After the first trading week following the National Day holiday, the market and indices have experienced varying degrees of pullback. Has the "fast come fast go" market trend come to an end? What is the rotational rhythm and relationship between policies, fundamentals, and indices?

This week, the Ministry of Finance continued to intensify its meetings. How should investors understand the changes and adjustments in the policy orientation?

Is the "quick in quick out" foreign capital a key variable in the market trend, or is it a disruptive factor that does not hinder the overall trend?

At this critical and special moment, in order to answer market doubts, Wall Street Journal has invited Chen Guo, Chief Strategy Officer of CSC Securities and Deputy Director of the Research Committee, to join the live broadcast room.

Below is the summary of the live dialogue between Wall Street Journal and Chen Guo on October 11.

After the market pullback, some voices believe that this round of market trends may "come and go quickly", with concerns about fundamentals and financial reports acting as limiting factors. How does Guo view this opinion? What should be the rotational rhythm and relationship between market trends, policies, and fundamentals?

Throughout this round of market trends, there have been many doubts. I believe that the consideration of the stock market should not only focus on current profits but also on whether profits will improve and whether the valuation environment will improve.

Our view and confidence in the stock market cannot be based on the current market prices, we cannot be bullish just because the market is up, and bearish when the market corrects. From the current overall situation, I believe that next year's A-share market earnings will be better than this year, and the valuation environment will also be better than this year. The market's rise and pullback do indeed come quickly and go quickly, but this is in line with the rules. Rapid rise will lead to a rapid pullback, but overall, compared to the gains of this round, I think the current pullback is still within reason. Looking ahead, the market is indeed entering the second phase, characterized by fluctuations.

In terms of sectors or structure, the market first needs to hold onto sectors with attractive fundamentals or valuations, and then gradually consider some offensive directions based on changes in external environment. The overall market risk preference has decreased from the previous very high sentiment, so we first hold onto these quality and undervalued sectors. For example, some new directions in the third quarter report, here it is undeniable that many are related to exports, or some where we have both domestic and foreign demand, while benefiting from previous policy directions, such as autos. I am quite bullish on China's new energy vehicles including electric vehicles in the medium term, especially those related to the global AI industry chain.

In terms of valuation, the A-share market valuation structure is very differentiated, with a large number of companies with low PB ratios. In fact, whether we are talking about the current asset shortage, compared to the bond market, the relative attractiveness of the stock market, water flows downhill, or we talk about this round of logic as a confidence revaluation bull. From this perspective, low PB state-owned enterprises are of course more in terms of industry, including banks, insurance, many traditional industries, construction, etc., which are our current focus on stability and emphasis. As the market gradually stabilizes, confidence begins to recover, at that time the market's risk changes will increase again. We can pay more attention to some thematic directions or areas related to future growth directions, for example, new quality productivity is a very important area. Of course, I believe that mergers and acquisitions of state-owned enterprises are also an important and noteworthy thematic direction. Looking further ahead, if we see more policy signals, then we may have a rise in overall economic expectations again, and at that time market opportunities may be diffused, reflecting index movements from oscillation to upward movement or even stronger ascent. But I think, first, this process will not be so quick, we need more patience for policies, it may be a gradual process of increasing stakes, of course this time will not be too long. I think the future focus points:

First, the November U.S. presidential election, we need to see the overall U.S. fiscal policy, tariff policy, and relations with China, if there will be any changes. If there are changes, for example, if the Republican candidate Trump takes office, then there may be preparations or expectations for expanding domestic demand. There may even be more policy arrangements. Of course, the specific clarity of more policy arrangements may have to wait until the Central Work Conference at the end of December. At that time, perhaps there will be more actively, stronger, or clearer signals for expanding domestic demand, which is an important and worth noting time point, especially considering the Fed's interest rate meetings in November and December, the fourth quarter actually has some important time windows.

Looking into next year, including the two sessions for next year's economic goals, specific arrangements, fiscal plans, and even considerations about the 15th Five-Year Plan, these are all important time windows. I believe this time will not be too long, because the overall trend is downward pressure on exports, and currently, I think the policy level has clearly expressed the desire for a significant boost under the current economic conditions. So, if there is a further downturn in external demand under the current economic situation, in other words, the underlying message is that next year's domestic demand will need to be significantly better than it is now, so there are also some investment opportunities here.

