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the stock market has risen dizzyingly this week, with the shanghai composite rising by 12.81% and the gem rising by 22.7%. we have never seen such exaggerated strength in history.

as major policies inject confidence, many stocks are rapidly repairing their valuations.

among them, the "net-breaking" sector was highlighted. many stocks have fallen into net-breaking stocks before. it is also very appropriate to use the number of net-breaking stocks to describe the bottom of the stock market. at the close of trading on tuesday, the proportion of net-breaking stocks in the entire a-share market reached 13.68%, which was higher than the previous important historical bottoms.

from the perspective of long-term investment at the bottom, will the valuation restoration of net-breaking stocks become an important main line in the future?

01

let’s first review this week’s market conditions.

the market finally welcomed the influx of funds. in just a few days, many key sectors rose to a height that we have rarely seen in a long time.

first, likereal estate finance is naturally the standard bearer of the bull market, and it also plays into the heart of policy.

monday’s press conference proposed cuts in reserve requirements, interest rates, and existing mortgage interest rates, as well as arrangements for a series of medium- and long-term funds to enter the market.

the ultimate effect will be to ease the pressure on residents’ mortgage loans, revitalize the capital of financial institutions, and thereby promote the flow of funds throughout society. therefore, starting from tuesday, insurance, banks, securities firms, and real estate companies have all been the vanguard forces leading the rise. although on friday, the central bank's cut in reserve requirements and interest rates was implemented, the banking sector became one of the few sectors to fall. this shows that concerns about the narrowing of net interest margins may still exist at the expense of bank profits, especially the high proportion of state-owned banks' interest rates. it fell even more that day.

then,food, beverages, medical services and many pan-consumption tracksafter being pinned to the ground for a long time, negative expectations have been fully priced in, and it can be said that it is ready to go.

in fact, the core of the loose policy service is economic growth, which is a great benefit to both production, consumption and financial activities of the real economy.if you have money, drink alcohol and eat meat, consumption will ultimately benefit.

if you have a good memory, you only need to recall the market trend that started in october 2022 to make a choice.

catalyzed by the politburo meeting on thursday, funds gathered to buy large-scale consumption. after two days of unprecedented gains, the liquor index has returned to 1,600. on that day, shanghai also launched huge consumer subsidies, which provided a real boost to consumer stocks such as catering, tourism, and retail.

and, the growth sector cannot be ignored.

the general rise in the market has also resulted in rapid sector rotation, which will inevitably not leave behind technological growth. the chinext index miraculously ended the week with a daily limit, rising more than 20% in a single week, which had never happened even in 2015.

i joke that it was the opportunity provided by the downtime of the shanghai stock exchange, but in fact, "value sets the stage and growth is a show" is a long-term law of bull market recovery. once the financial and emotional aspects improve, in a market with increased risk appetite, small tickets will rise. on the contrary, it is easier.

and there are three reasons that may support investment in growth sectors:

1) stimulated by interest rate cuts in china and the united states, growth sectors will be more resilient and have opportunities to recover their valuations;

2) recent industrial developments and policy catalysts such as xinchuang, hongmeng, ai mobile phones, and data elements have continued, and some related concept stocks have gained funding;

3) the china securities regulatory commission proposed the "six mergers and acquisitions" on the basis of the "nine national articles" to support listed companies' mergers and acquisitions and reorganizations around strategic emerging industries and future industries.

besides,in the a-share dividend, procyclical, growth and other sectors, there is actually a unique style.

the central bank has created two new monetary policy tools to support institutional listed companies in obtaining funds and increasing stock holdings, bringing incremental funds to the market. because the statement was very positive, the total scale of the first phase was as much as 800 billion, and if the first phase was not enough, the second and third phases could be followed, which suddenly ignited the market's confidence.

when the interest rate difference between loan interest rates and dividend rates reaches a condition that motivates major shareholders to increase their holdings, increasing their stock holdings will stimulate an increase in stock prices and bring about a profit-making effect.

most of the listed companies that meet this condition are concentrated in dividend sectors with higher dividend rates.dividends are a sector that has been able to enjoy long-term capital support in recent rounds of market conditions. its own logic is not too flawed, its performance is stable and its dividends are considerable. after three consecutive months of adjustments, it has basically returned to the position at the beginning of the year. the rebound this week has been a super positive line.

of course, most listed companies are faced with market value management requirements. since the "nine articles of the people's republic of china" established market value management as an assessment and evaluation requirement for listed companies, the china securities regulatory commission issued another guideline specifically for market value management on tuesday night. rightmajor index constituents, as well as long-term net-breaking stocks, made the request.

it is worth mentioning thata general rise in the bull market often means the elimination of net-breaking stocks.this week, the wind breaking net index also pulled a big positive line, with an increase of more than 15%. although there are different styles in the dividend, procyclical, growth and other sectors, there are many stocks with a price-to-book ratio less than 1.

we analyzed in wednesday's "a-share shorts, very nervous" that the proposal of structural monetary policy is to serve the stock market. under the premise that previous efforts to stimulate the property market have been unable to stimulate effective demand, big a will have a sustained and stable bull market. it is an effective means to solve the current deflationary pressure.

come back after review,what does the sustainability of this bull market depend on?

in the long run, in order to continuously attract funds to allocate to the stock market, companies must improve their investment value and help investors increase their expected return on investment, which is the basis for establishing a good investment environment.

however, in industries such as banking, real estate, and infrastructure, there are many companies with a price-to-book ratio of less than 1. in the past, they have not done a good job of maintaining market value. therefore, in accordance with policy requirements, a valuation improvement plan needs to be formulated and implemented.

at the macro level, the economy is recovering steadily according to the rhythm; at the micro level, net-breaking companies are facing the impetus of market value management.

drawing on the experience of the japanese and korean stock markets, the potential for valuation restoration of net-breaking stocks will be unleashed, which is worthy of long-term tracking and attention.

