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as the policy effects diminish, boosting the capital market will ultimately have to come back to improving corporate fundamentals and restoring long-term investment confidence.

written by chen bai

lowering the reserve requirement ratio and interest rates, lowering the interest rates on existing mortgage loans, lowering the down payment ratio, and creating new tools to support a-shares...

yesterday (september 24), the financial circle was even more lively than the chinese new year. after the release of a package of financial policies, the a-share market was boiling. as of the close of the day, the shanghai composite index rose by 4.15%, the largest single-day increase since july 2020.

picture/internet

the day before, stock investors were still turning off the lights and eating noodles, worried about the index falling below 2,700 points, but in the blink of an eye, it was the "big miracle day" - the positive effect of this financial policy was so immediate.

really,compared with the previous toothpaste-like benefits, the policy scale effect formed by the concentrated announcement this time is generally expected by institutions to be greater than the sum of individual policies.

but objectively speaking, the majority of the financial policies released this time are still within the market's previous calls and expectations. whether it is the much-anticipated reduction in the interest rate of existing mortgage loans or the reduction in reserve requirements and interest rates, the public already had psychological expectations.

for example, a few months ago, some authoritative media had already begun to publish articles calling for a reduction in interest rates on existing mortgage loans; as for lowering the reserve requirement ratio and interest rates, after the federal reserve’s blockbuster interest rate cut news the night before, the market was also prepared for the central bank to announce corresponding adjustments.

but the only thing the market may not have expected is that this time, such a large number of moves would be launched specifically for a-shares. in the face of the topical attraction of existing mortgage loans, many people may not have noticed that behind this package of benefits: saving the market is the core goal of this series of policies.

01

the reduction in the interest rate on existing mortgage loans is, of course, the most important policy released this time in terms of the number of people affected. but in fact, the real estate market has been making continuous moves in recent years.

in addition to linking to lpr (loan market reference rate), a series of measures have been introduced in recent years to boost the property market. for example, on may 17, the regulatory authorities launched a series of property market regulation measures, including reducing the minimum down payment ratio for the first and second homes to 15% and 25% respectively; canceling the lower limit of commercial loan interest rates; and lowering the interest rate of provident fund loans.

the interest rate on existing mortgage loans reduces the cost of home buyers, smooths the steepness of residents' balance sheets, and relieves the pressure of bad debts on banks. therefore, the adjustment of the interest rate on existing mortgage loans was actually a consensus among many parties before this.

▲the people's bank of china (photo/tuchong creative)

let's review the contents of this "one bank, one bureau, one association" press conference carefully.it can be found that no matter which financial regulatory department, a large part of the focus is placed on revitalizing the capital market.

first of all, from the perspective of funding fundamentals, the central bank lowered the deposit reserve ratio by 0.5% this time, providing about 1 trillion yuan of long-term liquidity to the financial market, alleviating the abnormal state of tight funding and inverted short-term interest rate curve.

the central bank also further proposed the creation of securities, fund and insurance company swap facilities, which means that liquidity in the market will increase significantly. coupled with guiding medium- and long-term funds into the market, it can be said to stimulate the capital market in multiple ways.

so the question is: why do a-shares need a big rise?

02

let’s start with the recent performance of a-shares. over the past five years, china’s a-share market has experienced multiple rounds of fluctuations and adjustments, and has generally shown a complex and diversified trend.

some industries such as new energy and chips have gained the favor of capital, and structural opportunities have emerged, but overall, the changes in the index from the battle to defend 3,000 points to the current stalemate at 2,800 points largely illustrate the mentality of investors.

the impact of a-shares goes beyond the capital market itself.

it is no exaggeration to say that for a long time, a-shares have almost become a mirror of social sentiment and have resonated with the widespread expectations of uncertainty, eventually forming a spiral of silence - the lack of confidence in the future, in turn, affects the market and affects the process of economic recovery.

as a barometer of the economy, the stock market's performance can ultimately reflect the state of economic operation. a sharp rise in the stock market will help restore market confidence, promote investment and consumption activities, and thus support the development of the real economy. judging from the direct effects of this policy package, it is helpful to restore confidence.

there is a well-known theory in sociology called "self-fulfilling prophecy", which refers to the expectation of an individual or group for a certain result, which may influence behavior and decision-making, and ultimately make the expected result a reality.

simply put, expectations themselves influence actual actions, thus making the original assumptions come true. this self-fulfilling expectation is particularly evident in the field of financial and economic behavior.

therefore, a shares are much more than just a shares. their strategic position goes far beyond stock trading.the capital market is a key hub connecting multiple dimensions of the national economy, including finance, industry, residents, and investment. the performance of the capital market is, to a certain extent, causally related to economic performance.

precisely because of this, both the a-share market and the domestic economy urgently need to hedge concerns about future uncertain risks through market increases, thereby improving the social atmosphere and boosting overall confidence.

03

from a longer-term perspective, the package of policies targeting the a-share market will have a more far-reaching impact than adjustments to existing mortgage interest rates.

the reduction in the interest rate of existing mortgage loans is mainly to solve the temporary contradiction - the interest rate difference between existing mortgage loans and newly issued mortgage loans is too obvious, which is generally unfavorable to both the real estate market and banks. because home buyers tend to repay their loans in advance, this not only squeezes the funds previously used for consumption, but also leads to a reduction in the long-term income of banks.

so,lowering the interest rates on existing mortgage loans can provide support for residents' consumption.

according to the agency's calculations, after the interest rate drops by 50 basis points, the monthly payment will be reduced by approximately 280 yuan for a commercial loan of 1 million yuan and a 30-year repayment period, and the interest expenditure can be reduced by a total of 100,000 yuan in 30 years.

in contrast,the effect created by the surge in a-shares leaves more room for imagination.

as mentioned earlier, a sharp rise in a-shares can boost confidence, and restored confidence can increase the liquidity of listed companies. the increase in liquidity allows companies to have more funds for long-term investment, especially in areas such as scientific research, technological innovation and industrial expansion.

these investment activities promote the development of enterprises, improve productivity, and ultimately bring more employment opportunities. subsequently, the increase in employment can not only directly stimulate consumption, but also promote the expansion of the overall economy, forming a positive cycle of economic growth.

at the same time,the surge in a-shares also enhanced the wealth effect on residents.the rise of the capital market will increase the wealth of investors holding shares, and the consumption capacity of such residents will increase, which will in turn drive the growth of domestic demand.

of course, the sustainability of this virtuous cycle depends on policy support and a stable market environment. regulators need to ensure the healthy operation of the capital market, avoid bubbles and excessive speculation, and also avoid randomness in industrial policies.

for this reason, the next question is that although short-term favorable policies can quickly boost the a-share market, how to maintain the long-term positive temperature after the short-term boiling of the "great miracle day"?

it is foreseeable thatas the policy effects diminish, boosting the capital market will ultimately have to come back to improving corporate fundamentals and restoring long-term investment confidence.

to achieve this goal, in addition to the need to shift the focus of future financial policies from short-term stimulus to institutional improvement, more importantly, in addition to financial policies, there should be a combination of policies from more parties to support the expected repair, and ultimately form a new synergy on a larger scale.