If we widen the timeframe a bit, looking at 3-6 months, I believe the revival of domestic demand or expanding domestic demand trading is a major theme. However, as I mentioned just now, in the very short term, the market may still need to wait for more signals to validate, we can first focus on the current prosperous sectors, some of which are related to exports, some with undervaluation, but the general trend will go from external to internal.

"924" ignited the market since the directive came out, the intensity and height seem to exceed the expectations and imaginations of most people, the changes in this round of policies and strategies, is there any significant difference compared to the previous measures to stimulate the capital markets? How should investors understand the changes and adjustments in the policy tone?

The background of the important meetings on September 24th and September 26th is that many data in the entire Chinese economy are still significantly below market expectations. From the current situation, it seems that the Q3 GDP growth rate should have some distance from the annual 5% GDP data we hope to achieve.

At the same time, we also saw the main stock market indices in China gradually trending downwards in July, August, and September. Even in late September, there was a risk of hitting new lows. In this context, externally, we see the Fed opening with certainty easing, and basically giving a signal of continuous easing for the next two years.

In the context of the international financial system, how should we price RMB assets against USD assets? I think it is generally overshadowed by a pessimistic outlook. In the busiest trades on Wall Street, one is long on U.S. stocks, and the other is short on China. In China's domestic capital market, we see the bond yields, the 40-year bond yields in China were previously lower than Japan, of course lower than the United States, and also lower than the major economies in Europe. This is extremely pessimistic, or I believe it is quite an extreme pricing.

Then, after a series of policies were introduced, the market indeed reacted very intensely. When confidence reaches rock bottom, if there are strong policy signals, the market reaction will be very intense, sometimes the reaction speed or frequency actually goes ahead of the fundamentals, so a rapid correction is very normal. Overall, the environment we are facing now, with policy support, is better than before the policies were introduced, so it won't completely fall back.

Looking specifically at these policies, as the host mentioned, the market is indeed relatively focused on new monetary policy tools. Essentially, these new monetary policy tools provide liquidity support through swaps to support the capital market, but it should not be simply understood as encouraging institutions to leverage stock trading.

We also know that certain non-bank financial institutions in the market, such as insurance companies and brokerages, are willing to consider using their own funds, either through financing or using high-dividend stocks, kept in OCI accounts. These OCI accounts do not impact the profit and loss of non-bank financial institutions on a daily basis, they can actually hold for the medium term, so we observe only their dividends. This is why some institutions continue to allocate high-dividend stocks, which is also encouraged and supported at the policy level.

If a non-bank financial institution has relatively high financing costs itself, but can obtain funds at a lower, or very low cost through central bank swap tools, and then can invest in a high-dividend, relatively stable company to hold for medium term in an OCI account, the report will reflect dividends, which are higher than the financing cost. For non-bank institutions, this can be seen as a form of arbitrage or interest rate trade, but for the entire market, it is positive, strengthening the pricing and support for high-dividend stocks.

In any case, I think overall, it is one of the tools to boost the capital market. When we combine this background with the September 26th political meeting, you can see that the meeting on September 26th, of course, is much broader, covering monetary policy, fiscal policy, mentioning stabilizing the real estate market, stimulating the capital market, and promoting private economy law. So you can see the meeting as very exceptional, with a very wide coverage and many considerations. Why?

Because the current economic issues are not simple economic issues, not a simple short-term problem of oversupply. What we currently see as deflation is based on long cycles, including debt cycles. Or we talk about balance sheet deflation, to solve this deflation, or to solve the various problems caused by this deflation, we need to solve the balance sheet issues directly, we need to directly address asset pricing to resolve debt issues.

In 1929, the United States, 1989 or 1990 Japan, and 2012 Europe all experienced stages where every human improvement was superior to the previous one. The US economy at that time suffered a significant negative growth, the employment rate sharply increased. I personally believe it was not particularly well done, it was a kind of a clearing type of deleveraging.

By the 1990s, the Japanese economy was relatively stable and the employment rate remained steady. It was actually quite good because Japan began to use some countercyclical monetary and fiscal policies. However, at that time, they did not realize the decline in the entire balance sheet, so Japanese stocks continued to fall and hit bottom in 2012, nearly 20 years later. Many people said they had lost 20 years, but relatively speaking, the economy was quite stable.

