The introduction of the new rules for the strongest reduction of holdings, how to interpret A-shares?

36Kr Finance

2024-05-27 11:18Published in Beijing

Author | Ding Mao

Edit | Zheng Huaizhou

Cover source | Visual China

This week, the A-share market showed a trend of rising and falling. At the beginning of the week, stimulated by the positive real estate policy, the Shanghai Composite Index continued its strong rise on Friday, once rising to about 3175 points during the session, and maintained a high consolidation trend in the following two trading days; Since Thursday, the Shanghai Composite Index has fallen sharply for two consecutive trading days and returned to hovering around 3,000 points under the pressure of the strengthening of the US dollar due to the failure of the Fed's interest rate cut expectations and the sharp increase in the probability of interest rate hikes, and the escalation of geopolitical conflicts and uncertainties in the surrounding environment. In the end, all three major stock indexes fell during the week, with the Shanghai Composite Index closing down 2.07%, the Shenzhen Component Index closing down 2.93%, and the ChiNext Index closing down 3.85%.

In terms of northbound funds, there was a slight inflow of 800 million yuan this week; In terms of trading volume, the total trading volume of the two cities increased slightly by 0.02% from last week. The above data shows that at present, under the increasing uncertainty of the external environment, the overall choice of over-the-counter funds is mainly wait-and-see, and the on-site funds are still a stock game, and the market confidence is slightly insufficient, and the sentiment is relatively sluggish. In terms of industries, coal, public utilities, agriculture, forestry, animal husbandry and fishery rose high during the week; Light manufacturing, real estate, and comprehensive decliners were among the top decliners.

01. What is the reason behind the pullback of A-shares?

As for the decline of A-shares in the second half of this week, we believe that the main reasons behind it can be attributed to two aspects:

First of all, from the perspective of A-shares themselves, after the Shanghai Composite Index hit a low of 2635 in February this year, the Shanghai Composite Index has rebounded by nearly 15% so far, and after A-shares returned to 3000 points in March, the index has been consolidating in a narrow range of 3000-3200 points in the past two months. On the one hand, it is because after experiencing a rapid upward rush in the early stage, the market needs a certain amount of time to digest and adjust; On the other hand, the current internal and external environment still lacks substantial positive support, it is difficult to attract more incremental funds to enter, and the capital side has always shown the characteristics of the stock game, which is reflected in the disk, which is mainly manifested as a range of shocks, and the structural market between the various sections is difficult to form a trend upward trend.

Secondly, from the perspective of the external environment, in addition to the sudden geopolitical conflict this week, which stimulated the market's worries to a certain extent and produced a one-time negative shock, the brunt of this week's impact came from the failure of the Fed's interest rate cut expectations. Since May this year, the successive weakening of a number of data in the United States has strengthened the market's interest rate cut expectations to a certain extent, making the interest rate cut trade begin to heat up again. However, in the minutes of this meeting, more hawkish details were revealed, which dampened the bullish sentiment of the trade in anticipation of a rate cut. Specifically, first, Fed officials generally believe that the current policy rate is in a reasonable position, and for the recurrence of inflation data in the first quarter, some participants said that if inflation continues to rise, then they are willing to tighten monetary policy; Second, the Fed still attaches importance to the balance between inflation and the job market, and is willing to keep interest rates high for longer if there is no more progress in inflation, but will accelerate the pace of interest rate cuts if the job market unexpectedly weakens; Third, almost all participants supported the reduction of QT.

Although the minutes of this meeting brought some negative disruption to the capital market, we need to be clear that the May interest rate meeting took place at the beginning of the month, when the overall economic environment was a high and repeated high inflation in the first quarter. However, judging from the economic data released in the following months, both inflation and other data have cooled somewhat, especially the unexpected decline in non-farm payrolls, which shows the loosening of the U.S. job market. In the minutes of this meeting, a very key change is that the Fed's data reference for future monetary policy strategy has changed from pure inflation considerations to a balance between inflation and the labor market, in this context, in fact, the continued loosening of the labor market has also reduced the probability of further interest rate hikes by the Fed in the future to a certain extent.

However, judging from the prediction of the probability of interest rate cuts after the release of the meeting minutes, the market has indeed loosened its expectations for the probability of the Fed cutting interest rates within the year, but the overall magnitude is not as large as the market reflects. According to Fed Watch data, the probability of no interest rate cut in July increased to 80.1% from the previous value of 74.6%; The probability of a 25bp rate cut and no rate cut in September are 50.9% and 38.5%, respectively, compared with 51.6% and 34.3% in the previous month.

