing institutions' funding and stockholding capabilities. Governor Pan Gongsheng mentioned that the initial size of the exchange facility is 500 billion yuan and could be expanded in the future. The second policy is to create a special refinancing facility for stock repurchases and increased holdings, guiding banks to provide loans to listed companies and major shareholders to support repurchases and increased holdings of stocks, with an initial quota of 300 billion yuan that may be increased in the future. In the short term, the 500 billion yuan exchange facility could promote price recovery for some high-quality listed companies, improving overall market valuations. In the long term, this policy may raise the market's long-term liquidity level, reduce market volatility, and help stabilize market operations. Introducing the special refinancing facility for stock repurchases may further encourage major shareholders and companies to increase stock holdings, sending positive signals to the market and promoting a return to fair stock market valuations. 4. Promoting long-term fund inflows and enhancing the intrinsic stability of the capital market. Chairman Wu Qing of the China Securities Regulatory Commission emphasized the need to enhance the intrinsic stability of the capital market, accelerate reforms on the investment side, and promote the establishment of a policy system for "long-term investments." A guidance document on promoting medium- to long-term fund inflows into the market will be released. Building a high-quality capital market requires enhancing the "intrinsic stability of the capital market," relying on internal market forces for stability rather than excessive reliance on external assistance. This involves raising the quality and investment value of listed companies to fundamentally increase the attractiveness of the capital market to investors, guiding investors to make long-term investments. Moreover, it involves attracting long-term funds into the market. Long-term funds have longer investment durations and clear investment frameworks, which can improve the market's investor structure, reduce the proportion of speculative funds engaged in "quick in and out" activities, smooth market fluctuations, and better facilitate the market's "return to value." 5. Policy coordination intensifies, remaining within the framework of easing. This combination of policies has a broad scope and significant intensity, with clear synergies among the various policies. The loose monetary policy creates a favorable liquidity environment for implementing other policies; real estate policies help stabilize an important economic pillar; and capital market policies directly boost market confidence. This comprehensive policy combination is expected to have a synergistic effect greater than the sum of its parts. It is important to note that this series of policies led by the State Council is limited to monetary policy and capital market policy and has not yet involved fiscal policy or the "overall stimulus" expected by the market. These policies may release potential investment and consumption demand to some extent but may not directly stimulate new demand, making it difficult to implement short-term total stimulus policies.