In 2012, during the European debt crisis, the European Financial Stability Facility (EFSF) was coordinated in the Eurozone. Because the Eurozone did not have a real finance ministry, the EFSF allowed financially constrained countries, or the five countries facing debt and deficit problems at the time, to receive financial assistance and relax their fiscal deficits. This resolved the issues. Therefore, after 2012, Europe, whether facing deflation issues, economic growth problems, or overall stock market performance, actually did quite well. The main stock market indices in those two years varied between 50-200% in gains. Greece had the strongest increase, over 150%, while Germany had the smallest increase, but still over 50%. This shows that human cognition is constantly evolving. We should not continue to treat problems from 30-40 years ago as difficult to solve today, as progress is continuously being made. Even Japan itself, under the effect of the three arrows of Abenomics in 2012, managed to break free from deflation.

Some narratives portraying shorting or bearish sentiments towards Chinese assets are centered on the demographic cycle. We should not forget that after 2012, Japan's population did not grow, and continued to shrink, with an intensifying aging population. The dependency ratio deteriorated in 2012 as well. The birth rate declined, and the number of births decreased year by year. This has been the situation in Japan since 2012, which has not been reversed. However, the Japanese stock market continued a long bull run for over a decade from 7000 points to over 30000 points, a significant increase. Even though the per capita GDP was at a high level and difficult to grow, with limited space for industry upgrades, and external factors greatly affecting and constraining currency policies, fiscal policies, Japan's spirit of craftsmanship is very strong. Japan indeed has many advantages, but overall, whether in the internet era, the current era of artificial intelligence, or the era of automotive electrification and intelligence, it has not been a leader in the industrial revolution. Their spirit of craftsmanship is strong, but I believe their overall innovation capability is not as good as China's.

In this scenario, if Japan can achieve it, its stock market can sustain a bull run, and there is considerable room for growth, then China today has many better conditions. We have a more independent monetary policy, fiscal policy, a clearer understanding of historical cases, better trends in industrial development and progress, innovation capabilities, and the potential for rising per capita income. In this situation, as we are just starting to address the issues depicted in the current balance sheet and deflation problems, with a recent surge in the stock market, the Japanese index multiplied by several folds. We have only just begun this wave of market trends, now debating whether this bull market or this market trend is coming to an end, which I believe is a premature judgment.

Overall, I am very optimistic about the current fundamentals, because marginally speaking, China has already started tackling the issue of debt deflation. I believe that until this progress bar is fully completed, many may have doubts about what will happen next, or when the progress bar slows down or even stops, they may also doubt. This is normal because many people need to see the final scene to believe. However, for us as investors, we need to achieve something beyond what others see, not waiting until everyone sees it before we do. This is an issue we need to consider.

Both domestic and foreign investors have different opinions on the 10.12 fiscal conference, with some believing it will fall below expectations, and others anticipating a shift in tone leading to stronger stimulus measures. How do you think investors should reasonably set their expectations? What surprises might come in the future? What details are really worth long-term attention and focus?

First of all, as I have previously mentioned, this bull market will consist of three phases. The second phase involves investors being conflicted between policy and fundamental verification. Sometimes, policies exceed expectations, and at other times fall below expectations, as market rhythms are not always consistent. Market expectations can sometimes be too high or rapidly change. What we really need to focus on is the concept mentioned earlier, the "progress bar".

First, has the progress bar been started? Second, is the progress bar moving forward? Is the speed very slow? We should not set a hypothetical expectation first, suddenly set it very high, and then say that this matter actually has low expectations, which is not reasonable. Even to some extent, I believe that during the progress bar process, it is really normal for it to be slow or even stop at some stages. Patience must also be maintained throughout this process, just because the progress bar is slow does not mean that the progress will be reversed or abandoned.

As for specific fiscal policy, first of all, personally, I think the overall progress is actually very fast:

On September 24, we held a leadership meeting in the financial sector; on September 26, a Political Bureau meeting; then National Day, and then we quickly held another meeting at the National Development and Reform Commission; this Saturday, October 12, we will have a fiscal meeting. This pace is actually very fast, non-stop, and basically shows that the entire system is working in coordination, the central bank, finance, and the development and reform commissions are working together closely, which in my opinion is a very positive sign, unless we must raise our expectations first, and then talk about this matter with low expectations. In my view, this way of thinking is not very practical, because the real policy considerations should be relatively stable and steady. Of course, for fiscal policy, I do agree that we do need a relatively large-scale fiscal policy.