For the future fluctuating relationship between the Fed's monetary policy and the capital market, we can refer to the view of CICC Securities. It believes that tight financial conditions have a certain reflexivity, and tight financial conditions will most likely make demand and price data lower than expected in 1-3 months, and vice versa.

In other words, under the effect of reflexivity, since May, the weakening of U.S. data has significantly increased the expectation of interest rate cuts, thereby pushing up long-term and short-end interest rates to continue to fall and U.S. stocks to perform positively. According to CICC's forecasting model, the current downward interest rate and new highs in U.S. stocks have pushed financial conditions to loosen by about 45bp to the level at the beginning of 99.18, which may support the strength of economic data in the coming months to a certain extent. If it strengthens too much, it may even affect the interest rate cut window in the third quarter, and there will be a "reproduction" similar to the beginning of the year, thereby limiting the space and persistence of risk appetite and putting continuous pressure on the capital market.

In other words, when the market's expectations for interest rate cuts are higher, under the influence of reflexivity, financial conditions will naturally loosen, which will lead to a stronger economy, essentially postpone the occurrence of interest rate cuts, and increase the volatility of the capital market. The end result is that the Fed is forced to maintain a posture of not cutting interest rates for longer in an attempt to trade time for space, and finally achieve the goal of slowly suppressing inflation, and interest rates and assets swing back and forth in the process, increasing volatility, but the overall range is getting narrower and narrower.

On the whole, that is to say, the reflexivity of financial conditions and the swing of interest rate cut expectations will increase the volatility of the capital market to a certain extent, making the market trend repeated, but the plateau period of high interest rates is unsustainable, and the final timing point depends on which of the recession and financial risks appears first, and under the comprehensive assessment, the Fed grasps the timing of interest rate cuts.

02. What is the impact of the introduction of the strictest new regulations in history to reduce holdings?

With the global capital market following the Fed's swing, the A-share market ushered in another blockbuster favorable policy this weekend. At the end of this week, the China Securities Regulatory Commission (CSRC) issued the "Interim Measures for the Administration of Shareholding Reduction by Shareholders of Listed Companies" and related supporting rules, which can be described as the strictest new regulations on shareholding reduction in history. The "Administrative Measures" have clearly defined the terms from strictly regulating the reduction of shareholdings by major shareholders, to effectively preventing the reduction of shareholdings by detours, to refining the liability clauses for violations. There are a total of 31 new regulations on reducing shareholdings, which mainly present three major characteristics:

First, it is necessary to strictly regulate the reduction of shareholdings by major shareholders. It is clarified that the controlling shareholder and actual controller shall not reduce their shareholdings through centralized bidding transactions or block transactions under the circumstances of breakage, net breakage, or failure to meet the dividend standard; increase the pre-disclosure obligation before the major shareholder reduces his shareholding through block trading; Persons acting in concert with major shareholders are required to comply with the shareholding reduction restriction together with major shareholders.

Second, it blocked the channel for major shareholders to "detour" their holdings in violation of regulations. Require a six-month lock-up for the transferee of the agreement transfer; It is clarified that after the division of shares due to divorce, dissolution, division, etc., the parties continue to jointly abide by the restrictions on the reduction of shareholdings; It is clarified that judicial compulsory enforcement, pledge margin financing, securities lending, default disposal, etc., shall be subject to relevant shareholding reduction requirements according to different shareholding reduction methods; It is forbidden for major shareholders to lend securities to sell or participate in derivatives trading with the company's shares as the underlying asset; It is forbidden to refinance and lend restricted shares, and shareholders of restricted shares to lend and sell securities.

Third, the liability clause for violation has been refined. It is clarified that measures may be taken to order the repurchase and pay the price difference to the listed company for illegal shareholding reduction, and list the specific circumstances that should be punished. In addition, the obligations of listed companies and the secretary of the board of directors have been strengthened.

As early as August last year, the regulatory authorities regulated the reduction of holdings by controlling shareholders and actual controllers, with the intention of boosting market confidence and stabilizing market funds. Under the policy, since the beginning of this year, the scale of shareholding reduction by important shareholders of listed companies has continued to decline. According to the data, from 2020 to May 2024, the scale of important shareholders' holdings was 707.2 billion yuan, 611.1 billion yuan, 495 billion yuan, 399.7 billion yuan and 40.9 billion yuan respectively.

