Stock Surge, SSE Crash, Bull Market Coming?

A series of policy support measures will help improve investor sentiment and liquidity,and drive positive responses in both onshore and offshore markets in the short term,with A-shares expected to outperform the entire emerging market.

Enthusiasm among A-share market investors is being rapidly ignited under a series of favorable policy stimuli.

On September 27th,both A-shares and Hong Kong stocks opened sharply higher.By the close,the Shanghai Composite Index rose by 2.88%,closing at 3,087.53 points.The Shenzhen Component Index closed at 9,514.86 points,up 6.71%.The ChiNext Index even surged by 10%.The two markets together recorded nearly 1.5 trillion yuan in transactions.In terms of Hong Kong stocks,the Hang Seng Index rose by 3.55%,and the Hang Seng Technology Index increased by 5.78%.

A large influx of incremental funds from outside the market in the short term.The market's booming trend once led to delays in the Shanghai Stock Exchange system and the entrusted systems of several securities firms,after which some stock trades were restored.Key A-share indices continued to climb,and the basis of stock index futures shifted from a discount to a premium,with some short positions facing the risk of a margin call.That evening,the Shanghai Stock Exchange issued a statement expressing,"We deeply apologize for the occurrence of this abnormal situation."

Industry insiders believe that this rare trading system failure could further intensify the short squeeze.Due to the booming market on September 27th,there were instances of private funds with short positions facing margin calls and subsequent liquidation due to an inability to secure additional collateral.Some futures professionals also indicated that the rapid increase in stock index futures during the trading session triggered forced liquidation risks for some private products that could not replenish their margin in time.

"The reason for the market's strong performance is the shift in underlying logic and direct policy support: policies such as reserve requirement ratio cuts,interest rate reductions,and promoting long-term capital into the market have been introduced one after another,all targeting the market's pain points,and this unprecedented intensity has ignited the long-slumbering market," said Yi Xiaobin,Director of Equity Investment at Shunshi Investment.

Xia Fengguang,Fund Manager at Rongzhi Investment,also stated that the market's previous irrational decline,continuous compression of valuations,and the collective shift from a uniform bearish expectation were also reasons for the surge."Emotionally speaking,especially on Friday (September 27th),it reached a short-term euphoric peak,and the Shanghai Stock Exchange system crash added a dramatic effect to the market."

However,regarding whether A-shares will continue to maintain a strong trend,Morgan Stanley's Chief Economist for China,Xing Ziqiang,said: "The monetary and stock market policies that have been introduced,as well as the statements from the Politburo meeting,have injected a confidence booster into the market,but whether corporate earnings can continue to rebound depends on the implementation of policies."

A-shares rarely see a comprehensive surge.On September 27th,the A-share market opened sharply higher,with a booming trading atmosphere.Within just half an hour of the opening,the trading volume of the two markets exceeded 500 billion yuan.Soon after,investors noticed that the Shanghai Composite Index seemed to have an issue,as the index remained flat for an extended period.

Subsequently,the Shanghai Stock Exchange issued a statement indicating that after the opening on September 27th,there was an abnormality in the stock auction trading of the exchange,with slow transaction confirmations.The exchange has paid attention to the relevant situation at the first time and is investigating the causes.

It was understood that the order systems of many securities firms also experienced delays.Some securities firms initiated response measures,including strengthening system monitoring and control,customer service to soothe emotions,strengthening public opinion monitoring,and timely contact with regulatory authorities.After that,some stock trading recovered,but some still could not be traded.

By the close,the Shanghai Composite Index rose by 2.88%,approaching 3,100 points.The Shenzhen Component Index rose by 6.71%,and the turnover of the Shanghai and Shenzhen markets reached 1.46 trillion yuan,setting a three-year high.This also marked the third consecutive trading day that the A-share market broke through 1 trillion yuan.

The ChiNext Index even set a historical best performance.On September 27th,the ChiNext Index rose sharply,with an intraday increase of more than 11%.By the close,the ChiNext Index stood at 1,900 points,with a 10% increase.Many leading stocks of the ChiNext board rose collectively.

Wind (Wangde) data shows that on September 27th,the number of A-share stocks that rose reached 5,221,with fewer than a hundred stocks falling.

On September 27th,stock ETFs once again triggered a surge in price limits.Across the market,56 ETFs rose by more than 10%,and 151 ETFs rose by more than 9%.Among them,many ETFs related to the ChiNext and STAR Market rose by more than 15% in a single day,including the Yifangda Shanghai STAR Market 100 Enhanced Strategy ETF,the Guolian An ChiNext Technology ETF,and the Nanfang Shanghai STAR Market Chip ETF,which saw significant premium trading.

Industry insiders said that the significant premium is related to multiple factors,including the malfunction of the Shanghai Stock Exchange,the inactivity of some ETF trading,restrictions on subscriptions,and a rapid influx of buy orders."Subsequent related products should issue premium risk warnings."

