There are still several conditions left behind the big rise

Since August, the performance of the A-share market has continued to be sluggish, although a number of favorable policies have been introduced during the period, but it seems that it is difficult to arouse the interest of the market, coupled with the "pre-holiday effect" before the National Day holiday, many people are pinning their hopes on the post-holiday, looking forward to seeing the comprehensive counteroffensive of A-shares at that time, and they will return to blood and eat meat. (For details, the three major A-share indexes all fell by more than 1%, and nearly 3,000 stocks fell in the two markets)

However, from the actual performance, the post-holiday A-shares not only did not show signs of improvement, but continued the pre-holiday downturn, most of the time in recent trading days is "nearly 4,000 to rise", the Shanghai Composite Index is about to fall below the previous low of 3,053 points, ChiNext Index hit a new low in the year, which is really disappointing.

It's been falling for so long, why is the market still not rising? In my opinion, the biggest negative factors at present come from overseas, mainly the following three points:

First, the Palestinian-Israeli conflict has continued to escalate.

On October 7, just as the mini-holiday in the country was coming to an end, Palestine and Israel suddenly broke out again in a shocking large-scale conflict, which then escalated and thousands of people were killed in the fighting, which also added new risks to the global instability caused by the Russian-Ukrainian conflict. Affected by this, international oil prices fluctuated sharply, the US dollar index and safe-haven asset gold prices continued to rise, and the spread of panic caused the global capital market to generally fall, and A-shares were naturally difficult to stand alone. Since the current situation of the Palestinian-Israeli conflict is still unclear, the market's confidence and willingness to do more will inevitably be suppressed, and it is not easy for A-shares to rise sharply.

Second, the US CPI and non-farm payrolls data exceeded expectations.

Data released by the US Department of Labor showed that the US CPI rose 3.7% year-on-year in September, unchanged from August and higher than the expected 3.6%; It rose 0.4% month-on-month, down from 0.6% last month but higher than expectations of 0.3%. At the same time, the number of new jobs in the US non-farm sector in September was 336,000, much higher than the consensus expectation of 170,000, indicating that the US economy has maintained a good performance in an environment of unprecedented high interest rates. The unexpected rise in the data opened the door for the Fed to raise interest rates again this year after "hitting the brakes" in September, while driving the 10-year Treasury yield up, which in turn put pressure on global capital markets again. For A-shares, the strength of U.S. bond yields has promoted the continuous outflow of foreign capital to a certain extent, which in turn dragged down market performance.

Third, the game of great powers continues.

Although the recent succession of visits by high-level US officials to China has sent positive signals to the market about the improvement of Sino-US relations, the United States is still creating incidents in key areas. For example, just this past October 17, the Biden administration updated the export control regulations for AI chips, planning to prevent companies such as NVIDIA from exporting advanced AI chips to China. As soon as the news came out, the stock price of NVIDIA fell sharply, and the A-share technology sector also fell, which then hit the broader market. The twists and turns in Sino-US relations not only disturb market sentiment, but also are not conducive to easing the continuous inflow of foreign capital.

Some people may ask: when will the market enter the rising channel?

Objectively speaking, although the performance of the A-share market after the holiday is not good, there are still remarkable, and the biggest highlight is that the market trading volume after the holiday has been significantly amplified, and it has reached the level of about 800 billion yuan for many days; In contrast, the market turnover in September could only remain around 600 billion yuan. It shows that some incremental funds have been involved, including many large funds on the left, which also reflects that market sentiment is picking up.

It should be noted that from the perspective of the domestic environment, a series of positive factors are also accumulating:

First, the ongoing repair of the national economy urgently needs to be recognized.

Following the bottoming out of national economic data in July and August, the economic data in September welcomed good news. Specifically, the manufacturing PMI in September was 50.2%, up 0.5 percentage points from the previous month, returning to the expansion range since April, and also rising for four consecutive months, reflecting the continued improvement of both production and demand; the year-on-year decline in PPI in September was further narrowed, and although the CPI was flat year-on-year, the positive growth still supported the continuous repair of economic momentum; social finance added 4.12 trillion yuan in September, an increase of 563.8 billion yuan year-on-year, better than the market expectation of 3.7 trillion yuan, indicating that the market financing demand continued to pick up. The data of all aspects of the national economy in the first three quarters also showed a continuous positive trend on the whole. All these demonstrate the resilience of the mainland economy, and the subsequent recovery is in sight, which will help further boost market confidence.