In the short term, with the introduction of the new regulations, investor confidence is expected to usher in a strong recovery, which is positive for the trend of A-shares. Referring to the market performance after the release of the real estate policy last week, the strong favorable policy will probably boost market confidence and drive the low rebound of the A-share market at the beginning of next week, but whether the final market can be sustained still depends on the trade-off of over-the-counter funds and the willingness to enter; In the long run, stricter restrictions on shareholding reduction are expected to further make up for the institutional loopholes in the market by regulating the shareholding reduction behavior of major shareholders, thereby effectively restraining the shareholding reduction behavior of major shareholders, reducing the negative impact of capital outflow, reshaping the A-share investment environment, fully protecting the interests of small and medium-sized investors, boosting investor confidence, and promoting the long-term high-quality development of the mainland capital market.

03. The Fed's policy is swinging, and copper prices have peaked?

This week, under the influence of the cooling of the Fed's interest rate cut expectations, commodities represented by copper also fell significantly. Since mid-February this year, LME copper has risen by more than 26% and COMEX copper has risen by nearly 30% due to the continuous disturbance of the supply-demand gap. In this context, will the Fed's monetary policy repetition affect the performance of subsequent copper prices? Is there room for copper prices to rise in the future?

Judging from the historical review, during the high-interest rate plateau period before the interest rate cut, copper prices are likely to fall due to weak demand or reduced risk appetite, and from the average income data, the decline in copper prices under the economic recession is much greater than that under the financial risk situation.

On the whole, the impact of interest rate cuts on the trend of copper prices is mainly through the extent to which the demand for copper is suppressed under different degrees of economic recession. When the U.S. economy has a soft landing or no landing, the interest rate cut caused by financial risks will have a relatively limited effect on the overall demand for copper, so copper prices will eventually reflect a slight decline or rise; On the contrary, once the U.S. economy has a hard landing, it is equivalent to the global manufacturing industry may face certain downward cycle pressure, in this context, the weakening of the economy will greatly inhibit the expected release of copper demand, thereby changing the supply and demand pattern, resulting in a sharp decline in copper prices.

Judging from the current situation of the U.S. economy, we believe that the current point in time, whether it is the resilience of the U.S. or the marginal changes in the external environment, indicates that the risk of a hard landing of the U.S. economy is not large. At the same time, compared with the historical copper cycle, behind the surge in copper prices in this round, in addition to the stable demand increase brought about by the recovery of the global manufacturing industry, another very important demand increase comes from the surge in copper demand brought about by the expansion of new energy; In addition, the continuous cash-in disturbance of supply-side tension is the fundamental factor that pushes up the unexpected rise in copper prices in this round.

According to data from CICC Securities, in 2024, taking into account the expectation of slowing demand, the proportion of copper used in global photovoltaics, wind power, and new energy vehicles has also reached 13%, and the pull on copper demand from an incremental perspective is still considerable.

From the perspective of the supply side, since 2024, under the combined influence of environmentalism, low capital expenditure, and geological reasons, the operation and supply of copper mines have always been tight, and they are irreversible and difficult to solve in the short term.

According to the forecast data of CICC Securities, it is expected that there will be a gap of 140,000 tons in the global copper supply and demand balance in 2024, and at the same time, even in the context of the current supply-demand imbalance and rising copper prices, the willingness of copper mines to increase capital expenditure is not obvious, according to the forecast, the increase in the willingness to increase capital expenditure at the copper end of copper mines requires copper prices to be maintained at least 13,000 US dollars / ton.

Therefore, in the context of the persistence of supply disturbances and the small probability of unexpected changes on the demand side, even if the Fed's monetary policy trends will have a negative impact on copper prices in the short term, from a medium and long-term perspective, copper prices will still maintain an upward trend with a high probability until the supply-side disturbances are truly broken and copper supply and demand tend to balance again.

*Disclaimer: 

The views expressed in this article are those of the author. 

The market is risky, and investors need to be cautious. Under no circumstances does the information or opinions expressed herein constitute investment advice to any person. Before deciding to invest, investors should consult professionals and make prudent decisions if necessary. We do not intend to provide underwriting services or any services that require certain qualifications or licenses to be performed by parties to a transaction.

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