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text: ren zeping’s team

a-shares often start a "defense war" and hover around 3,000 points for a long time. why? how to do well in a-shares?

our long-term research has found:the most important thing to do well in a-shares is to transform the stock market from a financing market to an investment market. the main performance of the financing market is as follows:: in the past, the stock market has long been regarded as a cash machine for listed companies to raise money, and investors have been regarded as leeks, resulting in many bizarre operations. for example, pre-ipo financial whitewashing, post-ipo performance changes, the financing amount for a long time is greater than the dividend amount, the cost of financial fraud and illegal crimes is low, delisting is difficult, and the rights and interests of investors are difficult to be protected.

in the future, the financing market must be completely changed conceptually and institutionally, and the institutional design of the investment market must be established to allow investors to make money in the long term.: listed companies are not allowed to reduce their holdings until they have low dividends, broken shares, or net losses until the company is well run. financial fraud will be severely punished. class actions will be implemented to reduce the rights protection costs of small shareholders. a leveling fund system will be established to improve information disclosure and delisting systems. let the capital market become a virtuous cycle of survival of the fittest, rewarding good and punishing evil.

in this way, as long as the interests of investors are protected and investors can make money, the prosperity and development of the stock market can be fully expected.

in the more than 30 years since the creation of a-shares, the shanghai composite index has been hovering around 3,000 points for a long time. there are different reasons for this.the first explanation is that the approval system excludes new economic enterprises such as bat and cannot reflect economic growth and industrial upgrading; the second explanation is that expansion is too fast and the quality of listed companies is uneven, resulting in distortion of index constituents; third one explanation is that a-shares are dominated by retail investors and lack the money-making effect, making it difficult to have long-term capital inflows.

we believe that the above are mostly due to technical reasons. if measures such as suspending ipos are frequently taken, it can only relieve temporary difficulties.

the underlying reason is that a-shares are still in the "financing market." the registration system is a reform that touches the soul. if the soil problem of the "financing market" is not solved, many tools that have been proven effective in mature capital markets will become tools for cutting leeks. only by transforming the "financing market" into an "investment market" can the problem be fundamentally solved.

there are six major differences between the financing market and the investment market:

first, a-shares were initially positioned as having the gene of a “financing market,” but all parties still have the urge to go public.china's stock market was originally established to help state-owned enterprises get out of financing difficulties. under this tone, whether they can be listed depends on the support of local governments and competent authorities. to this day, the pursuit of ipo numbers is still one of the kpis of many local governments. anda market with "investment market" as its gene should provide convenience for investors.

the second is the issuance stage. financing market listing resources are scarce, and huge excess returns attract companies to queue up for listing.from 2022 to 2023, the amount of a-share financing ranked first in the world for two consecutive years. even with the reform of the registration system, in the soil of the financing market, the market is still unable to rationally price the value of listed companies, forcing regulators to still screen listed companies and control the pace of listing. andin the investment market, corporate value is determined by the market, and low-quality companies cannot obtain excess returns after listing.

the third is the company supervision link. performance changes after listing on the financing market, illegal shareholding reductions, and imperfect corporate governance. in the investment market, listed companies continue to create value and pay heavy dividends for repurchases.the average repurchase amount of u.s. stocks in the past five years has been approximately us$967.2 billion, far exceeding the us$97.3 billion of a-shares in the same period.

the fourth is the exit link. in the financing market, there is great resistance to delisting and the delisting rate is low; in the investment market, the delisting mechanism is perfect and the delisting rate is high.in the past ten years, the average number of newly listed companies in china and the united states has been around 300 per year, but the average number of companies delisting from the us stock market is as high as 526 per year, and the average number of a-share companies is only 17 per year.

the fifth is the transaction link. after the financing market is listed, chase excess returns and make short and quick money., it is easy to cause chasing the rise and killing the fall, causing the stock market to rise and fall sharply. andonly in the investment market can we truly practice value investing, attract medium and long-term institutional investment, and promote high-quality development of the capital market.

sixth, in terms of punishment and investor protection, the cost of breaking the law in the financing market is low and the investor protection mechanism is weak, while the investment market has severe penalties and investor protection.the new "securities law" has significantly increased the upper limit of financial fraud penalties from 600,000 to 10 million, but it is still not enough to deter securities fraud cases that often cost hundreds of millions of yuan. the "chinese version of class action litigation" has broken the ice, but so far only a few cases such as st kangmei and feiyue audio have received compensation. some cases have not made substantial progress in the trial, and investor protection still has a long way to go.

