"3000 points of defense", lost?

After closing at 15 p.m. on Friday, the Shanghai Composite Index froze at 2983.06, down 0.74%. After a year, the Shanghai Composite Index fell below the 3,000 mark again.

The day before, the A-share market fluctuated and fell, and the Shanghai Composite Index reached an intraday low of 3004.77 points, and finally closed to the 3000 point mark. At this time, the sentiment of "3,000 points to defend" has already spread in the market.

GDP in the third quarter increased by 4.9% year-on-year, higher than the external expectation of 4.5%; In the past week, Huijin increased its holdings, 10 central enterprises repurchased... The stock market is constantly positive for real money, why not rise?

A-shares fell, and some market views blamed the sharp exit of northbound funds. There are also views that frequent geopolitical conflicts and the impact of the Fed's continued interest rate hikes also need to be paid attention to.

Recently, policies conducive to invigorating the capital market, such as halving stamp duty and tightening the pace of IPO refinancing in stages, have been frequently introduced. In addition, some market entities have also begun to spontaneously participate in the "protective action". The "3,000 points" defense battle has begun, and whether a series of actions can be transformed into the restoration of capital market confidence remains to be verified by time.

The "3,000 points" defense war has begun. Photo: China News Photo Network

Why is market sentiment depressed?

On October 20, the A-share market continued to fluctuate downward, with automobiles, computers, biomedicine and other industries falling significantly, dragging the Shanghai Composite Index to continue to dip to around 2980 points. As of the close, the Shanghai Composite Index was at 2983.06 points, down 3.4% for the week. In addition, the Shenzhen Composite Index and ChiNext Index both fell slightly.

"The current downturn in the market is mainly because the liquidity of A-shares has not been reversed, and the departure of northbound funds still has an impact on short-term market sentiment and weakens the role of other positive factors." Song Yiwei, chief strategist of Bohai Securities, said.

Wind data shows that on the 20th, northbound funds sold a slight net of 1.646 billion yuan throughout the day, a net sale for 6 consecutive days. The day before, the unilateral outflow of northbound funds reached 11.704 billion yuan throughout the day, the second largest one-day net sale in the year, and the cumulative reduction of northbound funds this week exceeded 24 billion yuan.

Some insiders pointed out that overseas market volatility, the worsening of the Palestinian-Israeli conflict and the Fed's continued interest rate hikes have adversely affected the market. The continued exit of foreign capital has led to a sluggish market sentiment, and pessimism has led investors to ignore fundamental factors and increase selling. At the same time, the index was around 3,000 points, which had a greater impact on investors, resulting in a continuous rapid decline in the index.

"Due to the lack of money-making effect in the market, there is an obvious lack of incremental funds, domestic institutional investors lack the injection of long-term funds, the A-share market has fallen endlessly, making the investment losses of the basic people serious, there are a large number of redemptions of old fund products, and no one cares about the issuance of new funds, and domestic institutional investors are forced to produce capital outflows due to a large number of redemptions, which is the short-term phenomenon of long-term institutional behavior we see." Chen Ru, former CEO of BOC Fund, pointed out that coupled with the continuous outflow of foreign capital, especially since August this year, the phenomenon of northbound funds taking the rhythm is very obvious, and the continuous outflow of northbound funds is accompanied by the overall decline of A-shares and shows a positive correlation.

"3,000 points" has always been an important line of defense for the stock market. In recent years, whenever the broader market touches around 3,000 points, the relevant departments will introduce a series of stimulus measures to boost confidence in the stock market, so 3,000 points is also known as the "policy bottom".

Since the first 3,000 point in early 2007, the Shanghai Composite Index has risen to an all-time high of 6,124 points and also tested to the 1,664 range. In the past 16 years, shuttling through 3,000 points, the Shanghai Composite Index has roughly carried out 7 rounds of "defense battles", each time after a long period of tug-of-war.

The longest game took place in 2009. The global financial crisis gradually eased, and the Shanghai Composite Index rebounded strongly to around 3,500 points, but in August it turned around and fell below 3,000 points, and it was not until five years later, in December 2014, that it finally broke through. Then it went all the way up, ushering in a big bull market.

In 2022, the "3,000-point defense battle" appeared twice. In March of that year, the Shanghai Composite Index fell all the way and began to rebound after falling as low as 2863.65 points in April. In October, the 3,000-point mark was broken, and the Shanghai Composite Index once again repeatedly attacked and defended around 3,000 points, and finally returned above 3,000 points.

Yang Delong, chief economist of Qianhai Open Source Fund, has made statistics that the A-share market has fallen below 3,000 points 50 times in history, but there have also been 50 times to regain this point.

