Source: Brokerage China Author: Qu Hongyan Recently, China Yangtze Power hit a historical high and once again showed the slow bull stock trend of "tripling in ten years". The slow bull market has left behind many passers-by and brought good returns to the steadfast investors. It is "rare for those who triple in one year to be like carp jumping over the dragon gate, while those who double in three years are few and far between." On the other end of the investment world, however, violent collapses are also deafening, with many financial products suspected of "Ponzi schemes" ceasing payments, leaving investors with no hope of recovering their investments. Both positive and negative cases illustrate the importance of forming a suitable mentality towards money in one's lifetime; otherwise, sooner or later, you will divorce yourself from your money. "I call this the money mind, a person's IQ can reach 120, 140, or even higher levels, and perhaps some people's minds are good at doing one thing, while others are good at doing another. They can do things that most ordinary people can't do. But I know some very smart people who make very foolish decisions because they lack the money mind." Buffett once said so. The so-called money mind refers to believing in common sense, believing in compound interest, being cautious and rational, thinking independently, prioritizing security over return, not dealing with people with questionable character, not easily guaranteeing for others, not believing in windfall profits, and not trying to cross legal norms for extra benefits. In today's world of ubiquitous information, everyone's wealth may become the "prey" of those with ulterior motives. Only with the money mind, can one form good behavior habits and shield oneself from separating from one's wealth. Do not entrust your wealth easily. Wealth is easy to lose but hard to accumulate, and trust is a vital reason leading to the rapid loss of wealth. "Do not allow anyone else to manage your business unless you can watch their every move closely and understand their behavior; or you have strong reasons to believe in their character and ability. For investors, this criterion determines when you can let someone else make investment decisions for you." Graham's criterion written eighty years ago is so clear. Almost all the investors who lost their wealth in the financial products have violated the above two criteria. They did not have the ability to closely supervise the whereabouts of their funds, nor did they have sufficient reasons to believe in the character of the product issuers. They easily invested their own wealth solely based on others' glib tongue and a piece of commitment paper. They did not act as gatekeepers of their own wealth and ended up with nothing left even if the government punished the wrongdoers. "An ounce of prevention is worth a pound of cure." This is a phrase Munger often says. Destiny must be in one's own hands, and investors with a suitable money mind will try their best to find suspicious points in their investments to protect the safety of their principal. For example, whether the manager is trustworthy, whether the underlying assets are profitable, whether oneself can timely monitor the risks in the investment process, and whether the sales staff is obtaining large commissions. As long as any unreliable signs are found, these investors firmly will not invest their money. Do not desire to get rich quick. As in the capital market and anywhere else, making money is not easy, and desiring to get rich quick will lead to quick loss of wealth. In the capital market, the desire to get rich quickly often leads to investors over-allocating specific stocks, industries, or assets at the worst time. For example, buying high-risk stocks that can gain huge returns once an adventure succeeds, but the chance of success is very small, also known as "whispering stocks" by legendary fund manager Peter Lynch. "They often tell investors a story with explosive effects. These 'whispering stocks' have a hypnotic effect on people, and it is easy for you to believe that the story the company tells has an emotional appeal that can easily confuse you." This is like hearing a very tempting "sizzling" sound, making you salivate, but you did not notice that there is no steak on the grill. In the eyes of investors who lack the money mind, stable yield provided by blue chips such as China Yangtze Power cannot meet their demands. However, historical experience clearly shows that buying stocks lacking in safety solely based on imagined high yields is unwise. The long-term average investment return of general stocks is 9%-10%, which is also the average investment return of stock indexes in history, a benchmark to measure one's investment performance and the benchmark to measure fund investment performance.

Recently, China's combination of policies has been continuous, with Chinese assets represented by A-shares soaring for three consecutive days, and the offshore renminbi also reclaimed the "7" level against the US dollar.

On a global scale, both China's recent package of policies and asset trends are receiving attention, with a Goldman Sachs conference call being overloaded with attendees, reaching maximum capacity.