if a-shares want to do well, they should not repeatedly fiddle with technical aspects such as t+0 and suspending ipos. instead, they should solve deep-seated problems, change the financing market into an investment market from a conceptual and institutional perspective, improve the quality of listed companies, and allow investors to invest in the long-term. can make money.

in the short term, we can consider launching a stabilization fund of rmb 3-5 trillion to increase counter-cyclical adjustment of macroeconomic policies and promote economic recovery.what a-shares need most at present is the word "up". it has been rising for three consecutive months, and the index has risen by more than 20%. everyone's confidence has suddenly increased. the wealth effect drives consumption, and the capital market can provide residents with wealth effects, consumption recovery, and technological innovation and real economy contribution.

(this article was first published on march 8, 2024)

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1 why have a-shares hovered at 3,000 points for a long time?

a-shares often have to start a "defense war". returning to 3,000 points is indeed encouraging, but we need to think about a question: why have a-shares hovered at 3,000 points for a long time?

a-shares have been hovering at 3,000 points for a long time, which does not match china's economic growth and fails to reflect the fundamentals of china's economy.the major stock indexes are one of the important windows that reflect the country's economic strength.from 2007 to 2023, my country’s economic compound growth rate reached 10.49%; my country’s gdp reaches 126 trillion yuan, ranking second in the world for 13 consecutive years, contributing 32% to global economic growth. looking back at our stock market, since the shanghai stock exchange hit 3,000 points for the first time in february 2007, as of march 1, 2024, the shanghai stock exchange has recovered 3,000 points a total of 57 times. among them, the three adjustment periods below 3,000 points in 2008, 2011-2014, and 2018 lasted for more than a year.

a-shares have been hovering at 3,000 points for a long time and have also deviated from the trend of major global stock markets. from 2007 to 2023, when the shanghai stock market continued to fluctuate sideways at 3,000 points, the dow jones index tripled.nasdaq indexit has increased 6 times, the nikkei 225 index has doubled, and the india sensex30 index has increased 5 times.. regardless of other factors such as valuation levels, in terms of the corresponding intensity between the stock index point growth and the country's economic growth, the us stock market and the indian stock market truly reflect the country's progress and economic development.china's economic miracle has not been reflected in the shanghai composite index.

there are different opinions on why a-shares have hovered at 3,000 points for a long time.the first explanation is that the long-term approval system excludes new economic enterprises such as bat, causing the index to be distorted and unable to reflect economic growth and industrial upgrading. the second explanation is that the expansion is too fast, but the delisting is too slow, and the quality of listed companies is uneven, resulting in distortion of the index constituent stocks. the third explanation is that a-shares are dominated by retail investors and lack the money-making effect. investors vote with their feet and it is difficult to have long-term capital inflows.

we believe that the above is mainly to find reasons from the technical level, but it cannot solve the fundamental problem. the mystery of a-share's long-term 3,000 points may need to be dealt with at a deeper level such as concepts and systems. in 2018, we proposed that the registration system is a soul-touching reform that involves a series of institutional changes and a series of legal revisions.in the final analysis, it is necessary to change from a "financing market" to an "investment market" to fundamentally solve the problem.

2 the crux is the “financing market”, with deeply ingrained concepts and systems

the main manifestations of the financing market are as follows: in the past, the stock market was regarded as a cash machine for listed companies to raise money, and investors were regarded as leeks, which resulted in many bizarre operations. for example, pre-ipo financial whitewashing, post-ipo performance changes, long-term financing amount being greater than dividend amount, low cost of financial fraud and illegal crimes, difficulty in delisting, and difficulty in protecting the rights and interests of investors.

in the future, the financing market must be completely changed in terms of concepts and systems, and the institutional design of the investment market must be established to allow investors to make money: listed companies with low dividends, broken shares, or net losses must not reduce their holdings until the company is well managed, and severe penalties will be imposed. financial fraud, implement class actions to reduce the rights protection costs of small shareholders, establish a leveling fund system, improve information disclosure and delisting systems, and make the capital market a virtuous cycle of survival of the fittest, rewarding good and punishing evil.