Second, the protection of the policy side has only increased.

Since the Politburo meeting on July 24 proposed to "activate the capital market and boost investor confidence", the favorable policies have not stopped, especially the epic "four arrows" on August 27, which shows the management's clear support for the capital market. Not only that, in the near future, almost what the market wants, the management will give, from stamp duty to slowing down IPOs, from new regulations to regulatory quantification, from stabilizing the exchange rate to guiding long-term funds into the market. It is no exaggeration to say that management has never wanted the capital markets to do better than they do now.

At the end of last week, the management once again amplified the move, "targeted adjustment and optimization of the system of securities lending and strategic investors lending of placing shares, and on the premise of maintaining the relative stability of the system, phased tightening of securities lending and strategic investor placement share lending", which can effectively reduce the amount of funds for securities lending, increase the cost and risk of short selling, thereby curbing excessive short selling in the market, which is of great significance for activating the capital market and boosting investor confidence.

It is worth mentioning that the "national team" also shot! On the evening of October 11, the Agricultural Bank of China, Industrial and Commercial Bank of China, Bank of China and China Construction Bank collectively announced that the controlling shareholder Central Huijin Investment Co., Ltd. increased its holdings in A-shares, eight years after Huijin last increased its holdings in the four major banks. Although the amount of additional holdings of 477 million yuan seems to be small, the signal sent to the market is obviously more important: on the one hand, it means that at least the "national team" recognizes that the current market is in the bottom range, and is already using real money to dig the bottom, which helps to make all parties in the market reach a consensus on the bottom range in a short period of time, and then accelerate the arrival of the "market bottom"; On the other hand, according to the official statement, this increase is only the beginning, and Huijin will continue to increase its holdings in the secondary market in the next 6 months in its own name, which further confirms that this benefit is not a one-day trip, but has a medium and long-term sustainable effect.

Finally, a new round of "buyback wave" in the A-share market has emerged.

Since October, A-share listed companies have intensively issued share repurchase plans, including many leading listed companies in the industry such as Sinopec, China Railway Construction, China Mobile, Haitian Weiye, AVIC Heavy Machinery, Baosteel and other leading listed companies and large central enterprises. It is generally believed that the concentrated repurchase of listed companies to increase their own shares, reflecting that the stock price has been significantly lower than the intrinsic value of the company, and the development prospects of the enterprise are greatly underestimated, and the concentrated repurchase and increase of holdings is not only conducive to sending a positive signal to the market, but also can stabilize the stock price, and then help the bottom of the market to consolidate, while the industry leading companies real money or repurchase, can also play a benchmarking and leading role, driving more companies to join the repurchase increase team.

From historical experience, the "repurchase wave" of A-shares is often accompanied by the bottom of the phased market. Public information shows that in October ~ November 2018, there was an intensive disclosure of A-share repurchase plans, superimposed on the unexpected force of policies, and the market bottom finally appeared a month later; In the first quarter of 2020, under the background of the impact of the new crown epidemic, a number of listed companies repurchased their own shares, and the market bottom basically appeared simultaneously; The two big bottoms in 2022 also coincided with the disclosure peaks of the two buyback plans during the year. For this "buyback wave", it is likely to be an important feature of the market brewing a new round of rally.

To sum up, the short-term environment facing the current market can be described as long and short intertwined, but in the medium and long term, there is no doubt that this is the bottom range, and the light has appeared. Although the grinding bottom market is extremely hot and even desperate, but the big market is often born here, just like a spring, the tighter the pressure in the early stage, the greater the rebound in the later stage. For investors, the most important thing at present is to maintain patience and determination, and never hand over the bloody chips before the reversal market arrives.

However, having said that, the downturn in A-shares is still continuing, and it seems that there is no driving force to support the market reversal and rally in a short period of time, even if there are successive favorable policies, the market still does not improve. In my opinion, to confirm the real market bottom, several signals are needed to confirm it: first, when the overseas situation (Palestinian-Israeli conflict, Russian-Ukrainian conflict, etc.) can stabilize, second, the signal that Sino-US relations can further improve at the APEC meeting in November, third, when northbound funds can continue to net inflow, fourth, when larger incremental funds can enter the market for reinforcement, and fifth, when the market can appear a landmark white candle. If these signals appear, they are likely to mark a real turn in A-shares.

We'll see.

(Yifu Fu is a senior researcher at Star Map Financial Research Institute)