The trillion RRR cut will be implemented, and multiple departments will work together to stabilize market expectations

Following the National Standing Meeting's emphasis on stabilizing the market and stabilizing confidence, the central bank, the State Administration of Financial Regulation, the China Securities Regulatory Commission, the State-owned Assets Supervision and Administration Commission and other departments have successively taken steps to stabilize market expectations.

On January 24, the State-owned Assets Supervision and Administration Commission (SASAC) emphasized that central enterprises should strengthen market value management and attach importance to increasing holdings, buybacks, and dividends. Subsequently, Wang Jianjun, vice chairman of the China Securities Regulatory Commission, responded to the volatility of the stock market and clearly proposed "investor-oriented" for the first time. The warm wind blew, and A-shares stopped falling and rebounded in the afternoon.

In the afternoon of the same day, the central bank announced a RRR cut to further support market sentiment. Pan Gongsheng, governor of the People's Bank of China, said that on February 5, the reserve requirement ratio was cut by 0.5 percentage points, providing long-term liquidity to the market by 1 trillion yuan.

Driven by multiple positive news, A-shares staged a "deep V" rebound, and as of the close, the Shanghai Composite Index rose 1.8% to regain 2,800 points.

"The China Securities Regulatory Commission has issued a statement to stabilize market expectations, monetary easing is expected to continue, and the value of the bottom allocation of stock market valuations is highlighted. Yao Pei, chief strategy analyst of Huachuang Securities, believes that medium and long-term funds have continued to flow into the layout, and many broad-based index ETFs have received large-scale capital inflows since 2024.

"For the next A-share market, we believe it is worth continuing to be optimistic. Gao Ruidong, chief economist and director of the research institute of Everbright Securities, said that A-shares are already at the bottom, and the policy "combination punch" is expected to reverse the pessimistic expectations of the market.

The first RRR cut in the new year exceeded expectations

After a long time of market anticipation, the central bank's first RRR cut in the new year is about to land.

On January 24, at a press conference held by the Information Office of the State Council, Pan Gongsheng said that the reserve requirement ratio would be lowered by 0.5 percentage points on February 5 to provide long-term liquidity to the market by 1 trillion yuan. On January 25, the re-lending and re-discounting interest rates for rural and small enterprises were lowered by 0.25 percentage points, and at the same time, it will continue to promote the steady decline of comprehensive social financing costs.

Pan Gongsheng said that the mainland's current average statutory reserve ratio is 7.4 percent, which is still relatively large compared with the central banks of major economies in the world, which is an effective tool to supplement the medium and long-term liquidity of the banking system.

Coupled with the reduction of re-lending and rediscount rates to support agriculture and small enterprises, "these measures will help to promote the downward trend of the loan prime rate, which is the benchmark for credit pricing, that is, the LPR." Pan Gongsheng said.

Market analysis believes that the central bank's RRR cut this time has released a positive and stable growth signal. The 50BP RRR cut exceeded expectations, and the monetary policy to support the real economy has increased significantly, releasing the central bank's determination to promote economic stability and improvement, which will help accelerate economic recovery and boost market expectations for economic recovery and improved corporate earnings.

Zhou Maohua, macro researcher at the Financial Market Department of Everbright Bank, said: "At the beginning of the new year, the central bank has released long-term and low-cost funds and stabilized liquidity by cutting the reserve requirement, which will help enhance the credit delivery capacity of financial institutions, stabilize the overall debt cost of banks and financial institutions, and expand space for financial institutions to further rationally benefit the real economy. ”

According to Wang Qing, chief macro analyst of Oriental Jincheng, the RRR cut has reached 50BP, which is double the previous RRR cuts since 2022, which means that the countercyclical adjustment of monetary policy has increased significantly, exceeding market expectations.

Wang Qing expects that the loan delivery in the first quarter will achieve a year-on-year increase - encouraging commercial banks to actively participate in the debt risk resolution of urban investment platforms, while effectively boosting market confidence. More importantly, the announcement of the RRR cut means that the first quarter has entered a critical stage of stable growth, and macro policies will be fully effective in stimulating effective demand.

"Next, fiscal policy will also exert force, of which the progress of government bond issuance will be significantly accelerated, and infrastructure investment (excluding electricity) in the first quarter is expected to maintain a rapid growth level of about 6%. Wang Qing said.

Market analysis judges that there is a possibility of interest rate cuts next.

Pan Gongsheng said that in terms of interest rates, monetary policy operations adhere to the principle of self-reliance. The current price level is still far from the expected price target. The market generally expects the Fed's monetary policy to pivot, which is objectively conducive to expanding the operating space of monetary policy.

According to the data, the CPI in December 2023 was -0.3% year-on-year, which has been negative for three consecutive months, and the PPI in the month was -2.7% year-on-year, which is still in a state of obvious negative growth. This means that the real cost of financing for businesses and households (real cost of financing = nominal cost of financing - inflation rate) has been rising recently, taking into account price factors.

Wang Qing believes that at present, it is urgent to alleviate the rise in real interest rates by lowering the policy interest rate and guiding the nominal loan interest rate downward. This is also an important reason why the expectation of interest rate cuts has risen recently, and market interest rates have continued to fall, among which the yield on 10-year Treasury bonds once fell below 2.50%.

Considering the economic and price trends in the first quarter, Wang Qing judged that the MLF (medium-term lending facility) interest rate may be lowered in the short term, and the rate cut is expected to be 0.1 to 0.2 percentage points. This will drive the simultaneous reduction of LPR quotations for 1-year and 5-year maturity, and promote the steady and moderate decline of comprehensive social financing costs, thereby effectively stimulating consumption and investment demand.