2.1 initial positioning: a-shares had the gene of “financing market” when they were first established. they were positioned as financing for the reform of state-owned enterprises, and all parties had the urge to go public.

china's stock market was originally established to raise funds to promote the reform of state-owned enterprises, and the "financing market" gene is obvious.in the early 1990s, china's reform and opening up entered a new stage of market economy. deng xiaoping made a southern tour to set the tone for the capital market. "securities and stock markets, whether these things are good or not... we must resolutely try." in 1990, the shanghai and shenzhen stock exchanges were officially listed and were initially positioned to supplement funds for the reform of state-owned enterprises. under this tone, the ability to go public depends on the support of local governments and competent authorities, rather than the quality of the company itself. therefore, state-owned enterprises are mainly listed initially.

until now, pursuing the number of ipos is still one of the kpis for many local governments.in order to attract investment to the local economy, collect taxes and create local business cards, we have compiled statistics on the development plans of various provinces and cities in recent years, and many economically developed provinces have set new ipo targets. although listed companies represent the economic development strength of various regions to a certain extent, it is difficult to truly cultivate good enterprises if they ignore quality and pursue quantity.

and a market with "investment market" as its gene should provide convenience for investors.looking back on the century-old changes of the new york stock exchange in the united states, 24 securities brokers initially signed the "sycamore agreement" to standardize transactions, and spontaneously established the stock market system. after a long period of spontaneous development, a mature and complete investment market was formed, which started the long-term growth of the u.s. stock market.

2.2 issuance link: the financing market is rushing to queue up for listing, and the listing threshold has to be raised; the investment market has wide access, and the value of enterprises is determined by the market.

in the financing market, listing resources are scarce, companies can quickly cash out after listing, and huge excess returns attract companies to queue up for listing. therefore, for a long time we have had to implement an "approval system" and set high thresholds such as net profit.

even though the registration system reform has been carried out in recent years, in the soil of the financing market, the market is still unable to rationally price the value of listed companies, forcing regulators to still screen listed companies and control the pace of listing. the registration system still cannot be completely liberalized admission. data shows that as of now, there are more than 600 a-share companies lining up for listing.

in the investment market, corporate value is determined by the market. investors vote with their feet. companies with lower quality cannot obtain excess returns after listing. the behavior of companies listed is more rational. the responsibility of the government and regulators is to strictly disclose information without artificial settings. listing threshold.

a-share stock issuance and fundraising ranks first in the world.from 2022 to 2023, the amount of a-share financing ranked first in the world for two consecutive years. the number of a-share ipos in 2023 will be 313, while that of u.s. stocks will be 245. the amount of funds raised by a-share ipos will be approximately twice that of u.s. stocks. the number of a-share ipos is high, there are many refinancings, the overall pace is fast, and there is a certain imbalance between supply and demand in the market.

2.3 company supervision: the performance of the financing market changes, the impulse to reduce holdings is cut, the investment market is heavy, dividends are repurchased, and investors are rewarded

in the financing market, obtaining listing qualifications means huge arbitrage space. the focus is on reducing holdings and issuing new shares instead of dividend repurchases, which has led to various routines. there are three specific manifestations:

one is to boost performance and whitewash financial statements in order to go public, but this is not sustainable and the performance will change after the listing.in order to successfully go public, some companies will take measures to whitewash their performance. these methods may include inflating revenue, exaggerating profits, hiding liabilities, etc., which will lead to the exposure of post-ipo problems one by one, resulting in a "performance change."

second, the illegal holding reduction has not been eradicated.listed companies often choose to reduce their holdings for cash when the stock price is high, treating investors, especially small and medium-sized shareholders, as "leeks." although the new regulations on shareholding reduction in 2016 and 2023 have standardized the issue of shareholding reduction, in the face of high returns, there are still a lot of chaos in shareholding reduction, such as reduction through pledge, guarantee, securities lending, and even technical divorce. if the soil of the "financing market" is not eradicated, loopholes in the system will still be exploited.

third, corporate governance is not sound enough, and dividends and buybacks need to be further improved. under the investment market, listed companies continue to create value, pay heavy dividends for buybacks, and continuously optimize their governance structures.in recent years, with the encouragement of regulators, listed companies have gradually developed the habit of paying dividends. in the past five years, the cumulative dividends of a-share listed companies have exceeded 8 trillion yuan. however, there is still a certain gap with the investment market. the cumulative dividends of u.s. stocks in the past five years have exceeded 40,000 yuan. billion, the average repurchase amount in the past five years was us$967.2 billion, much higher than the rmb97.3 billion a-shares in the same period. in addition, there are a few companies in the a-share market that pay dividends and raise capital, with most of the cash dividends going to the pockets of major shareholders.

