Zhongtai: Market stabilization mechanisms and investment-side reforms continue to advance; new quality productive forces policies strengthen industrial support.

Zhongtai released a research report stating that on October 10, Wu Qing, Party Secretary and Chairman of the China Securities Regulatory Commission, held a symposium in Beijing with experts on the capital market and financial situation, engaging in in-depth exchanges with heads of certain listed companies and experts from securities and fund institutions to solicit opinions and suggestions on the current capital market and financial situation. The optimization of the issuance and listing system and the new quality productive forces policy echo each other, and the capital market will further strengthen financing support for the full cycle of technological innovation. At this symposium, participating experts suggested optimizing the issuance and listing system and supporting the growth and expansion of high-quality enterprises of different types, different industries, and diverse backgrounds. The new quality productive forces policy extends from technological breakthroughs to achievement transformation and scenario application, and industrial upgrading is expected to become an important support for the profitability of technological growth. Zhongtai's main views are as follows: I. Event: On October 10, Wu Qing, Party Secretary and Chairman of the China Securities Regulatory Commission, held a symposium in Beijing with experts on the capital market and financial situation, engaging in in-depth exchanges with heads of certain listed companies and experts from securities and fund institutions to solicit opinions and suggestions on the current capital market and financial situation. II. Commentary: The construction of market stabilization mechanisms continues to advance, and capital market policies place greater emphasis on stabilizing market expectations and enhancing internal resilience. This symposium solicited opinions on market stabilization mechanisms, incremental policy reserves, and cross-border risk monitoring, continuing the arrangements from the September financial sector "15th Five-Year Plan" press conference on stabilizing the market and deepening investment and financing reform. Recently, A-shares have shown style divergence: from July 31 to October 9, the CSI 300, ChiNext Index, and STAR 50 fell by 5.91%, 8.99%, and 10.92% respectively, while the CSI 1000 rose by 1.14%. Internal adjustment in growth sectors coexists with relatively strong performance in small- and mid-cap stocks. Zhongtai believes that the significance of the current market stabilization mechanism lies not only in responding to short-term fluctuations, but also in creating a relatively stable market environment for medium- and long-term capital allocation, listed company financing, and industrial transformation by stabilizing market operations and investor expectations. Trading activity has rebounded, the breadth of market trend repair has been relatively mild, and structural market conditions remain an important feature of A-shares at this stage. On September 22, the turnover of the Shanghai and Shenzhen markets was about 2.14 trillion yuan, falling to about 1.41 trillion yuan on September 29, and rebounding to 1.90 trillion yuan on October 9; during the same period, the proportion of stocks standing above the 20-day moving average fell from 55.9% to 33.4%, and recovered to 39.7% after the holiday. Turnover rebounded relatively quickly, but it still takes time for more stocks to regain their medium-term moving averages, indicating that capital rotation among different sectors is relatively active, and the overall market trend has not yet repaired in sync. Participating experts proposed strengthening transaction supervision and cross-border risk monitoring, continuing the regulatory authorities' direction of maintaining market order and improving the ability to respond to external fluctuations. From a strategic perspective, the support of market stabilization policies for risk appetite is expected to alleviate the suppression of valuations by market volatility, but for the market to move from partial repair to broader gains, it still requires the diffusion of capital allocation to more industries and the cooperation of corporate earnings expectations. The entry of medium- and long-term capital into the market and the reform of public fund operations are interconnected, and investment-side reform has begun to focus more on product supply and investment management. At the symposium, participating experts suggested broadening the sources, channels, and methods of entry for medium- and long-term capital and developing and strengthening patient capital. On October 9, the CSRC publicly solicited opinions on the "Measures for the Operation and Management of Publicly Offered Securities Investment Funds" and supporting rules, proposing to lower the establishment scale and share thresholds for equity funds, funds of funds, and other products from 200 million yuan and 200 million shares to 50 million yuan and 50 million shares respectively, and to improve certain operational restrictions on index funds, investment style constraints, and management of large subscriptions and redemptions. Previous policies have continuously emphasized promoting the entry of medium- and long-term capital into the market, and this revision further responds to the actual needs of public funds in product establishment, investment operations, and risk management. Lowering the establishment threshold for equity products will help managers carry out differentiated product layouts; optimizing the institutional arrangements for passive index funds will help improve the efficiency of index investment operations; and strengthening fund benchmarks and investment style constraints will help promote the public fund industry's transition from product scale expansion to improvement in investment management quality. The improvement of investment-side institutions is expected to increase the long-term holding appeal of equity products, and the improvement of the capital structure will rely more on product experience and sustained allocation demand. For A-shares, the impact of public fund reform may first be reflected in adjustments to fund product structure and institutional investment behavior. A richer supply of equity funds will help meet allocation needs with different risk-return preferences; clearer investment styles and performance benchmarks will help investors identify the true risk exposure of funds and reduce the tendency to frequently switch products and chase hot spots during market fluctuations; and the improvement of large subscription and redemption management will help ease the impact of concentrated redemptions on fund portfolio operations. As the long-term investment philosophy and the fund product system complement each other, the capital market