The second round of the bull market has officially kicked off!

Yesterday at 3:21 PM, a significant meeting's content was made public, causing an immediate surge in the Hong Kong stock marketThe Hang Seng Index rebounded from a decline of 0.33% to an impressive gain of 2.76%.

Chinese concept stocks celebrated throughout the night, with the Chinese concept index closing up by 8.5%, marking the best single-day performance since the end of SeptemberAdditionally, the leveraged FTSE China ETF skyrocketed by 24% overnight.

Today, the trading volume in the A-share market surged by 500 billion, once again surpassing 2 trillion for the 50th consecutive trading day, setting a new historical record for the longest streak.

What made the conference's press release explode Chinese assets?

01

Critical Signals! Dual Relaxation in Fiscal and Monetary Policies

Mingming, the chief economist at CITIC Securities, believes that the important meeting released several significant signals:

Firstly, macro policies are "more proactive and effective," and for the first time in many years, "a moderately loose monetary policy" has been suggested, along with an emphasis on "strengthening extraordinary counter-cyclical adjustments"; secondly, for the first time, it mentioned "stabilizing the real estate and stock markets," prioritizing the stability of the stock market in next year's economic work; thirdly, "vigorously boosting consumption" has been elevated to a more prominent and important position

This opens space for monetary easing, a more aggressive fiscal policy, and emphasizes the need to expand domestic demand comprehensively, paving the way for extraordinary counter-cyclical adjustment policies.

The historical rarity of these policy expressions, which led to the rapid rise of Hong Kong stocks and the FTSE A50 Index, raises questions about their implications.

The emergence of "extraordinary" counter-cyclical adjustments for the first time has led to market expectations that next year's policies will not only become more intense but potentially break existing policy tools.

With a "more active" fiscal policy identified, next year's fiscal policy strength is expected to far exceed that of this year.

The monetary policy stance shifting from "stable" to "moderately loose" is significant, as China's monetary policy has only taken a "moderately loose" stance during historical crisis moments, such as the 2009 and 2010 global financial crises.

As a result, the entire market has finally welcomed the anticipated monetary easing cycle from both the United States and China!

If we look back at the policy shifts since September 24, we find that the Federal Reserve's interest rate cut of 50 basis points on September 19 was an important turning point that precipitated significant changes.

In August, the 10-year treasury yield reaching the 2% mark was a significant concern

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Now, the 10-year yield has entered the 1% era, hitting a record low of 1.867% today, which is why the market is particularly focused on the monetary policy's rare return to "moderately loose" after 14 years.

What is even more noteworthy is that the conference has prioritized "vigorously boosting consumption" and emphasized "stabilizing the real estate and stock markets," once again affirming a shift in policy thinking.

It is widely acknowledged that insufficient effective demand is a critical barrier to economic growth, and this shortage is hampered by the real estate and stock markets, which drag down household asset income.

To combat this, the September meeting mentioned "stabilizing the real estate market," "efforts to boost capital markets," and historically for the first time, the phrase "stabilizing the real estate and stock markets" was introduced, demonstrating a desire to improve the private sector's asset base to help the real economy.

When it comes to investment, the market still has concerns about the fundamentals, arguing that without profit improvement, significant market movements are questionable.

This stance assumes that market increases must await improvements in the economy

But is this truly the case?

Historical data suggests otherwise; in both 2009 in the U.Sand 2012 in Japan, stock markets rebounded ahead of economic recovery during periods of abundant liquidity and low valuationsA-share rebounds since September 24 also follow this trend of "valuations leading."

Looking at the chain from policy lows to market lows to profit lows, if profit lows exist, the market anticipates they will emerge by the third quarter of next yearProfit expectations generally precede profits by three quarters, suggesting that March to April of next year will be critical for determining whether profit expectations hit a turning pointUltimately, the policies must also culminate after a significant meeting in March next year.

This indicates that before these points, profit and policy do not need to be validated

However, every significant meeting or economic data release may ignite intense market speculation, leading to higher volatility.

02

Strong Performance of Broad-based ETFs in History

Given increasing market uncertainty, broad-based indices provide investors with balanced, simple, and direct investment toolsReviewing past bottom rebounds, broad-based indices have demonstrated exceptional performance due to their high capital utilization (over 95% ETF positions) and coverage of major leading stocks.