2.4 exit link: the financing market has great resistance to delisting and the delisting rate is low; the investment market has a complete delisting mechanism and the delisting rate is high.

the financing market is oriented based on corporate financing needs, and some companies that should have been gradually eliminated have tried various ways to retain their listing qualifications.at the same time, listed companies serve as important financing channels and carriers of local economic development and employment. poorly managed listed companies receive protection and support from local governments, and non-market factors drive down the delisting rate.

the investment market has sound delisting quantitative indicators and supporting systems, has multiple delisting channels, has clear order-of-magnitude regulations on delisting standards, and has a relatively high delisting rate.

in the past ten years, the average number of newly listed companies in china and the united states has been around 300 per year. however, the average number of companies delisting from the us stock market is as high as 526 per year. the average number of a-share companies is only 17 per year. the average delisting rate of a-shares is less than 1%. the average delisting rate exceeds 5%.

2.5 trading link: there are many speculative behaviors in the financing market, chasing ups and downs, ups and downs, investment market value investment, long-termism, slow bulls and long bulls.

under the financing market, chasing excess returns after listing and making short and quick money can easily lead to chasing ups and downs. the herd effect is obvious, and the atmosphere of speculation is strong, which can easily lead to ups and downs in the stock market.

only in the investment market can we truly practice value investing, attract medium and long-term institutional investment, and promote high-quality development of the capital market.

u.s. pension funds have invested steadily in the stock market over the long term, significantly increasing the shareholding proportion of u.s. institutional investors in the stock market. the current market value of institutional investors in u.s. stocks accounts for 59.3%, which is much higher than the 21.7% of china’s a-shares.

the flexible trading system in the financing market is easy to adapt to the climate, while the investment market is more conducive to market-oriented transactions.refinancing, t+0, short-selling mechanisms, etc. under the financing market will intensify speculation and further distort the market, so certain restrictions are adopted; the investment market is dominated by the market and is often bolder and more flexible in trading rules, implementing a t+0 trading system. allowing greater volatility and higher frequency of trading is conducive to value discovery.the hotly discussed transaction systems such as refinancing and t+0 are not absolutely good or bad. different market soils will have significant differences in the final effects. in the final analysis, good market soil must be cultivated first.

2.6 punishment and investor protection: the cost of breaking the law in the financing market is low, the investor protection mechanism is weak, and the investment market has severe penalties and investor protection

in terms of punishment, the financing market imposes light penalties on securities fraud, while the investment market imposes severe penalties.the new "securities law" has significantly increased the upper limit of financial fraud penalties from 600,000 to 10 million, but it is still not enough to deter securities fraud cases that often cost hundreds of millions of yuan. the maximum prison term for leaking inside information in the criminal law is 10 years, but the actual sentencing is generally 3-5 years, which shows that the penalties for illegal and criminal acts under the relevant laws are too light, and it is difficult to effectively protect investors. the investment market imposes heavier penalties for illegal activities. for example, the u.s. stock market has stricter penalties for illegal crimes such as securities fraud. financial fraud can be punished with a fine of us$5 million and 25 years in prison. this is no less severe than vicious crimes such as armed robbery, and it has a deterrent effect on illegal and criminal activities.

in terms of investor protection, class actions in the investment market are very powerful, while small and medium-sized investors in the financing market are in a weak position.class actions are standard in mature overseas capital markets. u.s. securities class actions adopt the mechanism of "express waiver and implicit participation". as long as one person initiates the lawsuit, the final victory or settlement agreement will cover all shareholders by default, and the litigation costs will be borne by the lawyer. with the advanced payment, even small and medium-sized shareholders who cannot afford the high litigation costs can obtain remedies. class-action lawsuits cost counterfeiting companies such as enron and worldcom $6-7 billion in civil claims. the new "securities law" has pioneered the "chinese version of class action lawsuits", but so far only a few cases, such as st kangmei and feiyue audio, have received compensation. some cases have not made substantial progress in the trial, and investor protection still has a long way to go.

