Source: Citic Securities Research Author: Jiang Ya, Yang Qingpu, Xu Yingbo, Liao Yuan, Dan Zhuling Dubbed 618 grand promotion in 2024 has come to an end, and Citic Securities expects that the e-commerce large cap GMV during this period is expected to achieve low double-digit growth (+12% or so), continuing the positive trend since the beginning of the year and May. Structurally, it is judged that the growth center of content e-commerce platforms has moved downward, and the growth rate of shelf e-commerce platforms has rebounded under active investment. Platform-wise, Citic Securities judges that the core platform GMV growth rate during 618 is ranked as follows: TikTok > PDD Holdings > Tmall > JD.com.

The overall statement of fiscal policy exceeds expectations, and the change in policy direction is more important than the magnitude of the intensity.

1) After the expectation of a major reversal, domestic policies are still in a period of intensive implementation.

The exceeding of expectations in policy statements catalyzed the market's expectation of a major reversal. Policies are currently being intensively implemented, and investors' expectations for policy strength are continuously increasing with the market's rise.

First, in terms of monetary policy, the central bank reduced the reserve requirement ratio for financial institutions by 0.5 percentage points starting from September 27, and at the same time, lowered the 7-day reverse repurchase rate from 1.7% to 1.5%. On October 10, the six major state-owned banks announced the unified reduction of existing home loan interest rates outside of Beijing, Shanghai, and Shenzhen by LPR-30bps, to be completed by the end of October.

Secondly, in terms of capital markets, the first supportive monetary policy tool has been launched. On October 10, the central bank announced the acceptance of applications for the "Securities, Funds, Insurance Companies Interchangeable Convenience (SFISF)", with an initial swap scale of 500 billion yuan.

Finally, the "Draft Law of the People's Republic of China on the Promotion of Private Economy (Solicitation of Comments)" was also announced on October 10, outlining provisions in terms of fair competition, investment and financing, technological innovation, standardized operation, service guarantee, rights protection, and legal responsibilities, effectively stabilizing the expectations of economic entities.

The overall fiscal policy stance exceeds expectations, conveying bullish signals and improving market sentiment.

On October 12th, the State Council Information Office held a press conference where Minister of Finance Liu Fa'an introduced the situation regarding "strengthening the countercyclical adjustment of fiscal policies and promoting high-quality economic development". The meeting clarified short-term incremental policies to resolve risks and boost the enthusiasm of all market entities, while also pointing out that the central fiscal policy still has ample room for debt issuance, conveying positive signals about fiscal policy.

Specifically, the following important deployments are worth attention:

Debt resolution is strengthened again, with plans to substantially increase the debt ceiling in one go to replace the hidden debts of local governments.

Clarifying support for state-owned banks to replenish Tier 1 capital will enhance the risk resistance capabilities of state-owned banks.

Introducing special bonds to reclaim idle land, storage, and related tax policies, reflecting the determination of fiscal support to stabilize the real estate market.

Consolidating grassroots "three guarantees" expenditures, and further strengthening education financial assistance policies.

Improving people's livelihoods and boosting consumption are the focus of the upcoming fiscal policies.

⑥It is explicitly stated that special bonds can be used to purchase existing housing for affordable housing purposes, as well as to resolve existing government investment project debts.

Fiscal policy is the core policy variable of this round of market attention. Under the strong counter-cyclical fiscal policy, it is conducive to stabilizing the recent high volatility in policy expectations and improving market sentiment.

3) In the long run, the change in policy thinking is more important than the magnitude of the impact.

First, in terms of real estate attitude, the policy first proposed to promote the real estate market's "stop decline and stabilize", in addition to the current policies that have already been implemented. It is believed that future real estate policies may completely target space and further strengthen efforts.

Secondly, in terms of financial policy, this round of SFISF and repurchase to increase special refinancing, widely understood by investors as the central bank providing put options protection for the stock market, and this round of financial policies generally aiming to leverage the financial sector to support the market and the real economy, which is a different shift in mindset from the past.

Finally, in terms of fiscal policy, the important focus of the long-term policy shift is a key point. It is expected that the future fiscal focus will gradually shift from traditional infrastructure investment stimulating the economy and tax rebates supporting industries, towards benefiting people's livelihoods and promoting consumption, where fiscal policy will have a more direct impact on residents' balance sheets.

Furthermore, looking at the density of policy implementation in this round, under the requirement of "getting things done", after the initial implementation of the first round of policies by ministries, it is expected that subsequent local policies will also enter a period of intensive implementation.

The intensification of the long and short game, the slowdown in the pace of off-market incremental funds entering, but the potential size of funds entering the market is still relatively large.

Under the fluctuation of policy expectations, the A-share short-term pulsatile fluctuations have intensified after the long and short game.

This week, with the intensive implementation of policies, the fluctuation of policy expectations and the enhancement of policy games, the market volatility has increased.

