This week, the three major indices of A-shares all fell over 3%, and the trading volume also decreased from 2.73 trillion to 1.87 trillion, surprisingly fast drop in trading volume.

At the same time, this also reflects the decline in market sentiment. Although the three major indices have seen a significant increase since the "924" big market, with the gem even rising by 46%, it is evident that there is a clear shift from a mad bull market to a slow bull market.

With the recent rumors about regulatory hot money fermenting, institutional stocks and high-priced stocks in the market have both retreated, sparking some skepticism.

Just on Friday night, the China Securities Regulatory Commission released major guidelines, one of which mentioned differences in the responsibilities of listed companies regarding stock price fluctuations compared to the previous consultation draft, drawing market attention and seen as a potential "easing" of regulations on active stocks.

For some funds in the market, this may be a significant signal.

01

Weighty Signal

On the evening of November 15, the Securities Regulatory Commission released the official version of "Guidelines for the Regulation of Listed Companies No. 10 - Market Cap Management" (hereinafter referred to as "14 Articles of Market Cap Management"), which will be implemented from the date of publication.

This comes less than two months after the release of the consultation draft in September, demonstrating the regulatory body's quick actions, even revealing a hint of urgency.

Compared to the previous consultation draft, the official version shows significant changes, with widespread discussions in the market generally considering it a "deregulation" for listed companies. This is mainly reflected in three aspects:

First, it moderately relaxes the requirements for valuation improvement plans for long-term companies with net asset values below their break-even price.

Previous important meetings mentioned that listed companies should have clear targets, deadlines, and specific measures in their plans for enhancing market cap, while the official version now changes the wording to "should formulate" corresponding clear, specific, and executable plans, which should be disclosed after being reviewed by the board of directors, indicating a considerable relaxation.

However, for "long-term companies with a pb lower than the industry average," the requirements have not been relaxed; instead, they are further required to provide specific explanations regarding the execution of the valuation improvement plan during the annual performance explanation meeting. Additionally, the main index constituent companies "should formulate" and publicly disclose the market cap management system, and also provide specific explanations regarding the implementation of the system during the annual performance explanation meeting.

Secondly, the requirement for listed companies to repurchase shares and arrange dividends has changed from "mandatory" to "encouraging":

The board of directors is encouraged to promote the clarification of the share repurchase mechanism in the company's articles of association or other internal documents, considering the company's equity structure and business operation needs. Listed companies that meet certain conditions are encouraged to make proper financial planning and reserves based on the repurchase plan. Companies are encouraged to legally cancel repurchased shares.

The board of directors is encouraged to formulate and disclose a medium- to long-term dividend plan based on the company's development stage and operational status, increase the frequency of dividends, optimize the dividend rhythm, reasonably raise the dividend rate, and enhance investors' sense of acquisition.

This means that listed companies now have more autonomy regarding their repurchase and dividend plans, as the regulatory authorities do not impose strict requirements.

Third: Relaxing the handling of stock price fluctuations for listed companies.

In the previous consultation draft, for instances where stock price performance diverged significantly from the value of the listed company, or where various media reports and market rumors could greatly affect investor decisions or stock prices, issuing clarification announcements, official statements, or coordinating press conferences were all expected responses from listed companies. However, the final version of "14 Measures for Market Cap Management" removed the requirement to "issue announcements about stock price fluctuations" and only kept the issuance of clarification announcements as a necessary item, leaving the decision to issue official statements or hold press conferences to the discretion of the company.

In other words, if the stock price rises in the future, companies are no longer required to issue announcements (the decision will be made by the company), which is certainly welcomed by listed companies, so such disclosures will be significantly reduced in the future.

02

What do you think?

What is your opinion on the "deregulation" in these aspects?

Firstly, relaxing the requirements for the company valuation enhancement plans for long-term companies with a pb below 1 should be more aligned with actual situations, avoiding a one-size-fits-all approach. This is somewhat bullish for companies with poor fundamentals.

However, the point that the requirements for long-term companies with a pb below 1 have not been relaxed presents a speculative theme for the market — the concept of "market cap management", which also indicates that the probability of making profits on the long side has increased.

These companies with a pb below 1 generally consist of low stock price stocks, small-cap stocks with a pb below 1 (such as major banks with a pb below 1 are not included in this discussion), and some special treat stocks.

Perhaps this will become a new catalyst for funds to flow into speculative plays on pb stocks next week.

Secondly, relaxing the buyback and dividend requirements for listed companies might be a good thing for them, but it may not be friendly for the market. Previously, the policy announcement clearly triggered market expectations for listed companies to increase buybacks and dividends, leading to a flow of funds into high-yield dividend stocks. However, the changes in new guidelines might slightly weaken the strength of this expectation.

However, whether this will truly have an impact is yet to be determined. After all, the current market sentiment is once again declining, and in the absence of strong mainline themes, high-yield dividend stocks remain a choice that everyone is willing to make.

The third point that has drawn the most attention is the handling of stocks with abnormal movements.

Previously, when stock prices showed a series of rapid increases and decreases, it was very common for the exchange to issue letters and for the listed companies to have to promptly announce clarifications or warnings.

Objectively speaking, this handling of abnormal movements is a response to abnormal announcements of 20% over three days, which has little actual impact, and it mainly focuses on how listed companies should manage them.

In fact, for severely abnormal stocks, the exchange will still strictly monitor them, and if there are indeed violations in trading behavior, the exchange will issue letters or take more serious measures such as suspending trading.

In fact, the exchange will not relax its supervision regarding seriously abnormal stocks; instead, it may monitor them even more closely.

The reasoning behind this is also to limit and suppress the manipulation behavior of speculators on individual stocks.

Since the start of this bull market, A-shares have seen an influx of stocks whose prices surged several times or even tenfold in a short period, driven by various institutions and speculators grouping together to speculate; however, when prices rise to high levels, attracting more retail investors to follow suit, these speculators suddenly sell off in large volumes and exit, causing many shareholders to buy in at high prices and become deeply trapped.

Although this has activated market trading sentiment, it has also led to serious negative impacts.

For example, the well-known top speculator, Hujialou, is one representative. Due to suddenly dumping a large volume of cross-border payments, ofilm group co., ltd, and talkweb information system, they were once scorned by investors as a "malicious operator."

Therefore, the exchange strictly monitors the severely abnormal stocks, which helps to reduce the occurrence or severity of such negative situations.

However, the recent release of "14 regulations on market cap management" clearly relaxes the information disclosure requirements for listed companies regarding abnormal stocks, thus reducing market concern over abnormal stocks being "intervened." For speculators, although this may not necessarily indicate a relaxation of regulations, it will certainly reduce their psychological burden regarding the rise of abnormal stocks.

Currently, many stockholders are already celebrating this, believing that this move will help speculators continue to hype, which will stimulate more abnormal stocks to emerge. It also effectively resolves the recent rumors about the conflict of interest between institutions and speculators.

(Source: Internet)

How the actual situation will unfold will be seen next week.

03

Epilogue

Currently, the A-shares are showing signs of adjustment due to internal and external factors, and market sentiment is weakening again. In this situation, tools that can stimulate market sentiment are what everyone wants to see.

Therefore, the timely release of the "14 articles on market cap management" by the regulatory authorities can be considered a timely rain.

However, this new regulation is not a concession to these speculative funds. The regulatory authorities will not lower their vigilance at all regarding what needs to be managed, and the "game mode" of speculative trading will not change in any way. The investment risks of retail investors following speculative funds to chase highs and sell lows to try to profit will still be the same.