CITIC Securities issued research reports stating that from the current market characteristics, the impulse market has continued to this day, institutional funds have not entered on a large scale, incremental funds mainly come from retail investors' impulsive entry. The market is still in a stage of policy game trading dominated by active funds, with marginal information changes, position structures, and the spreadability of information dominating market fluctuations. Furthermore, from the validation of policy signals and price signals, the monetary policy framework and target system are clearer, the turning points expected by investors are further clarified, some regional housing prices have shown signs of stabilizing, and a more comprehensive price signal turning point is expected to come early. Lastly, in terms of the rhythm of future trends, it is currently a stage of game trading dominated by active funds. After the policies take effect and the signal stabilizes, institutional funds are expected to gradually push the market steadily upward following the logic of fundamentals. At that time, it is expected that top-performing growth and domestic demand sectors will continue to be favored.

The market is still in a stage of policy expectation game trading dominated by active funds, with retail investor funds impulsively entering, and the logic of fundamentals relatively weakened.

1) The impulse market has continued to this day, and institutional funds have not made large-scale entries. According to research from CITIC Securities, the sample actively managed mutual funds recorded a net redemption rate of 2.41% this week, far exceeding the weekly net redemption rate level since June this year (between 0.1% and 1.5%). And new fund offerings have shown no improvement. Sample private equity positions started to rise from late September, reaching 73.0% by October 4th (the low point in September was 68.1%), but by October 11th, the positions quickly dropped to 68%, lower than the level on the eve of the recent impulse rise, marking the lowest level since late April this year. Overall, the main operation is still to reduce positions on rallies. On the foreign capital side, active funds turned into net outflows this week, and passive funds saw a significant decline in net inflow compared to the previous two weeks. Based on Refinitiv's overseas fund flow database, for the week of October 16th, the net outflow of sample active funds tracking the MSCI China was about 0.27 billion USD, ending two consecutive weeks of net inflows. Sample passive fund net inflows were about 1.43 billion USD, a significant drop from the past two weeks (net inflows of 4.55 billion and 8.1 billion USD respectively). Overall, in a stage of severe policy expectation reversal but significant basic expectations divergence, institutional investors have not made large-scale entries to participate in the impulse market, and some actively managed institutions have chosen to reduce positions on rallies.

2) Incremental funds mainly come from retail investors' impulsive entry, and the market is in a stage of policy game trading. We calculated that the total net purchases of A-share stock ETF products on September 30, October 8, and October 9 reached as high as 66.3 billion, 106.1 billion, and 503 billion yuan respectively, the highest levels since 2015. By comparison, from the beginning of 2024 to September 27th, the daily average net purchase amount of A-share stock ETFs was less than 5 billion yuan. However, in terms of the inflow structure, the structure of ETF purchases in this round is vastly different from the structure dominated by central Huijin since the beginning of the year. According to calculations based on Wind data, on October 8 and 9, the total net purchases of dual creation broad-base ETFs (including Chinext Price Index, SSE Science and Technology Innovation Board 50 Index, and SSE Science and Technology Innovation Board 50 Index) accounted for 76% and 83% of the total broad-base ETFs respectively. We believe this is related to the fact that many new retail investors lack access to Chinext and Science and Technology Innovation Boards, and instead trade through related ETFs. Dual creation broad-base ETF products have shown a significant premium, which is usually not the behavior of institutions. Wind data shows that on October 8, the premiums of over half of the dual creation broad-base ETF products exceeded 5%, and some ETFs even had premiums of over 10%. Among various industry/theme ETFs, the net purchase amount of technology ETF products on October 9 soared to 13.8 billion yuan, while technology ETFs have shown net redemptions so far this year. Science and technology chip-related ETFs have contributed to the vast majority of incremental funds. Typically, institutional investors are not very interested in this type of ETF, indicating that this round of incremental funds is mainly led by retail investors.

3) Marginal information changes, position structures, and the spreadability of information dominate market fluctuations. As the main active pricing force in the current market, retail investors and speculators pay more attention to the changes in marginal information, the structure of individual stock positions, and the spreadability of information. Relatively speaking, the fundamentals logic has somewhat weakened. Looking at the changes in marginal information, recent institutional investors are more focused on whether the policy stance is higher or lower than expected, while active funds are more concerned about the signaling effect of policy tones, only distinguishing between positive and negative, without paying attention to the final impact of policies and corresponding value judgments. In terms of position structures, since institutions are more likely to reduce positions due to deviations between fundamentals and short-term price fluctuations, non-institutional heavy-stock portfolios are more likely to be favored by active funds, with more evident improvements in liquidity and higher trading volumes. In terms of the spreadability of information, the simpler the news presentation, the greater its impact on the market. Recently, many institutional investors' analyses tend to focus on factors such as the possible scale of fiscal policy, the variety and structure of new bond issuances, and the potential effects of real estate policy execution, among others. These details evidently limit the speed and breadth of dissemination. In contrast, the simpler and more straightforward statements from decision-makers are more likely to have a propagative effect, resulting in a greater market impact.

Policy signals remain positive. Waiting patiently for price signal validation.