However, we cannot only focus on fiscal policy when it comes to the stock market; stock investment dimensions are very complex. In the short term, we look at funds, and it is easy for the market to adjust due to changes in supply and demand after the holidays. In the medium term, we look at policies, and the market generally agrees that policies are part of the fundamentals. Policies have a big impact on the fundamentals, so monetary policy, fiscal policy, and industrial policies will have a significant influence. But in the long run, companies are the most crucial. Are companies innovating? Are they making progress? Are entrepreneurs themselves correct and wise? These are more critical in the medium to long term.

Compared to fiscal policy, personally, what I have been paying more attention to recently is the promotion of the private economy. I am more focused on the fact that we are actually vigorously improving the overall business environment, including discussions in the Development and Reform Commission leadership meetings. Improving the entire business environment is important, and of course, fiscal policy is indispensable. Currently, we need to address the issue of the balance sheet. Firstly, we need to resolve debt issues adequately to ensure that local debt pressures do not affect normal operation and investment.

Secondly, apart from resolving debts, we do need to provide a certain level of support and subsidies for companies and residents. Of course, there may be specific groups involved, such as middle and lower income groups. We may need to encourage more childbirth to address concerns about population issues, so we need to provide more childbirth subsidies, including for mothers with two children or even families with two or more children. We also need to encourage and drive consumption, which may include more consumption vouchers, as well as support and subsidies for some businesses. Of course, we should not strengthen overcapacity and should instead support new productive forces more. Therefore, I believe that there will be many categories involved, and personally, I think we may not play all the cards at once or lay them all out at once; it may be implemented in batches, including determining the optimal scale in practice through continuous experience. For instance, what categories the consumption vouchers are more effective for in the long run, some may buy even without discounts, but some may lead to improved marginal decision-making, consumption-driven loop, which could be very helpful. What types of categories, amounts, and how to do it are most suitable; we actually need to continuously optimize and iterate through experimentation and trials, so there is no need to immediately disclose all the amounts or finalize the numbers. This applies to monetary policy as well; whether it is the People's Bank of China or the US Federal Reserve, we gradually reduce interest rates and implement policies. I believe fiscal policy is the same, so if people have such expectations, for investors, the first thing to focus on is the content of fiscal investments; of course, I do not expect the total amount to be announced immediately on Saturday, but I think irrespective of the amount, we should not consider the amount as the whole, instead, focus more on the purpose, as the effectiveness of the purpose is crucial.

So indeed, I think there will be many categories included, and my view is that we may not play all the cards at once, or lay them all out at once; it may be implemented in batches, including determining the optimal scale through continuous experience in practice. For example, which categories the consumption vouchers are more effective for, some may buy even without discounts, but some may lead to improved marginal decision-making, consumption-driven loop, which could be very helpful. What types of categories, amounts, and how to do it are most suitable; we actually need to continuously optimize and iterate through experimentation and trials, so there is no need to immediately disclose all the amounts or finalize the numbers. This applies to monetary policy as well; whether it is the People's Bank of China or the US Federal Reserve, we gradually reduce interest rates and implement policies. I believe fiscal policy is the same, so if people have such expectations, for investors, the first thing to focus on is the content of fiscal investments; of course, I do not expect the total amount to be announced immediately on Saturday, but I think irrespective of the amount, we should not consider the amount as the whole, instead, focus more on the purpose, as the effectiveness of the purpose is crucial.

I just mentioned the example of Japan; in 1992-1993, Japan implemented two batches of fiscal stimulus, the first was 10 trillion yen, and the second was 13 trillion yen, which led to an economic rebound in Japan and a 50% increase in the Japanese stock market index. However, I think its structure was not good; it mainly leaned towards infrastructure, but in the 1990s, Japanese infrastructure was already very developed, so the return on investment was actually very low, and once the infrastructure was invested in creating employment, it basically ended. It did not support consumption like we do, support new productive forces, which could generate more medium to long-term effects.

The most important thing for the economy is not just subsidies or support, but the entire ecosystem. If we continue to improve the business environment, continuously motivate entrepreneurs, and foster their innovative spirit, it is actually a very important driving force for businesses to move forward. Overall, these are policy deployments. In my opinion, I don't feel any low expectations for the current policies. I think the progress is actually very quick. The only possible issue may be that the stock market did rise a bit too fast before, so there might be a pullback. After stabilizing, we can observe whether the fundamentals are marginally improving based on the progress of the policies. Overall, I believe this bull market is still on the way.