3 suggestions: the financing market turns to the investment market, a reform that touches the soul

as an important part of the capital market, the stock market is crucial to high-quality economic development and the confidence of residents and businesses. it is the key to stabilizing the market and stabilizing expectations.the stock market can stimulate consumption and investment through the wealth effect; boosting the stock market is conducive to accelerating the upgrading of the industrial structure and supporting major strategies such as high-quality development, technological innovation, specialization, specialization, and hard technology.when the stock market improves, residents' wallets are bulging, and they have confidence, the economy can move toward a positive cycle of recovery. what a-shares need most right now is the word "up".

the first is to introduce stabilization funds to supplement liquidity in the stock market and boost the capital market.boosting the stock market can activate the wealth effect, thereby stimulating investment and consumption, forming a positive cycle of economic development. it is recommended to refer to the experience of 2015. securities and financial companies enter the market, financial, banking, insurance and other institutions provide financial support, and the central bank can provide liquidity support. given that the current total market value of a-shares is around rmb 70 trillion, the size of the stabilization fund can be set at around rmb 2.5-5 trillion.

the second is to increase macro-control efforts to boost economic fundamentals.cutting reserve requirements and interest rates will guide real economy loan interest rates to further decline, stimulate household consumption and corporate investment, boost confidence, and improve corporate profit expectations. economic fundamentals are the fundamentals of the stock market. only by promoting an overall economic recovery can the stock market be boosted in the long term.

the third is to comprehensively deepen the reform of the registration system, improve the information disclosure mechanism and normalized delisting mechanism, and improve the quality of listed companies.information disclosure is the core of the registration system. regulatory authorities should strengthen the guidance and standardization of information disclosure by issuers, forcing intermediaries to tighten their responsibilities and enterprises to regulate their operations. in addition, it is necessary to continuously consolidate the normalized delisting mechanism, adhere to the principle of "retirement when necessary", survival of the fittest in the market, and improve the quality of listed companies.

the fourth is to adhere to the investor-oriented approach, guide listed companies to repay investors, and increase investor protection.improve the quality evaluation standards of listed companies and guide listed companies to more actively carry out repurchases and cash dividends to reward investors. at the same time, we will introduce and improve laws and regulations related to investor protection, actively promote class actions, and make good use of class actions to protect the rights and interests of investors.

the fifth is to impose strict penalties on illegal activities in the capital market and increase supervision.increase penalties for false information disclosure, carry out criminal, administrative, and civil accountability for securities fraud, set strict penalties for deterrence and punishment, and improve relevant laws and regulations.

in this way, as long as the interests of investors are protected and investors can make money, we can fully expect the prosperity and development of the stock market! if the stock market fails to take off and remains sluggish for a long time, and investors have no confidence, it will be in stagnant water, unable to play any role, and confidence will be severely damaged. as long as the stock market thrives, investment and financing are active, and investors have confidence, major strategies such as supporting high-quality development, technological innovation, specialization, specialization, and hard technology can be realized. as long as you clearly understand the nature of the problem and the causal relationship, and make up your mind, there are always more solutions than difficulties.

[dr. ren zeping published a major article on august 16, 2024 "it’s time to launch a “new” round of economic stimulus", published on september 18 "thoughts on objectively understanding the current economic situation and boosting market confidence”, recommending and accurately predicting large-scale economic stimulus policies.

in 2014, he predicted that "5,000 points is not a dream." in 2015, he warned before the stock market crash that "the altitude is already high and the wind is strong, so walk slowly" and "i am rational, but the market is crazy." he won the title of capital market grand slam champion analyst and made history. after ten years, the "large-scale economic stimulus policy" is once again accurately predicted, and the "bull of confidence" is coming.

dr. ren zeping believes that this is a round of "confidence bull". because the policy has greatly exceeded expectations, it has brought about a sharp reversal in confidence in china's assets and economic prospects. it is a reward for those who are bullish on china and a blow to those who are bearish on china. 】