"This time may not be an exception. Even if the broader market breaks 3,000 points in the short term, the market may usher in policies to support the economic recovery, which in turn will lead to the recovery of the stock market. In order to boost the economy, larger policy measures may be introduced in the fourth quarter, especially if the broader market falls below 3,000 points, which may prompt the introduction of stronger policies to change the market's pessimistic expectations. Yang Delong said.

Essence Securities believes that in the medium and long term, the Shanghai Composite Index has never had three consecutive negative annual lines in the past 30 years, and the experience of large-level adjustments in the past 30 years shows that once the adjustment enters the 18-year and 20-year moving average area, it may usher in a larger level of rebound; The Shanghai Composite Index has now entered the zone.

Song Yiwei also said that since the Shanghai Index has broken through the August low, the market may choose to "break and then stand", investors should not be too pessimistic about this, should wait for the market to stabilize.

Is A share in the end?

Although the market is still in the bottoming stage, many market participants are still optimistic about the trend of A-shares.

Sheng Fengyan, a fund manager at Western Lide, publicly claimed that from the perspective of timing models, many models trigger the signal of A-shares reaching the bottom. Factors such as the supervision of the protection of A-shares, the rapid response to public opinion, the goodness of hundreds of billions of real money, and the significant decline in the lineage of risk-free yield this year, but the money supply is still high, show that positive factors are gradually accumulating, and only the east wind is owed.

On July 24, the Politburo meeting of the CPC Central Committee clearly stated that "it is necessary to activate the capital market and boost investor confidence". In the past three months, heavy policies including the implementation of halving the stamp duty on securities transactions, the phased tightening of the pace of IPO refinancing, and the new rules for reducing holdings have stabilized market confidence.

The accelerated macroeconomic recovery has also injected benefits into the A-share market. On October 18, the National Bureau of Statistics released data showing that the GDP in the first three quarters was 91.30 trillion yuan, a year-on-year increase of 5.2%. Among them, GDP in the third quarter increased by 4.9% year-on-year, which was better than expected overall. In addition, PMI, investment, consumption, exports, social finance and other data have also shown signs of improvement in continuing to rise and narrowing the rate of decline.

"A number of economic indicators in September were better than market expectations, and the market is accumulating energy for longs. Considering that the current market valuation has a high margin of safety, it is not advisable to be overly pessimistic about the future market. As the power of the long continues to accumulate, the market may usher in a rebound after a moderate rest. Fei Xiaoping, a macro strategist at Dongguan Securities, pointed out in the research report.

It is worth noting that market entities are also actively participating in the "protective action". On October 16, more than ten central enterprises, including Sinopec, Hikvision, Baosteel, China Resources Micro and China Railway Construction Co., Ltd., intensively made a move to increase their holdings or buy back their own shares. On the evening of the 19th, six central enterprises, including China Nuclear Power, Guodian Power, Inner Mongolia Huadian, China Aluminum, China Shenhua and China State Construction, issued announcements respectively announcing the increase plan of controlling shareholders, with a single increase in holdings ranging from 100 million to 1 billion yuan.

In addition, after eight years, Central Huijin Investment Co., Ltd. once again increased its holdings in four major state-owned commercial banks, with a total increase of more than 100 million shares.

According to incomplete media statistics, in the first three trading days of this week alone, at least 30 listed companies disclosed plans or progress of important shareholders' shareholding, and at least 70 listed companies disclosed share repurchase plans or progress.

Positive signals are accumulating. Qin Peijing, chief strategist of CITIC Securities, believes that the bottom characteristics of the current A-share market are obvious. With the accumulation of positive domestic factors, the gradual easing of external disturbances such as the US dollar exchange rate, and the intensive holding of important meetings in the fourth quarter, the bottom of the A-share market is expected to gradually consolidate.

There are also many voices pointing out that A-shares have fallen endlessly, and it is time for fundamental reflection. "The A-share market relies too much on financing and neglects to care for investors, resulting in an imbalance between the financing end and the investment side, especially the obvious lack of functions on the investment side." Chen Ru, former CEO of BOC Fund, believes that investors have lost enthusiasm for the market due to a long-term failure to make profits. In addition, there are some loopholes in the market, and the cost of violations is too low, which seriously hurts investor confidence.

"We need to take the protection of the legitimate rights and interests of small and medium-sized investors as the most important task." Chen Ru pointed out that this requires comprehensive reform from the financing, investment and transaction sides to fill all kinds of loopholes that harm the interests of investors.

However, he also believes that the current overall valuation of the A-share market is low, and the value of core assets has been undervalued for a long time, "which also provides opportunities for medium and long-term value investment."

Author: Halik

Editor: Min Jie