02

at present, the net-breaking rate of a-shares has jumped to the highest level in recent years, and has surpassed many previous historical bottom moments of a-shares. excluding this week's increase of more than 15%, the wind break index has actually fallen by about 13% this year.

when investing in net-breaking stocks, we must first exclude companies with poor asset quality, poor industry competition, weak profitability, or even companies that are on the verge of delisting. this is consistent with the idea of ​​selecting high-dividend stocks. if management really does not have the ability to change fortunes, there is really no need to fall into a valuation trap.

the meaning conveyed by the "guidelines" is thatthese capable companies are required to "turn in their work" on time and with high quality.

for example, the valuation improvement plan should be disclosed, including goals, deadlines and specific measures, and a special explanation of the implementation should be made at the annual performance briefing; secondly, mergers and acquisitions, cash dividends, investor relations management, etc. should be comprehensively used based on one's own circumstances. ways to enhance the investment value of listed companies.

these measures will help provide investors with clearer goals and expectations, and help investors judge the company's future development and investment value.

if companies with net-breaking stocks begin to disclose medium and long-term dividend plans, increase the frequency of dividends, and reasonably increase the dividend rate, investors are expected to obtain higher cash returns, and are also expected toenhance the company's market attention and investment attractiveness, thereby bringing about valuation restoration and stock price improvement.

in which industries are most of these net-breaking stocks located?

according to statistics from gf securities, there are currently 246 long-term net-breaking stocks on the market. in terms of industries, the number of long-term net-breaking stocks in the banking and real estate industries ranked first and second, with 39 and 37 stocks respectively. in addition, the number of long-term net-breaking stocks in the steel, transportation, non-bank finance, construction and decoration, trade and retail, basic chemicals, pharmaceutical and biological sectors also exceeds 10.

judging from the proportion of long-term net-breaking stocks to the total number of companies in the industry, the banking sector has the highest proportion of long-term net-breaking stocks, followed by steel and real estate.

specifically, among the 42 listed banking companies, except for china merchants bank, bank of ningbo, and bank of chengdu, which have not had long-term net losses, the other companies are all long-term net-breaking stocks; minsheng bank, which has the lowest price-to-book ratio, is only 0.29 times.

among the 45 listed steel companies, a total of 18 companies are long-term net-breaking stocks, accounting for 40.0%; among the 103 listed real estate companies, a total of 37 companies are long-term net-breaking stocks, accounting for 35.9%.

according to the price-to-book ratio data released by china securities securities co., ltd., from september 26, 2023 to september 25, 2024, there were 243 long-term net-breaking stocks whose closing price on each trading day was lower than the net assets per share. the average price-to-book ratio of these 243 long-term stocks that have broken net assets is 0.57 times, and the average range of falling below net assets is 43%.

however, among the 243 long-term net-breaking stocks, only 18 companies have a market value of more than 50 billion yuan and a net profit increase in the first half of this year. among them, the larger profits generally come from banking stocks, while most companies in the real estate chain are still in the red.

this also means,although there will be a general rise in the short term driven by policies and sentiment, there may soon be a divergence. these stocks have stable profitability and the performance of larger companies should be more recognized by funds.

among the 88 net-breaking companies with dividend yields greater than 5%, the proportion of state-owned enterprises has actually exceeded 50%. here we can learn from the idea of ​​​​zhongte estimate. some central banks have deep net-breaking losses but stable profitability and dividend capabilities. state-owned enterprises also have room for revaluation.

for example, daqin railway, which is mainly engaged in coal transportation, has a price-to-book ratio of 0.83 but a dividend rate as high as 7.86%. the total amount of dividends paid in the first half of the year accounted for 40% of the net profit attributable to the parent company, and the average dividend ratio over the past seventeen years reached 54%.

many banking companies, such as shanghai rural commercial bank, china construction bank, china citic bank, and industrial and commercial bank of china, have maintained very high dividend rates even when their average price-to-book ratio is only 0.6.

03

the japanese and korean stock markets also have the problem of low valuations.

at the beginning of this year, the overall price-to-book ratio of south korea's kospi index was only 0.93 times, and half of the stock market's net ratio was lower than 1. south korea has launched the "enterprise value enhancement plan", and a series of measures have helped some industries with low valuations and high dividends achieve good growth.

this year, the tokyo stock exchange also announced the first list of companies that voluntarily disclosed plans to improve capital efficiency. the lower price-to-book ratio refers to the accelerated progress of information disclosure by larger companies. judging from the effects so far, the stock price potential has been released. .

generally speaking, stocks that are at the bottom and have enough room for rebound are indeed the first choice for investment. but if you are worried about driving too fast for real estate consumption,we might as well understand the policy from a longer-term perspective and seize the opportunity at the bottom of the long cycle.