What is the foreign capital's view on China's package of policies? Has confidence been boosted? On September 25, China's brokerage interviewed foreign institutions such as Goldman Sachs, JPMorgan, UBS, and others to collect the latest views of major foreign institutions on the recent new comprehensive policies.

The most comprehensive easing policy since 2015.

"This set of policies has exceeded market expectations, it can be said to be China's most comprehensive easing measures since 2015." Zhu Haibin, Chief Economist of Morgan Stanley China and Head of Economic Research for Greater China, told China Brokerage, "Individual measures are not surprising, but the overall intensity exceeds expectations (e.g., the reserve requirement rate cut by 50 basis points instead of 25 basis points, policy rate cut by 20 basis points instead of 10 basis points, and the nationwide minimum down payment ratio for first and second homes unified at 15%, etc.), and the simultaneous introduction of a comprehensive policy is clearly aimed at restoring market confidence."

Zhu Haibin stated that the magnitude of this rate cut and reserve requirement cut exceeded the monetary easing scale in response to the 2020 epidemic, marking the largest move by the People's Bank of China since 2015. Overall, these easing measures help address short-term macro challenges such as industry vulnerabilities, economic activity fragility, and deflation pressure. In addition, this set of policies helps eliminate potential downward risks to fourth-quarter economic growth.

Goldman Sachs Research Department believes that the way this policy combination is conveyed to the market reflects meticulous consideration by the policymakers, aiming to maximize the market guidance role of the easing policies, reverse the prevailing pessimistic sentiments surrounding the economy and capital markets, highlight China's capability to achieve economic transformation and realize its growth potential, thereby regaining investment confidence.

Head of UBS Asia economic research and chief Chinese economist Wang Tao told Securities Times, "Overall, the loose policy direction is in line with our expectations of gradually intensifying policy support in 2024, however, the rate cuts and reserve requirement cuts are slightly higher than expected. It is worth noting that amid the narrow net interest margins of banks, the government plans to increase core Tier 1 capital for six large commercial banks to support the banking system. The policies announced on the 24th also include support measures for the real estate industry, although there is no additional funding support for destocking in real estate or the introduction of debt restructuring policies. We believe that the aforementioned measures, combined with more effective fiscal policy support, will help to support a slight rebound in growth momentum within the year."

"In our view, these market stabilization measures can be considered unprecedented in the history of the Chinese stock market." Morgan Stanley's China stock strategist Laura Wang stated in her latest English research report.

Laura Wang's analysis indicates that the central bank will introduce two monetary policy tools: securities, fund and insurance companies' exchange facilities, and a special reloan for share buyback and shareholding totaling 800 billion yuan, with initial amounts of 500 billion yuan and 300 billion yuan respectively, roughly equivalent to 2.9% of the current A-share market capitalization and about 1.03 times the average daily trading volume of A-shares so far this year. Furthermore, "the scale can be expanded in the future as needed."

"Given its unprecedented guidance and unlimited funding commitment, we see this policy as an absolutely positive move. That said, implementation remains key, and the improvement in market sentiment and sustained rebound will largely depend on the macroeconomic recovery and bottoming out of corporate profit growth." Laura Wang stated.

Consensus bullish on stock market rebound

Wang Zonghao, head of UBS China equity strategy research, stated that coordinated planning by the government is expected to boost confidence and asset prices.

Wang Zonghao said that the joint press conference of the financial regulatory authorities sent positive signals, "While the impact on the real economy may take time to materialize, we believe these measures will further benefit the stock market, with the most important measures including improving the quality of listed companies, establishing credit tools to provide incremental liquidity for the stock market, providing funding to support companies' buyback of shares, and researching the establishment of a stabilization fund. This series of measures should help establish a bottom for market sentiment in the short term. The subsequent documents and the financing costs of credit tools may be the focus for investors to follow."

