After the National Day holiday, the most concerning topic for investors is undoubtedly whether the A-share market can continue its strong momentum after the holiday. Looking at the overall news, the global funds have been bullish on Chinese assets during the holiday, and institutions are consistently optimistic overall.

On the policy front, at 10 a.m. this morning, the State Council Information Office will hold a press conference. Industry insiders believe that this press conference may be beneficial to the intraday trend of A-shares, as continued policy push and implementation are favorable for certain industries.

At the market level, Chinese assets continued to rebound during the National Day holiday. From October 2nd to 7th, the Hang Seng Index rose by 9.3% in total, the Hang Seng Tech Index rose by 13.4% in total, the Hang Seng China Enterprises Index rose by 10.9% in total, the Nasdaq China Golden Dragon Index rose by 11.4% in total, and the FTSE China A50 Index rose by 16.6% in total. Institutions believe that the A-share market may see a concentrated rise after the holiday, repairing the pricing relationship between Hong Kong stocks and A-shares.

At the same time, the optimistic expectations from foreign financial giants regarding the Chinese stock market are continuously rising. On October 7th, Citigroup stated that China's economic stimulus measures this year may exceed market expectations, thus raising the target for the CSI 300 Index to 4600 points by the end of June next year, with a potential increase of about 14% from current levels.

Today's Highlights

At 10 a.m. this morning, the State Council Information Office will hold a press conference. National Development and Reform Commission's Director Zheng Zhujie and Deputy Directors Liu Sushe, Zhao Chenxin, Li Chunlin, Zheng Bei will introduce and answer questions from reporters on the 'Solid Implementation of a Comprehensive Package of Incremental Policies to Promote Upward Economic Structure and Continuous Positive Development Trends'.

Industry insiders believe that this press conference may be beneficial to the intraday trend of A-shares today, as continued policy push and implementation are favorable for certain industries.

Before that, a series of bullish measures were introduced at the policy end. On September 24th, the heads of the central bank, the China Banking and Insurance Regulatory Commission, and the Securities Regulatory Commission jointly held a press conference and proposed multiple measures to boost the capital markets, including: 1. Two monetary policy tools: an initial 500 billion yuan of swap facilities and an initial 300 billion yuan of share buyback and holding special rediscounting loans. 2. Support for qualifying insurance institutions to establish private equity investment funds. 3. Vigorously develop equity public funds, promote the innovation of broad-based fund products.

On September 26th, the Political Bureau meeting put forward several policies related to the capital markets, including: 1. Issuing and utilizing ultra-long-term special national bonds and local government special bonds. 2. Lowering the reserve requirement ratio for deposits. 3. Promoting the stability of the real estate market. 4. Making efforts to boost the capital markets, strongly guiding medium and long-term funds into the market. Supporting listed companies, restructurings, and steadily advancing reforms in public funds.MergerReorganization, steadily promoting reforms in public funds, and other measures.

On September 27th, the official website of the People's Bank of China announced that starting from September 27th, the reserve requirement ratio for financial institutions would be reduced by 0.5 percentage points (excluding financial institutions that have already implemented a 5% reserve requirement ratio). After this reduction, the weighted average reserve requirement ratio for financial institutions is around 6.6%.

The People's Bank also simultaneously announced that in order to increase the intensity of countercyclical adjustment of monetary policies, support stable economic growth, starting from September 27th, the 7-day reverse repo operation rate in the open market will be adjusted from the previous 1.70% to 1.50%. The operation rates for 14-day reverse repos and the temporary reverse/positive repos will continue to be determined based on the 7-day reverse repo operation rate, with the same magnitude of adjustment.

Mapping of the Hong Kong stock market

Under the stimulus of a series of significant bullish policies, funds rushed into the market. Since September 24th, both A-shares and Hong Kong stock markets have seen across-the-board sharp increases.

In the past 5 trading days (from September 24th to September 30th), the main broad-based and style indices of A-shares have all seen cumulative gains of around 25%, a speed of growth that is historically rare.

During the National Day holiday, A-shares were closed, while the Hong Kong stock market continued to rebound. From October 2nd to 7th, the Hang Seng Index has risen by 9.3%, exceeding 23,000 points, reaching a new high since February 2022; the Hang Seng Tech Index has increased by 13.4%, and the Hang Seng H-Share Index ETF has risen by 10.9%. This sharp increase has propelled Hong Kong stocks to the top of the global year-to-date gainers list.