The first mention of "investor-oriented"

In addition to announcing the RRR cut, which directly boosted investors' economic expectations and market expectations, relevant departments also spoke intensively around the stock market to convey policy signals to stabilize the market and stabilize confidence.

The capital market has both investment and financing functions, not only to increase the proportion of direct financing, but also to meet the basic needs of investors to obtain returns.

In June 2023, Yi Huiman, chairman of the China Securities Regulatory Commission, said that he would work together to promote investment and financing reform, emphasizing that industry institutions should repay investors with good long-term performance, and truly realize the industry's own development and customer value growth.

Since the second half of the year, with the implementation of the requirements of activating the market and boosting confidence, the China Securities Regulatory Commission (CSRC) has launched a number of investment-side reform measures, including promoting more long-term funds to enter the market, reducing fees and commissions to benefit investors, etc. This time, it clearly stated that "investor-oriented" expressed the strong support of the regulator for investors to obtain returns through the stock market.

"Only when the majority of investors have a real sense of gain, can the steady and healthy development of the capital market have a solid foundation, so as to truly stabilize the market and stabilize confidence. Wang Jianjun said.

Guo Lei, chief economist of GF Securities, believes that the above statement is equivalent to providing a pricing coordinate of the market in a sense, and investors need to obtain normal capital returns when investing in the stock market; as a risk asset, the rate of return should be reasonably higher than that of bank deposits and fixed income products, such as the average annual compound return can better reflect the growth of nominal GDP, so that investors can better share the fruits of development while supporting the high-quality development of the real economy, and have a greater sense of gain.

In his view, with "investor-oriented" as a guide, the capital market will gradually move towards a more rational pricing, which will be more stable and long-term in the long run.

According to Wang Jianjun, the China Securities Regulatory Commission will further improve the quality evaluation standards of listed companies, highlight the return requirements, and vigorously promote listed companies to better return investors through repurchase and cancellation, increase dividends, etc. Support listed companies to inject high-quality assets, market-oriented mergers and acquisitions, and stimulate business vitality. Consolidate and deepen the normalized delisting mechanism, and "retreat as much as possible" for companies that have major violations of the law and have no investment value, and accelerate the survival of the fittest.

Investors should also play the role of securities and fund institutions. "We will improve the evaluation mechanism of sponsor institutions, highlight the quality assessment of their sponsor companies, especially the assessment of investor returns, and cannot bring companies without long-term returns to the market. Wang Jianjun said that the institutional arrangements for fund product registration and investment research ability evaluation will be improved, and investment institutions will be guided to change the concept of "emphasizing sales over service", enhance professional management capabilities, increase product and service innovation, and better meet the wealth management needs of investors.

Xie Xiaobing, head of the Property Rights Management Bureau of the State-owned Assets Supervision and Administration Commission, also said at the press conference of the State Council Information Office on the same day that further study will include market value management in the performance assessment of the heads of central enterprises, guide the heads of central enterprises to pay more attention to the market performance of the listed companies they control, and timely convey confidence and stabilize expectations through the application of market-oriented means such as increasing holdings and repurchases, increasing cash dividends, and better rewarding investors.

Liu Xingguo, a special senior researcher at the China Enterprise Confederation, said that for the capital market, the strengthening of market value management by central enterprises will not only help improve the quality of listed companies, but also help stabilize the stock prices of listed companies.

Restore investor confidence

Under a series of favorable policies, A-shares rebounded strongly on the 24th.

Lian Ping, president of the Guangkai Chief Industry Research Institute and chairman of the China Chief Economist Forum, believes that the current market has seen a phased decline in the RMB exchange rate, the stock market and the bond market, which is leading to a serious contraction in asset prices, a sharp increase in market liquidity risks, and further setbacks in investor confidence, which need to be paid close attention to.

Lian Ping believes that under the current situation, the prudent monetary policy remains moderately loose, and the comprehensive use of RRR cuts, interest rate cuts and structural policy tools can play a positive impact in many aspects: it is conducive to supporting the government's bond issuance, it is conducive to supporting the real economy, it is conducive to stimulating consumption and investment, it is conducive to promoting banks to be more willing and able to invest credit funds, it is effective to ensure the reasonable financing needs of real estate enterprises, and it is necessary to support the healthy development of the capital market.

"From historical experience, the RRR cut will bring more liquidity support to the capital market, especially for listed companies in the banking, real estate, manufacturing and consumer sectors, and will be good for boosting investor confidence. Lian Ping said.

According to the data, since 2016, the central bank has made a total of 17 RRR cuts (excluding this one). On the first trading day after the RRR cut was announced, the Shanghai Composite Index rose 10 times and fell 7 times, with a probability of rising nearly 60%. Among them, there were 10 comprehensive RRR cuts (excluding this one), and on the first trading day after the RRR cut was announced, the Shanghai Composite Index rose 6 times and fell 4 times.

"The central bank's RRR cut and rediscount rate reduction reflect the further support of the policy for economic growth, combined with the recent goals of the local two sessions, the economic outlook for 2024 will be clearer, and the recovery of earnings and the easing of liquidity will bring about a gradual improvement in market fundamentals. Gao Ruidong told reporters that the attention and care of the regulatory authorities to the capital market is also rising, which is conducive to the gradual restoration of investor confidence.

"With the help of multiple factors, we believe that the A-share market is expected to achieve a bottom reversal, and the next market is worth looking forward to. He said.