is expected to gradually form a more stable foundation for equity capital holding. For the stock market, the improvement of the capital structure will help increase investors' emphasis on earnings quality, corporate governance, and long-term returns, and also provide support for high-quality listed companies to form relatively stable institutional holdings. Dividend and buyback and investor protection reforms continue to deepen, and the long-term investment value of high-quality listed companies is expected to receive further attention. Participating experts suggested promoting qualified listed companies to increase dividend and buyback efforts and improve investor return and rights protection mechanisms. This is consistent with the reform direction since the new "Nine National Articles" of improving the quality of listed companies, enhancing shareholder returns, and improving governance. The allocation willingness of long-term capital is related not only to the institutional arrangements of investment institutions such as funds and insurance, but also depends on whether equity assets can provide sustainable returns. Cash dividends provide investors with a relatively stable source of returns, standardized share buybacks help improve capital allocation efficiency, and good corporate governance helps reduce the uncertainty borne by investors. As investment-side reform advances, listed companies with stable free cash flow, reasonable capital expenditure, and sustained shareholder return capacity are expected to better match the investment needs of medium- and long-term capital. Compared with market conditions that rely solely on valuation expansion, this direction places more emphasis on the support of earnings, cash returns, and governance quality for stock pricing. The optimization of the issuance and listing system and the new quality productive forces policy echo each other, and the capital market will further strengthen financing support for the full cycle of technological innovation. At this symposium, participating experts suggested optimizing the issuance and listing system and supporting the growth and expansion of high-quality enterprises of different types, different industries, and diverse backgrounds. The "Opinions of the Central Committee of the Communist Party of China and the State Council on Developing New Quality Productive Forces" published on October 9 clearly proposed improving policies for long-term capital to support technological innovation, encouraging and regulating the development of angel investment, venture capital, and private equity investment, enriching the product system of technological innovation bonds, supporting high-quality technology enterprises in listing and financing, and optimizing systems such as mergers and acquisitions and equity incentives for technology enterprises. Connected with the previous reform direction of improving the inclusiveness and adaptability of the capital market system, recent policies have further linked early-stage venture capital, equity financing, bond financing, and post-listing industrial integration. Zhongtai believes that technological innovation has characteristics such as long R&D cycles, relatively large investment, and high uncertainty in industrialization, requiring capital with different maturities and risk tolerance to connect with each other. The continuous improvement of the financing system will help broaden growth space for high-quality innovative enterprises, while also improving the efficiency of industrial chain coordination through mergers and acquisitions and capital allocation. The new quality productive forces policy extends from technological breakthroughs to achievement transformation and scenario application, and industrial upgrading is expected to become an important support for the profitability of technological growth. The Central Committee's "Opinions" proposed building proof-of-concept and pilot testing platforms and carrying out large-scale application demonstrations of new technologies, new products, and new scenarios, while also deploying major technological transformation of manufacturing, large-scale equipment renewal, and the "AI+" initiative. The above arrangements further extend policy support from the R&D side to the production side and demand side: on the one hand, the digital and intelligent transformation of traditional industries is expected to drive demand for industrial software, intelligent manufacturing equipment, automation systems, and key components; on the other hand, the application of artificial intelligence in manufacturing and other industries is expected to gradually expand commercial space in fields such as computing power, software services, and intelligent terminals. There are also differences in the pace of profit realization among different sub-directions. Equipment renewal and technological transformation are easier to observe through project investment, product delivery, and corporate orders, while future industries such as embodied intelligence and frontier technologies place more emphasis on technological maturity, application scenario cultivation, and long-term capital investment. For the A-share technology growth sector, subsequent market focus is expected to gradually shift from technical themes and industrial expectations to operating results such as order growth, gross margin improvement, and operating cash flow. Enterprises with technological barriers and commercialization capabilities are more worthy of continuous tracking. III. Investment recommendations: 1) For stable allocation, pay attention to broad-based ETFs with good liquidity, as well as high-quality listed companies with ample cash flow, sustained dividends, and standardized governance; 2) For technology growth, focus on directions such as industrial software, intelligent manufacturing, high-end equipment, and artificial intelligence industry applications, giving priority to enterprises that benefit from technological transformation and growing industrial application demand and have relatively clear order and profit improvement. Combine recent sector adjustments with phased layout, focusing on growth opportunities with actual performance support; 3) For non-bank financials, focus on comprehensive securities firms with strong layouts in wealth management, public funds, and asset management businesses. The rebound in market turnover is expected to improve brokerage business income, and the reform of the equity fund system will help expand space for fund sales and asset management businesses. Risk warnings: The pace of capital market reform advancing is less than expected, the progress of medium- and long-term capital entering the market is lower than expected, the effect of policy implementation is less than expected, market risk appetite fluctuations exceed expectations, and the complexity of the game between policy and market exceeds expectations, etc.