Among them, brokerage stocks and semiconductor stocks are the two main themes driving the Hong Kong stock market. Wind data shows that there are a total of 151 H-shares of A-shares listed in the Hong Kong stock market, with most of the top gainers in the recent 5 days being China-affiliated brokerage stocks, with some semiconductor and pharmaceutical stocks also performing well.

Looking at the recent top gainers list, the H-shares of China merchants securities and Holly Futures have all seen gains of over 200% in the past 5 days. CC Securities, SWhy, CSC, Guolian, Orient, Shanghai Fudan, Fudan-Zhangjiang, and Everbright H-share have all seen gains of over 100% in the past 5 days.

Analysts say that with the decline in the Hang Seng Stock Connect China AH Premium Index, the corresponding A-shares will become more attractive.

SWhy stated that based on the comparison of Hong Kong and A shares, the progress of the Hong Kong stock market's rise is ahead of A-shares. Despite the National Day holiday boost in Hong Kong stocks, the influence of 'funds not taking a vacation' causing bullish momentum to focus on Hong Kong. However, the strong performance of Hong Kong stocks at least proves optimism among foreign capital, with bullish momentum still active. After the holiday, A-shares may experience concentrated growth, adjusting the price comparison relationship.

Meanwhile, during the National Day holiday period (October 1st to October 7th), the Nasdaq Golden Dragon China Index has seen a cumulative increase of 11.4%, while the FTSE China A50 Index futures have risen by 16.6%.

It is worth noting that in October this year, 120 listed companies in A-shares will face stock unlocking, with a total market cap of 107.577 billion yuan based on the closing price on September 30th, which is at a historically rare low.

Analysts believe that the reduction in the market cap from typically unlocking shares does not signify a significant increase in the short term in the market's available circulating stock, which may alleviate potential shareholding pressure in the market.

Foreign institutional giants announce: adjustment upwards

Currently, the optimistic expectations of foreign institutional giants for the Chinese stock market continue to heat up.

On October 7th, Citigroup stated that China's economic stimulus measures this year may exceed market expectations. Therefore, they have adjusted their target for the CSI 300 Index by the end of June next year to 4600 points, representing a potential increase of about 14% from the current level, with a target set at 4900 points by the end of next year.

At the same time, Citigroup has raised the target for the Hang Seng Index and the MSCI China Index by the end of next June to 26,000 points and 84 points respectively, with an increase of about 13% and 12% from the current level. The targets by the end of next year are set at 28,000 points and 90 points respectively.

Goldman Sachs has adjusted its rating for Hong Kong stocks to 'Overweight' in its latest research report on October 7th. They have shifted their strategic preference from Hong Kong stocks to A shares, while upgrading the insurance theme to 'Overweight.'

In their report dated October 5th, Goldman Sachs raised its rating on the Chinese stock market to 'Overweight.' Goldman Sachs believes that the Chinese stock market still has further upside potential, increasing the target price for the MSCI China Index from 66 points to 84 points, and the target price for the CSI 300 Index from 4000 points to 4600 points.

Goldman Sachs's latest weekly fund flow tracking report reveals a significant shift in global hedge funds' net positions in Chinese stocks. In September, the GS Prime Services platform recorded the largest monthly net buying of Chinese stocks (including offshore and onshore stocks) in history, primarily contributed by H shares, followed by A shares, and lastly American Depositary Receipts (ADRs).

Currently, the proportion of global hedge funds' Chinese stocks in the portfolio is still significantly lower than the interim high point in mid-2020 and also lower than the interim high point reached after the opening up following the epidemic in early 2023. This means that there is still considerable potential for foreign investment to allocate Chinese stocks in the future.

Morgan Stanley believes that if individual investors' sentiment remains high, there is still room for further gains in the Chinese stock market.

Recently, analyst team led by Chiyao Huang from Morgan Stanley released a research report pointing out that the trading volume and speed in the A-share market have exceeded the levels of 2020-2021. They observed that new retail investors are the main driving force behind the stock market's rise, as the number of new investors opening accounts has significantly increased, indicating an increasing participation of retail investors.

Analysts estimate that if individual investors continue to maintain an optimistic sentiment, as much as 2 trillion to 3 trillion yuan could be reallocated to the stock market from Chinese household financial assets, benefiting brokerage stocks. In addition, the current relatively low margin financing balance also indicates potential growth in the future.

Editor/Somer