Taking the A500 Index and equity mixed fund indices as examples, analyzing the months leading up to the last four lows of the Shanghai Composite Index, we find that both the CSI 300 Index and the A500 Index significantly outperformed equity mixed fund indices three times, with average rebounds exceeding 50%.

Prior to the announcement of this meeting, Wall Street funds also opted to buy the CSI 300 ETF and FTSE China ETF futures as a preemptive move

Data from EPFR indicates that from November 28 to December 4, $210 million in passive funds flowed into A-shares, ending a streak of five weeks of net outflows.

Given that every type of fund product has applicable investment scenarios, we should not expect them to solve all problems, and the same goes for broad-based ETFsDifferent types such as the ChiNext Index, MSCI China A50, SSE 50, CSI 300, CSI 500, A500, CSI 1000, and STAR 50 each have unique logicWhat we need to focus on is how to penetrate to their core essence.

Historically, when macro policies strengthen and economic conditions improve, ETFs favoring large-cap stocks such as the SSE 50 ETF, A50 ETF, and CSI 300 ETF have substantially outperformed.

From a primary industry breakdown, the SSE 50 and CSI 300 indices lean towards traditional finance and consumer sectors, while the new economy's share is relatively higher

The MSCI China A50 Connect Index combines traditional financial sectors with high-growth segments, featuring a higher proportion of new economy companies.

The new generation of core broad-based A500 belongs to the large and mid-cap style, covering 35 secondary industries, encompassing both large-cap style characteristics and leading stocks in the segmented sub-industries of new productive forces, thus better representing the evolving Chinese economic narrativeThe A500 has become the fastest broad-based product to surpass 100 billion, with the A500 ETF (512050) raising 11.3 billion yuan since its inception.

In comparison to the A500, the CSI 500 index is composed of mid-cap stocks ranked 301-800, favoring a growth style

The CSI 1000 and ChiNext Index align with small-cap growth styles.

Recently, the market has clearly favored small-cap growth stocks, largely due to the overarching low monetary and fiscal policy that has fostered a competition in risk appetite while M1 growth and GDP growth are anticipated to reboundCombined with new technology cycles represented by artificial intelligence, the market tends to afford higher valuations to indices like the CSI 1000, STAR 50, and STAR 100 that exhibit substantial growth.

As of December 10, only the CSI 1000 index has shown growth since October 9, and funding has been actively directed into growth-style broad-based ETFsThe CSI 1000 ETF (159845), CSI 500 ETF (512500), and ChiNext 100 ETF have seen net inflows of 13.979 billion yuan, 5.989 billion yuan, and 2.074 billion yuan this year, respectively.

Historically, when A-share listed companies confirm a profit turning point, growth styles tend to remain robust during market rallies and subsequently during top range consolidations, while value styles often catch up towards the end of market peaks.

03

Conclusion

Taking a look at the A-share market today, it displayed an open-high-low trend

By the end of trading, the Shanghai Composite Index rose by 0.59%, the Shenzhen Composite Index by 0.75%, and the ChiNext Index by 0.69%. Notably, trading volume increased to 2.2 trillion yuan, illustrating ongoing market activity.

The market's hesitance may stem from concerns about whether nominal GDP can improveHowever, investment revolves around expectations and marginal changes; trends are difficult to form and even harder to change once established.

With the Federal Reserve commencing a rate-cutting cycle for the first time in four years, it is certain to have a profound impact on our investment logic for the coming two to three yearsThe shift in Chinese policy is undeniable, and the return of "moderately loose" monetary policy heralds a synchronized easing occurrence between China and the United States.

Currently, the yields on 10-year government bonds have officially entered the 1% era, marking the arrival of a low-interest-rate environment that suggests a significant reallocation of deposits

After the policy shift in September, there was a sharp reduction of 570 billion yuan in household deposits in OctoberWhere will this freed-up capital go?

The return of real estate to its residential attribute implies that, beyond buying bonds, equity markets may become a new vessel for residents' wealthThis is also a crucial background for the historic emergence of the phrase "stabilizing the real estate and stock markets."

Policies are guiding long-term and patient capital to enter the market, stabilizing the ecological structure of A-sharesToday, it has been reported that major broad-based index products are expected to add individual pension Y shares, including CSI 300 Index, CSI 500 Index, CSI A500 Index, and ChiNext Index.

Observing the economic data trends since the policy shift in September, there is evidence suggesting a marginal improvement in the economy