Haitong: Policy Push Long-term Funds into the Market, Spring Market is Expected.

Haitong released a research report stating that the "Implementation Plan for Promoting the Entry of Medium- and Long-Term Funds into the Market" has two highlights worth noting: first, increasing the actual investment ratio, and second, extending the assessment period. From a funding perspective, with the policy guidance to bring in medium- and long-term funds into the market, A-share ETFs are expected to benefit from the allocation power of long-term funds, while there is still significant incremental space for insurance asset allocation. Haitong believes that the spring market is expected to gradually unfold, and the market is expected to enter a new stage of uptrend after 25 years. Haitong's main points are as follows: The State Council Information Office held a press conference at 9 am on January 23, explaining the "Implementation Plan for Promoting the Entry of Medium- and Long-Term Funds into the Market" issued on the 22nd, with the China Securities Regulatory Commission, Ministry of Finance, Ministry of Human Resources and Social Security, People's Bank of China, and China Banking and Insurance Regulatory Commission. There are two highlights in the plan that are worth paying attention to: first, increasing the actual investment ratio. The meeting further clarified on the basis of the plan that for the next three years, the market capitalization of A-shares held by public funds must increase by at least 10% annually, and it is intended that large state-owned insurance companies will invest 30% of new premiums in A-shares starting from 2025. The meeting also pointed out that the second batch of insurance fund long-term stock investment pilot projects will be implemented in the first half of 2025, with a scale of not less than 100 billion yuan, and will gradually expand in the future. Second is the extension of the assessment period. The meeting proposed that a short assessment period has been a key factor hindering the expansion of A-share investment by some medium- and long-term funds over the years. According to the plan, public funds, state-owned commercial insurance companies, basic pension insurance funds, pension funds, etc. must all establish a comprehensive assessment period of more than three years, with a significantly reduced weight of the annual operating target assessment for state-owned commercial insurance companies, and detailed arrangements for the national social security fund's assessment period of five years or more. Overall, with the implementation of the plan, the trend of medium- and long-term funds entering the market will be further consolidated, the capital market's funding supply and structure are expected to improve, and A-shares are expected to see an increase in incremental funds. From a funding perspective, the plan focuses on the key issues and bottlenecks of public funds, commercial insurance funds, and pension funds entering the market, proposing a series of more specific measures. As we have emphasized in previous viewpoints, with improving macro liquidity and restoring fundamental expectations driving risk appetite, the increment of funds in the A-share market in 2025 is expected to further increase. We estimate the incremental scale to reach 2 trillion yuan, of which passive funds and insurance funds may still be the main force entering the market. With the policy guidance to bring in medium- and long-term funds, A-share ETFs are expected to benefit from the allocation power of long-term funds, while there is still significant incremental space in insurance asset allocation, and we expect the combined incremental scale of the two to exceed 1 trillion yuan in 2025. The spring market is expected to gradually unfold, and the market is expected to enter a new stage of uptrend in 2025. In our previous report, we pointed out that historically, the spring market occurs every year, with the unfolding of the spring market closely related to policy catalysis, loose liquidity, and fundamental improvement. Positive catalysis driving the start of the spring market has already appeared: from a policy perspective, this implementation plan is another major move to implement last year's "New Nine Regulations" and stabilize the real estate and stock markets as mentioned in the Central Economic Work Conference, and the policy tone of the central government has significantly shifted since 24/09/24. The Central Economic Work Conference in 24 clearly stated that in 25, it will implement a "more proactive and effective macroeconomic policy," and the space for subsequent macroeconomic policy efforts has been opened up. From a funding perspective, as mentioned earlier, with policy guidance promoting the entry of medium- and long-term funds into the market, combined with the possibility of further monetary policy efforts, the liquidity environment is expected to remain loose. From a fundamental perspective, the policy efforts at the bottom are gradually showing results, with the actual GDP growth rate in 24Q4 reaching 5.4%, exceeding market expectations. Therefore, whether from a policy catalysis, liquidity, or fundamental perspective, the spring market this year is worth looking forward to. Looking ahead to the whole year of 2025, with positive changes expected in funding and fundamentals, A-shares are expected to enter an upward trend driven by fundamentals.