CMSC: Intensive release of domestic market-stabilizing policies; previously oversold sectors are expected to usher in a rebound window

CMSC released a research report stating that since late September, margin financing balances have continued to decline, leveraged funds have accelerated their clearing, and large net inflows into equity ETFs have formed an offset. Coupled with improvements on the funding demand side, the supply and demand of market funds have improved marginally, but the overall market remains in a stock-game state. The current margin financing balance has fallen to the September 2025 level, and the TMT sector's margin financing balance has dropped to the level of end-November 2025. The pressure from margin outflows has been released to some extent. The intensive release of domestic market-stabilizing policies, combined with the resolution of the US midterm election uncertainty, has driven a recovery in market risk appetite, and previously oversold sectors are expected to usher in a rebound window. CMSC's main views are as follows: Margin financing outflow pressure has been released in stages, and market-stabilizing policies have been intensively released. Since late September, margin financing balances have continued to decline, and leveraged funds have accelerated their clearing. It has now fallen to around RMB2.3 trillion, close to the level of early September 2025. Structurally, the TMT sector has been the main direction of margin funding deleveraging, indicating that the crowded technology holdings in margin sectors have been significantly digested. Along with the market adjustment and the accelerated outflow of margin funds, the margin guarantee ratio has fallen significantly from its high point. The market's average guarantee ratio has dropped from a high of about 300% during the year to around 250%. Recently, a series of market-stabilizing policies have been intensively introduced, coordinating efforts across four dimensions: blocking cross-market liquidity risks, incentivizing industrial capital, channeling index funds into the market, and supporting trading system arrangements. These are gradually breaking the previous negative feedback loop and helping to repair investor risk appetite. ETF inflows accelerated further this week, with a net inflow of RMB83.526 billion on November 3, becoming an important incremental source of funds for the market and helping to buffer selling pressure during the market adjustment. Monetary policy and interest rates: Last week (10/26-10/30), the central bank made a net injection of RMB1.211 trillion through open market operations, and RMB1.749 trillion of reverse repos will mature in the coming week. Money market rates rose, short-end government bond yields fell, long-end government bond yields rose, the scale of interbank negotiable certificate of deposit (NCD) issuance expanded, and issuance rates were mixed. As of October 30, R007 rose 5.9bp, DR007 rose 6.9bp, the 1-year government bond yield fell 0.8bp, the 10-year government bond yield rose 1.0bp, the scale of NCD issuance increased by RMB147.05 billion, 3M/6M NCD rates rose, and 1M NCD rates fell. Fund supply and demand: Trackable funds in the secondary market saw net inflows. Margin financing balances declined, with net margin selling of RMB87.37 billion; ETFs saw net inflows of RMB96.24 billion; and the shares of newly established equity-oriented public funds increased. Major shareholders shifted from net reductions to net increases, and the scale of announced reduction plans expanded. Market preferences: In terms of sector preferences, banks, food and beverage, and non-bank financials received relatively high net inflows from various types of funds. Broad-based ETFs saw a mix of subscriptions and redemptions, with more subscriptions in CSI 300 ETFs and more redemptions in CSI 500 ETFs; sector ETFs also saw a mix of subscriptions and redemptions, with more subscriptions in finance and real estate (excluding brokerages) ETFs and more redemptions in information technology ETFs. The highest net subscription was E Fund CSI 300 ETF; the highest net redemption was China Southern CSI 500 ETF. Risk warnings: Economic data and policies falling short of expectations, and overseas policy tightening exceeding expectations.