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a-shares: value returns under loose policies,

is it a “flash in the pan” or a long-term opportunity?

in the past two weeks, as the central government announced that it would take large-scale monetary and fiscal stimulus measures to support economic growth, my country's a-share market has experienced a strong rebound, with multiple indexes hitting new highs in recent years. take the csi 300 index as an example. at the end of september, its highest single-day increase was 8.5%, and its highest single-week increase was 15.7%, both of which were the best performances since the 2008 financial crisis. the current strong rise in a shares has greatly boosted market confidence.however, many investors have doubts about the market's stamina. is the long-lost record-breaking growth of a-shares a flash in the pan, or the prelude to a long-term recovery?

unprecedented central bank’s “stock market move”

after the federal reserve announced an interest rate cut, the chinese government adopted large-scale monetary and fiscal policies to boost the economy. the intensity of these measures generally exceeded market expectations and may mark the beginning of more radical policy measures compared with previous incremental policies.first, the central bank lowered the deposit reserve ratio by 0.5 percentage points and lowered the central bank policy interest rate, reducing the financing costs of enterprises and residents.in addition, down payments, short-term interest rates and existing mortgage rates have been reduced, releasing hundreds of billions of yuan in liquidity into the market and providing more support for corporate financing and consumer credit.

in addition to policy easing, the central bank launched a rmb 500 billion "swap facility" and a rmb 300 billion re-lending measure, which further consolidated market funding.these policies have provided long-term support for capital inflows in the a-share market, directly stimulating the motivation of listed companies and major shareholders to repurchase and increase holdings, thereby boosting market information and promoting a rapid rebound in the stock market. on september 18, the shanghai composite index once fell below 2,700 points, closing at a drop of 8.7% compared to the beginning of the year; but less than two weeks later, the index rose like a rocket and exceeded 3,300 points before the national day. a-shares the whole-day transaction volume exceeded 2.6 trillion yuan, setting a record high.

in our forecast for kweb and other chinese concept stocks in early september, we predicted that if the domestic stock market can further receive strong, top-down fiscal support, the increased liquidity and stimulus measures may bring much-needed benefits to kweb. boost. however, even so, the timing and scope of these "boost shots" are still surprising. overseas exchange-traded funds (etfs) tracking chinese stocks extended stimulus-fueled gains on wednesday even as mainland markets were closed for the national day holiday. the hang seng index, as well as several popular chinese etfs in the us stock market - kweb, ishares china large cap etf (fxi), ishares msci china etf (mchi) and invesco golden dragon china etf (pgj) all rose by at least 5% in early trading. %, with kweb and pgj rising for a fifth straight day and call options contracts surging.

only when "water" is enough can "flowers" bloom:

what positive factors can help a-shares continue to prosper?

even though a-shares have repeatedly created surprises in the past two weeks,however, with the loose monetary policy "leading the charge" and subsequent potential fiscal stimulus policies combined with my country's unique market environment, a-shares as a whole still have considerable room for growth.

first, ample liquidity under loose monetary policy can provide continued support for the stock market. after the federal reserve sharply cuts interest rates, my country's central bank may have more room for bolder easing policies in the next few quarters. the impact of current loose policies such as "lowering interest rates and easing mortgage repayments" on consumption, especially the real estate market, is foreseeable to be long-term. of."easing monetary policy" has set a precedent for the stock market to rebound strongly after the epidemic, while large-scale fiscal stimulus and structural reforms are important guarantees for maintaining the long-term growth of china's economy.at present, public opinion is generally optimistic that the government will introduce a wide range of monetary and fiscal stimulus measures in the future. in addition, the launch of fiscal policies such as the "two new policies" is expected to further promote the recovery of the overall real economy and market, and attract the return of overseas capital. in addition, as one of the world's largest exporters, my country will benefit from increased consumer demand in the global relaxed environment.

a jpmorgan chase statistics shows that due to the low correlation between onshore a-shares (referred to by the shanghai and shenzhen 300 index in the above chart) and global and other overseas markets, and my country has a unique economic cycle, the driving force for stock market growth is growth drivers are different from global markets.therefore, for some foreign investors, investing in a-shares can optimize their diversified investment portfolio and diversify risks when global stock markets fluctuate.allocating up to 10% to a-shares in the existing portfolio, on top of the current benchmark index weightings, would improve the portfolio's efficient frontier - meaning what a-share investors can gain for a given level of additional risk higher returns. although the entry of foreign funds may increase correlation to a certain extent, china's unique market environment means that a-shares still maintain relative independence.

although a shares have risen sharply recently, the overall valuation level of the stock market is still low. at the end of august, the price-to-earnings ratio of the msci china index was only 8.9 times. after the stock market boom, it increased to 11.3 times, which is still far lower than the 17.7 times of the global market. this shows that china's stock market is still at a low valuation compared with other markets and has large room for growth.as the u.s. dollar continues to weaken on the back of interest rate cuts from the federal reserve, investors are likely to shift away from expensive and crowded global technology trades and into cheaper emerging market assets.in the past two weeks, well-known investment institutions such as jpmorgan chase, ubs and pictet asset management have issued signals to investors recommending allocations to a-shares. another trend worthy of investors' attention is the transformation of consumption structure: china's stock market is shifting from industries that are more dependent on investment and exports to industries that benefit from consumption and innovation-driven economic transformation, such as consumer goods, technology, healthcare and high-end manufacturing industry. so far this year, the revenue growth rates of my country's technology, consumer and medical health industries have all exceeded 10%. the new energy vehicle industry is expected to drive the market value of related companies to increase by more than 50% in the next five years.

investors: take it as soon as you see fit.

or continue to "run in"?

taken together, the prospects of the a-share market not only rely on policy support, loose funding and the return of global capital, but also benefit from the low valuation of the stock market and the risk diversification space brought by the unique economic environment.currently, many institutional investors at home and abroad are optimistic about the prospects of the a-share market. jp morgan predicts that in the next 10 to 15 years, a-shares will achieve high single-digit annual returns.however, the decisive factor for whether a-shares can continue to be in the red is whether further top-down stimulus measures can be implemented, whether they can promote macroeconomic recovery and corporate profit growth to bottom out, and the impact of these measures on domestic consumers. how effective. for investors, this may be a good opportunity to enter the market. if they can seize opportunities in high-growth industries such as technology and consumption, they will bring considerable investment returns in the medium and long term in the future.