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Li Shuchao, reporter of China Fund News

A-shares closed out July with a huge market surge!

As of the close of July 31, the Shanghai Composite Index, Shenzhen Component Index and CSI 300 rose by 2.06%, 3.37% and 2.16% respectively. In terms of industry, securities, Internet insurance, medical services, biological products and other sectors have seen the largest gains, with 90 stocks hitting the daily limit. After hovering around 600 billion yuan for many days, trading volume increased significantly today to around 900 billion yuan.

The interviewed securities firms and public fund institutions said that the positive statements made by the Political Bureau of the CPC Central Committee in expanding domestic demand, promoting high-quality development, and enhancing the inherent stability of the capital market have greatly activated the sentiment of the capital market and boosted investor confidence. Against the backdrop of the need for macroeconomic policies to "continue to exert more efforts and give more strength", the positive factors in the A-share market have shifted from quantitative changes to qualitative changes, and a reversal in the second half of the year is expected.

A-shares are at a critical stage of sentiment recovery

Talking about the stock market surge on the last day of July,Li Chao, Chief Economist of Zheshang SecuritiesHe said that the A-share market is at a critical stage of recovery in sentiment. The Political Bureau meeting in July emphasized the coordinated prevention of risks, strengthening supervision, and promoting development to boost investor confidence and enhance the inherent stability of the capital market. In particular, macroeconomic control policies focused on "unswervingly achieving the annual economic and social development goals", "macroeconomic policies must continue to work hard and be more powerful", and "expanding domestic demand with a focus on boosting consumption" and many other positive directions, and market expectations have become clearer.

Yan Xiang, Chief Economist of Huafu SecuritiesIt also stated that the Politburo meeting set the tone that macroeconomic policies should continue to be more forceful and powerful in the second half of the year. Macroeconomic policy support is expected to be further strengthened in the second half of the year, and subsequent incremental policies can be expected.

Huang Runan, co-chief macro analyst at Guotai Junan Research InstituteIt was also analyzed that, on the one hand, the Politburo meeting required that macroeconomic policies should strengthen counter-cyclical adjustments, and the market expected that the stable growth policies would be strengthened in the second half of the year, which strengthened investors' confidence in the Chinese economy; on the other hand, the industrial policies proposed at the meeting were more targeted, which would help cultivate new momentum and new advantages, and form a powerful synergy to promote high-quality development.

Regarding the capital market, Yan Xiang believes that the Politburo meeting proposed "to coordinate risk prevention, strengthen supervision, promote development, boost investor confidence, and enhance the inherent stability of the capital market", which fully reflects the Party Central Committee's high attention and expectations for the development of the capital market. This policy measure will also better play the important role of the capital market.

In Yan Xiang's view, as an important hub connecting finance and the real economy, an effective capital market can, on the one hand, play a resource allocation function, guide funds to flow into high-quality listed companies and help the development of the real economy; on the other hand, it is also an important channel for residents to increase their property income and meet their growing wealth management needs.

"The capital market is an important force in supporting scientific and technological innovation and accelerating the development of new quality productive forces. It can provide external financing support for companies' continued R&D investment and guide resource factors to gather towards new quality productive forces." Yan Xiang said.

Huang Runan also believes that the Politburo meeting once again emphasized the need to boost investor confidence and enhance the inherent stability of the capital market, injecting a "shot in the arm" for capital market investors.

"This Politburo meeting further clarified the basic requirements and objectives of capital market reform. Reform policies represented by the new 'Nine National Policies' are expected to continue to provide impetus for enhancing the inherent stability of the capital market," said Huang Runan.

Invesco Great Wall FundIt also said that at the policy level, yesterday's Politburo meeting released positive signals, and the policy level statement has a positive effect on changing the market's pessimistic expectations. In addition, judging from the policies such as equipment renewal and old-for-new exchange last Friday, some marginal changes may begin to occur at the fiscal policy level.

A reversal in the second half of the year is expected

After the stock market surged, the institutions and individuals interviewed believed that, benefiting from policy boost and improved fundamentals, the positive factors in the A-share market are expected to shift from quantitative change to qualitative change, and a reversal in the second half of the year can be expected.

Invesco Great Wall FundIt is said that the market had adjusted a lot in the early stage due to negative factors such as the US election. Catalysed by positive policy factors and attractive valuations, the market stopped falling and rebounded.

Yan Xiang believes that in addition to the continuous favorable policy support, the positive factors of the market itself are also continuing to accumulate, gradually shifting from quantitative change to qualitative change.

Specifically, Yan Xiang analyzed,First, the profit cycle is expected to bottom out and recover.The current market is at the bottom of the profit cycle, and the performance bottom of A-share listed companies has most likely already appeared. The year-on-year growth rate of PPI prices has fluctuated higher, and the profits of listed companies are expected to improve simultaneously.

Second, dividend repurchases by listed companies increased significantly.Since the end of last year, the China Securities Regulatory Commission has taken a package of measures to optimize and improve the institutional mechanisms of dividends, share repurchases, and shareholder share purchases, and encouraged listed companies to reward investors through cash dividends, share repurchases, etc. Under the guidance of a series of policies, listed companies have significantly increased their dividend repurchase efforts.

Third, market valuations are at historical lows, investment value is highlighted, and the liquidity environment is loose, which is expected to catalyze the denominator market.As of the end of July, the valuations of major broad-based A-share indices were generally at a historical low in the past 10 years, and the PE valuation of the CSI All-Share Index was at the 14.6% percentile from bottom to top in the past 10 years. At the same time, my country's macro interest rates have continued to decline since the beginning of this year, with the 10-year treasury bond yield falling to 2.15%, which is at a historical low. The loose macro liquidity environment is expected to catalyze the denominator of the A-share market.

In terms of valuation, Invesco Great Wall Fund also believes that after the recent continuous adjustments, the market value valuation has become more attractive again. The current 10-year treasury bond interest rate has fallen below the 2.2% mark, and the CSI 300 dividend rate has reached 3.08%, which is 0.92 percentage points higher than the 10-year treasury bond yield, implying enough pessimistic expectations, and the allocation attractiveness has increased.

Looking ahead to the future market, Invesco Great Wall Fund expects that the market will still be dominated by structural trends, and recommends paying attention to three directions: First, the fundamentals may have entered the right growth direction, including semiconductors and consumer electronics; second, some pharmaceuticals, liquor, building materials, etc. that have oversold rebounds and valuation repair space; third, in the high dividend direction, the recent excess returns have seen a certain correction, the medium-term risk appetite has not improved, and interest rates have continued to decline. It is recommended to choose the opportunity to moderately cover the allocation.

"The core of increasing the proportion of direct financing is to highlight the money-making effect of the capital market. It is recommended to focus on areas where risk appetite has improved and industries where continued net inflows of incremental funds have brought market trends in the future." Li Chao of Zheshang Securities also said.

Editor: Joey

Review: Xu Wen

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