China's stock market: two major changes are quietly coming, affecting the pattern of the next 10 years

1. A-shares are ushering in great changes!

There are two landmark events:

1. On January 24, Wang Jianjun, vice chairman of the China Securities Regulatory Commission, said in an interview with a reporter from the Securities Times that the China Securities Regulatory Commission will give more prominence to investor-oriented. Only when investors are well protected can there be a foundation for the prosperity and development of the market.

2. At the press conference held by the Information Office of the State Council on January 24, Xie Xiaobing, head of the Property Rights Management Bureau of the State-owned Assets Supervision and Administration Commission of the State Council, introduced that the State-owned Assets Supervision and Administration Commission of the State Council will further study the inclusion of market value management in the performance appraisal of the heads of central enterprises. Guide the person in charge of the central enterprise to pay more attention to and pay more attention to the market performance of the listed companies they hold, and timely use market-oriented means such as increasing holdings and repurchases to convey confidence, stabilize expectations, and increase cash dividends to better return investors.

First, the China Securities Regulatory Commission (CSRC) first proposed the construction of an "investor-oriented" capital market. Second, the study will include market value management in the performance appraisal of the person in charge of the central enterprise. These two events will be landmark and will certainly have a profound impact on the pattern of China's stock market in the next 10 years.

The market reaction has been very positive in the past two days.

In the last consecutive trading days, driven by the relevant sectors of central state-owned enterprises, the Shanghai Composite Index has continued to rise sharply, rising more than 3% on Thursday, breaking through 2,900 points, and breaking through 2,900 points and 3,000 points in the last two trading days. In the market software, the concept of central enterprise reform rose 5.46%.

Why are two things significant?

In the past, more emphasis was placed on the financing function of the capital market, so in recent years, the speed of new stock listings has been very fast, and the incremental funds in the market are easy to fall if they can't keep up. The emphasis on "investor-oriented" now has at least a few implications:

First, it will definitely focus on the protection of investors, at the entrance end, for the listing of new shares will be strictly controlled, not all companies can be listed, there must be value, can bring returns to shareholders, rather than listing is to cash out. At the middle end, listed companies will be required to strengthen information disclosure, crack down on major shareholders who illegally reduce their holdings and manipulate stock prices, and protect small and medium-sized investors. On the export side, we will increase the cost of violating the law by major shareholders of listed companies, improve the class action system, make those who violate the law pay the price, and let small and medium-sized investors whose interests have suffered losses have convenient and fast recovery channels.

The second is to improve the return on investors' funds. The stock market is inherently a high-risk, high-return market, and in the past 20 years, investors have mostly lost money. In any case, the return rate of the stock market must at least be higher than that of debt assets such as deposits, money market funds, and bonds.

In addition, if the market value management is included in the performance appraisal of the person in charge of the central enterprise, it will be a measure that can shake the market.

In addition to ST shares, the current net breaking rate of A-shares accounts for 8.8% of the total number of A-shares, and the proportion of central and state-owned enterprise stocks is significantly higher, nearly 17% and 43% respectively.

Breaking the net means that the return of these stocks from delisting may be higher than the current value of the shares, indicating that the stock price of these stocks is seriously undervalued. But is it just that these stocks are not of high quality?

Of course not!

In the first three quarters of 2023, the total net profit attributable to the parent company of 458 listed companies of central enterprises was 2.2 trillion yuan, accounting for 50% of the total volume of listed companies. However, as of January 12, the total market value of listed companies of central enterprises accounted for only 31.75% of the total market value of listed companies. Therefore, these sectors of central state-owned enterprises are very valuable.

If market value management is included in the assessment, then central SOEs will have more incentives to encourage buybacks, increase the proportion of cash dividends, and strengthen equity incentives, so as to return valuations.

In the past year, the concept of central enterprises has performed relatively well. The first is backed by state-owned assets, the second is stable performance, the third is low valuation, and the fourth is financial health. These characteristics are the first choice for the allocation of insurance funds, pensions, and bank wealth management funds.

Under the expectation that the special valuation + market value management is included in the performance appraisal of the person in charge of the central enterprise, the relevant concepts of central state-owned enterprises are expected to obtain greater opportunities for valuation repair. In terms of specific concepts, I am more optimistic about the central enterprise win-win ETF (517090), which has achieved a positive return of 3.03% in the context of the CSI 300 falling by 1.8% in the past month, which is full of resilience. If you don't have a securities account, you can follow its feeder fund (019269).

Second, the risk of A-shares below 3,000 points is smaller

Fans who often read my articles know that I have always emphasized that A-shares below 3,000 points are less risky. The top management will not tolerate a continued decline in the stock market.

At the level of the war, A-shares fell sharply at the beginning of this week, breaking 2,800 points. The National Standing Committee also listened to a special report on the operation of the capital market and work considerations, and called for the adoption of more effective measures to stabilize the market and confidence. Very rare.

The China Securities Regulatory Commission (CSRC) said that it will enrich the policy tools to deal with market fluctuations, do a good job of risk hedging in a timely manner, and keep the bottom line of risks. It is widely expected that the establishment of a leveling fund may be an important option.

On January 24, the central bank announced that it would cut the reserve requirement ratio by 0.5 percentage points on February 5 to provide long-term liquidity to the market by about 1 trillion yuan. In the past, the RRR cut was generally 0.25 percentage points (about 500 billion yuan of funds were released), but this time the RRR cut was as high as 0.5 percentage points, with about 1 trillion yuan, which is basically twice as strong as in the past.

All signs show that the stock market in 2024 is very important, and once it falls below the key point, there will definitely be a blockbuster policy combination.