How to view foreign investment's 'quick in quick out' approach to Chinese assets? Is foreign investment a key variable in the market, or more of a disruptive factor that does not hinder the overall trend? Should investors pay special attention to the statements, views, and capital trends of foreign investment?

I do think that this round foreign investment has indeed been very active. As the host mentioned, whether it's about inflows, outflows, or statements, I think it's worth paying attention to. Sometimes different perspectives can be used to verify each other or inspire new ideas. We don't need to add too many conspiracy theories or deification to foreign investment. Overall, I think having a relatively clear strategy, continuous advancement, and validation will ultimately lead to sustained inflow of foreign investment into the Chinese stock market.

Recently, I do feel that there are significant divergences among foreign investments, with some being more of a trading nature. This is actually normal. It's not just foreign investments, there are also many divergences among domestic investors, be it institutional or individual investors, and there might be some rapid trading involved as well.

Personally, I summarize it as follows: in terms of commonalities, this wave of enthusiasm in the Chinese stock market is excessive. There's a lot of enthusiasm, but insufficient confidence. It feels like there are great opportunities in the stock market, plenty of enthusiasm, extensive diffusion, but the actual confidence in the continuous improvement of the Chinese economy is lacking. So conversely, I believe, as I mentioned, confidence reassessment prompts the bull market. The market has not truly completed its cycle, the latest market high is just a peak in emotions, not a peak in economic confidence, let alone in fundamental profitability, and definitely not in valuation.

This is why I believe it is not a peak of this bull market. I don't think foreign investments themselves have a uniform or particularly strong opposing sentiment. If the fundamentals continue to validate that the market has considerable investment opportunities, then foreign investment will flow in. Of course, those who truly understand the Chinese economy and enterprises are still domestic investors. We don't need to solely rely on foreign investments for guidance. Some foreign investments can express their views through funding or statements, which I believe provides Chinese investors with more references and a broader perspective, which is more beneficial than harmful.

How can investors maintain a stable mindset? Stay continuously optimistic like you?

I'm not a 'permanently' bullish investor. From late May to late September, we actually expressed a cautious view on the market. Of course, I am relatively optimistic about the medium-term economy and market. I agree with the host's statement that confidence doesn't come from what others say or from today's stock market movements. It's difficult to truly be firm in such confidence. If you don't have a firm belief or viewpoint, it's easy to be disturbed by the market, by others, or by short-term factors. This is not favorable for actual investments, nor is it beneficial for the mindset.

Confidence should come from our understanding of the entire Chinese economy, Chinese industries, Chinese companies, and the Chinese stock market, as well as the liquidity environment, funding environment, and valuation positions they face. If we feel very confident, actually in the short term, regardless of price trends or public opinion, it will not change our views.

For ordinary investors, it may be a bit difficult, but I think everyone should consider a few questions. First, can we calm down and reread the press conferences of September 24th and the full text of the political bureau meeting on September 26th with a serious attitude. I think you can come to a conclusion that overall, the policy deployment is comprehensive and systematic, aiming for significant improvements.

Secondly, we need to look at the current valuations of A shares, H shares, and major global stock markets in comparison. Sometimes, for the same company, such as a commodity company, the PE ratio given in the Chinese stock market is significantly lower than overseas markets. Many Chinese state-owned enterprises, banks, and traditional industries exhibit sustained and stable operations, with profits continuously growing, yet their P/E ratios are below 1. Also, Chinese new energy vehicle companies, consumer goods companies, and internet companies have more attractive P/E ratios globally

I believe that China's new energy vehicle industry is rapidly evolving. Apart from Tesla, the future of most American, Japanese, European, and South Korean automotive companies seems precarious. Chinese automotive companies are likely to lead the smartization of vehicles. It is crucial to pay close attention as the market share of companies like Tesla in the US may continue to shrink.

We also need to focus on internet companies. While American internet companies deserve respect, Chinese internet companies are relatively ahead globally. They have strong capabilities for international expansion and exhibit strong local innovations. Companies led by young people demonstrate exceptional levels of innovation and passion for work, which is rare globally. It is important to assess if these fundamentals are progressing.

In my view, at least in many areas, not all companies, what many companies in China are doing, from entrepreneurs to employees, is not fully appreciated. We should evaluate ourselves on a global scale and not undervalue our efforts. In the capital markets' pricing, I believe a reassessment is necessary. So, we should consider these factors and not be influenced by short-term market price fluctuations or the opinions of others.