First, within the 6 trading days from September 24 to October 8, the SSE Composite Index, Chinext Price Index, and CSI 300 Index respectively rose by 27.0%, 66.6%, and 32.5%. Such a pulsatile short-term increase in A-share history is also rare, corresponding to the rapid expansion of market turnover. The market turnover of A-shares on September 30 reached 2.6 trillion yuan, breaking the historical high of 2.36 trillion yuan on May 28, 2015, and then this record was refreshed to 3.48 trillion yuan on October 8.

Secondly, while the market valuation has been rapidly repaired in this round, there is still significant differentiation in the valuation of various industries. As of October 11, among the 29 dynamic valuations of CITIC's first-level industries, 11 industries are still below the 25th percentile since 2010; the dynamic valuations of CSI 300, CSI 500, and Chinext Price Index are 11.1X, 15.2X, and 21.4X respectively, which are the 69%, 40%, and 11% historical percentiles since 2010.

Finally, driven mainly by liquidity with fundamental validation as a supplement, it remains the main feature of this round of market trends. After a rapid rise in the short term, investors' expectations of the strength of subsequent policies have diverged. After the rapid rise in the short term, some investors have strengthened their willingness to profit from the market's intense short-term long and short game.

The pace of off-site incremental funds entering has slowed down, but the potential size of funds entering the market is still relatively large.

Behind this round of pulsatile market trends, the main feature is the concentrated entry of incremental funds dominated by retail investors, while on the product side, the volume of passive fund subscriptions, represented by ETFs, has significantly increased.

Firstly, when searching for 'A-share account opening' in the Baidu Index, two peak points have been observed since September 24, the first peak was on September 30, and the second peak was on October 8.

Furthermore, with the sharp market fluctuations, this round was mainly driven by retail investors' participation in ETFs, with net inflows soaring and then falling. From September 30 to October 10, the total net inflows of ETFs in both markets were 689, 101.4, 49.1, 4.3 billion yuan respectively. The Shanghai Stock Exchange ETF saw a net redemption of 2.04 billion yuan on October 11, and the Chinext ETF also saw net redemptions after consecutive large net inflows on October 10.

Once again, following market sentiment swings, the short-term growth rate of financing balances in this round also rose and then fell. The daily net increases from September 27 to October 10 were 196, 449, 110, 37.3, 1.4 billion yuan respectively.

Lastly, as the market quickly recovered in the short term, since September 24, a total of 88 companies have announced shareholding disclosure notices. The pace of off-market incremental capital inflow has slowed down, but the potential inflow of market funds remains significant.

3) Institutional fund behavior is significantly divergent, but is difficult to dominate the market direction in the short term.

Firstly, the repositioning and changes in subscription and redemption of public funds have not changed much. According to the quantitative and allocation team of the CITIC Securities Research Department, as of October 11, the overall positions of public equity, partial equity mixed, and flexible allocation products were 79.6%, 73.6%, and 68.8% respectively, with little change this week.

Furthermore, the positions of active private placements in the sample continue to rise. Since the end of September, the positions of active private placements in the sample have started to rise. In the week of September 27, it increased by 2.1 percentage points to 71.0%, and in just one trading day on September 30, the positions of active private placements in the sample increased by 2.0 percentage points to 73.0%.

Once again, in terms of foreign capital, according to Refinitiv's data, sample funds tracking the MSCI China have seen large net inflows for two consecutive weeks, mainly from passive funds. This week (week of October 9), both active and passive fund net inflows were as high as 4.2 and 80.9 billion U.S. dollars respectively, achieving the largest net inflow amount since 2015.

Lastly, entering the fourth quarter, some long-term institutional funds which are measured by absolute returns have a stronger intention to reduce positions after the rapid short-term market rise in this round. However, they cannot dominate the market direction in the current liquidity environment.

Fiscal policy exceeded expectations, the market entered a period of shifting gears.

Fiscal policy is the current focus of the market. The overall policy stance of the Ministry of Finance exceeds expectations. The change in policy direction is more important than the intensity. The current market is in a transitional phase from expected major reversal to the turning point in the market. After the previous pulse-like rise, the market sees intensified long and short games, with the pace of off-site incremental fund entry slowing down. However, the potential size of funds entering the market is still large. The market will gradually shift from emotion-driven by capital to verification-driven by fundamentals, and the market characteristics will shift from pulse-like fluctuations to stabilization and slow rises.

In terms of allocation, it is still recommended to focus on low P/B ratios and domestic demand recovery. In the aspect of reevaluation of low P/B style, real estate, banks, non-bank financial institutions, as well as construction materials and other industries are among the most clear main themes. In terms of valuation recovery in the domestic demand sector, it is recommended to focus on consumption internet services that are both offensive and defensive, dairy products with low valuations, high returns and operations expected to stabilize first, as well as essential sectors such as mass dining that may stabilize early, and the cyclical sectors such as alcohol, human resources, and hotels driven by economic expectations.

Risk factors

Intensified friction between China and the United States in the fields of technology, trade, and finance; domestic policy and economic recovery fall short of expectations; tighter-than-expected tightening of domestic and foreign macro liquidity; further escalation of conflicts in Russia and Ukraine, and the Middle East region; the digesting of China's real estate inventory is below expectations.

Editor/Jeffy