1) The monetary policy framework and target system are clearer, and the turning points expected by investors are further clarified. On October 18th, People's Bank of China Governor Pan Gongsheng comprehensively explained the monetary policy framework and target system at the 2024 Financial Street Forum Annual Meeting. There are two main highlights overall: first, emphasizing that the current macroeconomic policy direction should shift from the past bias towards investment to a focus on both consumption and investment, with a greater emphasis on consumption; second, further clarity on the target of promoting a moderate rise in inflation. On October 18th, the tools recently launched by the central bank, including swap facilities and share repurchase to increase reloaning, were officially put into use, marking the first time in the history of the central bank to explicitly establish monetary policy tools to support the stable development of the stock market. CITIC Securities' Non-bank Financial Research Team believes that swap facilities and share buyback to increase reloaning will directly benefit dividend stocks. The initial reloaning of 300 billion yuan is expected to cover the funding needs for the next 1～2 years, with the possibility of further supplementary quotas, helping to attract medium to long-term funds into the market.

In some areas, housing prices have shown signs of stabilization, with more comprehensive price signals expected to arrive early. Many signs of improvement have appeared in the real estate sector. High-frequency data such as property viewings, transactions, listings, etc., show that the transaction volume of second-hand homes in core cities has a considerable level of sustainability. In terms of housing prices, according to the National Housing Market Iceberg Index, the four major first-tier cities have all seen varying degrees of minor rebounds since the National Day holiday, with 6 out of 20 first-tier and new first-tier cities stabilizing and rebounding on a week-on-week basis as of the second week of October. In terms of transaction volume, based on statistics from the FindHouses National Second-hand Housing Official WeChat account, the second-hand housing market in key cities nationwide has seen a significant improvement in transactions since October. In the second week of October, the number of transactions in Shanghai, Beijing, Shenzhen, and Hangzhou increased by 2087, 202, 646, and 765 units respectively from the previous week. On the policy front, the latest policies reflect a firm determination to control incremental increase, optimize existing stock, and improve quality, with a focus on specific matters such as land repurchase and monetized resettlement, which will help stabilize the real estate market. Citic Securities' real estate research department believes that repurchasing existing land may have far-reaching effects on optimizing the capital and profitability of real estate companies, and reducing market supply. Even though the monetary settlement plan for 1 million units in urban villages for the renovation projects is not as large in scale as the shantytown transformation monetization around 2015, it mainly focuses on high-energy cities and mature projects, and is expected to make progress quickly. At the macroeconomic level, improvements have been seen in September in industrial added value, service production index, consumption, and fixed asset investment growth rates, reflecting the acceleration of special bond issuances and the incremental support of special treasury bonds for equipment upgrades and trade-in policies taking effect gradually. In addition, after the market turned around at the end of September in terms of policy expectations, prices of goods priced for domestic demand have risen significantly, with a predicted improvement in October's month-on-month Producer Price Index (PPI).

When the policies take effect and the price signals confirm stabilization, institutional funds may see a positive entry opportunity, and a steadily rising market trend is expected to continue for a long time.

By reviewing the entire bull market trend from 2014 to 2021, it can be observed that the performance differences of various bullish products in the 'bull market' of 2014-2015 have a relatively small impact on the overall performance during the entire 2014-2021 period, whereas the 'slow bull' market trend driven by fundamental and industrial trends from the second half of 2016 to 2021 plays a decisive role in the overall performance throughout the period. From the perspective of AUM growth, the most significant increase in total AUM of mutual funds occurred during 2019-2021, with AUM growth heavily reliant on the performance from the second half of 2016 to 2019, rather than being highly associated with the performance during the volatile period of 2014-2015. Sample funds are divided into 5 groups based on cumulative returns from 2016 to 2019, with the total AUM growth rates of these 5 groups in 2019-2021 being 151%, 126%, 44%, 44%, and 70% respectively. If the cumulative returns from 2014 to 2015 are divided into 5 groups from high to low, the total AUM growth rates of these 5 groups in 2019-2021 are 137%, 65%, 68%, 110%, and 116%. Institutional investors truly benefited from the 'slow bull' market trend over the past 5 years starting from the second half of 2016, as the domestic economy continued to improve, listed companies fulfilled their performance expectations, and stock prices and valuations continued to rise, eventually translating into the performance of institutional investors' managed products. This sustained positive cycle also boosted the increase in new fund sizes and strengthened the pricing power of institutions in the market. In other words, actively managed investment institutions are more suited for markets dominated by alpha rather than the volatile market fluctuations driven by beta factors. Therefore, we always believe that institutional investors will have a better entry point once price signals generally stabilize, gradually replacing short-term speculative funds to push the market towards an annual slow bull trend.

Funds entering the market in a pulsating manner.

The current market is in a transitional phase between the expected major turning point and the market's turning point. The initial phase of the market is characterized by retail investors entering in large numbers. The pulsating market is driven by expectations and the funding situation, with active funds being the main pricing entities, where changes in marginal information, position structures, and contagion dominate market fluctuations. Policy signals remain positive, the expected major turning point continues to be confirmed, and price signals are expected to arrive early. At that time, institutional funds are likely to gradually push the market upwards following fundamental clues. In terms of allocation, the short-term technology sector presents trading value. In the transition phase from the expected major turning point to the market turning point, it is advisable to focus on low P/B ratios and domestic demand recovery. After price signals stabilize, superior growth and domestic demand varieties may continue to perform well.

Risk factors

Intensified friction in the fields of Sino-US technology, trade, and finance; domestic policies falling short of expectations in terms of strength, implementation, and economic recovery; tightening of macro liquidity at home and abroad surpassing expectations; further escalation of conflicts in Russia, Ukraine, and the Middle East; failure to achieve the expected housing inventory digestion in China.