Wang Zonghao stated that UBS China maintains a constructive view on the market. Against the backdrop of the relatively low valuation of the MSCI China Index and low investor positions, UBS China believes that the press conference surprised the market, as investor expectations were low, and these policies will help to boost long-term, sustainable returns for the Chinese stock market. Strategically, UBS China maintains a barbell strategy, bullish on high dividend stocks on one hand and bullish on internet, semiconductor equipment, education, and selected real estate-related stocks as beta targets on the other.

Laura Wang believes that the market is likely to rebound in sentiment in the short term, but more efforts are needed for sustainable recovery. It is expected that both the A-shares and Hong Kong stock markets will react positively to this policy and may experience a tactical rebound in the near future, even outperforming emerging markets.

Laura Wang also mentioned that the implementation timetable is very important because if investors are repeatedly disappointed, the policy window may close quickly.

Goldman Sachs Research believes that adopting non-traditional operations such as swap facilities and asset pledges indicates a high level of attention to stabilizing the domestic stock market. In the global environment of declining risk-free rates, unprecedented policy focus and measures on shareholder returns, long-term investment (patient capital) in China make this research team believe that the 'shareholder return portfolio' remains one of the best investment themes in the Chinese stock market for investors seeking tactical alpha opportunities or long-term allocations.

Goldman Sachs is bullish on Hong Kong stocks.

It is worth mentioning that Goldman Sachs specifically mentioned that this round of policies will catalyze a new round of policy-driven rebound, tactically preferring Hong Kong stocks. Meanwhile, Morgan Stanley believes that the performance of A-shares and Hong Kong stock markets will be roughly similar.

Goldman Sachs Research mentioned that similar to the tactical rebound in April this year, allocation opportunities may have arrived. The extent of trading activity recovery will depend on domestic policies, corporate profit conditions, external factors such as the US elections, etc. Compared with the A-share market, due to stronger profit correction trends, more attractive absolute valuation and A/H premiums, more supportive southbound fund flows, and higher sensitivity to Fed actions in the rate-cutting cycle, Goldman Sachs Research is more bullish on Hong Kong stocks.

Morgan Stanley expects that the performance of A-shares and Hong Kong stock markets will be roughly similar. So far, these policy measures have focused significantly on the A-share market; however, with the recent Fed rate cuts, the liquidity in the Hong Kong market may have greater resilience to the upside; additionally, despite the rate-cut news, the onshore renminbi is stabilizing/slightly appreciating.

The outlook for the real estate market remains to be observed.

In terms of real estate policies, this time the central bank announced policies including lowering the interest rates on existing house loans, unifying the minimum down payment ratio for first and second homes nationwide at 15%, and increasing the proportion of central bank funds supporting re-loans for affordable housing.

Wang Tao pointed out that the reduction in interest burden is helpful in improving residents' cash flow and supporting consumption, as well as reducing premature repayment behavior. Given that the magnitude of cuts in loan and deposit rates may be similar, the central bank stated that the overall impact of this interest rate adjustment on banks' net interest margins remains neutral.

Goldman Sachs Research Department noted that the turning point and sustainability of the stock market largely depend on the real estate policy stance, whether it can effectively curb the downward trend of the real estate market and alleviate the pressure on the overall economy. At this stage, Goldman Sachs Research Department judged that investors will tactically invest in Chinese stocks until signs of the end of the real estate downturn cycle emerge.

Wang Tao believes that after the introduction of this round of policies, it is still necessary to further intensify policies in the coming months to alleviate the downward pressure on the real estate market and stabilize economic growth. In order to make significant progress in destocking real estate, UBS China believes that the government and central bank need to significantly increase funding support and reduce funding costs (see previous reports). UBS China also believes that there is a need to further expand support for inventory liquidation through the 'white list' mechanism. In addition, it is necessary to accelerate the pace of issuing national debt and fund disbursement, support local governments by partially relaxing control over implicit local debt, and UBS China still expects the government to introduce more effective fiscal support measures in the coming months to stabilize economic growth.

Editor / jayden