While A-shares rose,stock index futures also rose across the board.The Shanghai 50 and CSI 300 stock index futures rose by 6.31% and 8.04% respectively,with the CSI 500 and CSI 1000 stock index futures rising close to 10%,and stock index futures saw a comprehensive and significant premium.

In terms of Hong Kong stocks,the turnover of the Hong Kong stock market set a new high of 37 billion Hong Kong dollars.By the close,the Hang Seng Index rose by 3.55%,the Hang Seng Technology Index rose by 5.78%,and the Hang Seng China Enterprises Index rose by 3.01%.Under the surge in the stock market,some short sellers are facing the risk of forced liquidation.Some industry insiders have indicated that due to the booming market on September 27th,the phenomenon of short sellers being unable to add margin and resulting in a blowout is indeed present.

"The main short sellers are quantitative neutral strategy quantitative private funds,which need to adjust their positions every day,buying and selling Shanghai and Shenzhen stocks,with funds being locked and unable to adjust positions.Futures have also surged,and there is no way to quickly gather funds to cover positions,so they will be liquidated," a securities firm insider told Caijing.

Reports suggest that some futures company personnel have stated that due to the rapid rise in stock index futures during the trading session,some private funds that were unable to supplement their margin in time triggered the risk of forced liquidation.

Capital is experiencing anxiety from missing out

The recent significant increase in the stock market has boosted the enthusiasm of capital entering the market.Data shows that funds are flowing from the bond market to the stock market.

From September 20th to September 26th,the average increase for broad-based ETFs related to the CSI 300,CSI 500,SSE 50,and ChiNext exceeded 10%,and the ETFs tracking the financial technology index rose nearly 20%.

As of September 26th,equity ETFs saw a net inflow of 52.1 billion yuan in the first four trading days of the week,with a total net asset value of 2.29 trillion yuan.The largest HuaTai Bo Rui CSI 300 ETF reached 341.5 billion yuan.

On the other hand,fixed-income ETFs are showing a phenomenon of capital outflow.During the same period,money market ETFs saw a net outflow of 23.1 billion yuan,and bond ETFs outflowed nearly 2 billion yuan.

It is worth noting that the A500 ETF,which was established around 2700 points,is facing the embarrassment of missing out.

Public information shows that all 10 A500 ETFs were fully subscribed,raising a total of 20 billion yuan.Among them,the fastest fundraising Jiashi Zhongzheng A500 ETF announced its establishment as early as September 20th.It is understood that due to the previous low market sentiment,the fundraising process for front-line employees of securities firms was quite difficult,and there were even cases where front-line employees used their own money to meet performance targets.Unfortunately,before the 20 billion yuan of funds could enter the market,the index has already jumped from 2700 points to above 3000 points.It is understood that as the market rises,investors' anxiety about missing out increases,urging fund companies through channels to build positions as soon as possible,but no product has disclosed its net value so far.Some people from fund companies revealed that the first batch of A500ETFs was required to "act in unison."

Exceeding Expectations,Policies Reshape Confidence

The catalyst for this market trend was the package of financial policies released by the State Council Information Office on September 24th and the Central Political Bureau meeting held on September 26th.The Central Political Bureau meeting emphasized the need to strive to boost the capital market,vigorously guide medium and long-term funds into the market,and unblock the points of entry for social security,insurance,and wealth management funds.Support for mergers and acquisitions of listed companies,steady progress in the reform of public funds,and research on policies and measures to protect small and medium investors were also discussed.

Xing Ziqiang said,"The market sentiment is very excited now.The Political Bureau meeting held on September 26th had some policies that exceeded expectations: First,there has never been a Political Bureau meeting at the end of September to discuss economic work before,reflecting the urgency of the central leadership to further guard against economic downturns; Second,the Political Bureau meeting proposed that fiscal policy should be more forceful,including the use of ultra-long-term government bonds,local special bonds,and their use to ensure people's livelihoods; Third,regarding the real estate market,the term 'stabilize and rebound' was used,which has not appeared before."

"The Political Bureau meeting in September will not discuss the economy.But this time there was a discussion,indicating a clear increase in the high-level attention to the economy," said Huang Cendong,Chief Strategy Analyst at Guojin Securities Wealth Center.

Huang Cendong believes that there have been significant changes in the relevant wording.In terms of fiscal policy,there is a beginning emphasis on the counter-cyclical strength of fiscal policy,and the market expects that fiscal policy will be significantly increased in the future; in terms of real estate,there has been the most important change since 2023 did not mention "housing is for living,not for speculation," which is the clear requirement to "promote the real estate market to stabilize and rebound," pointing directly to the biggest drag on the current economy,waiting for real estate policy to be implemented.

In terms of the capital market,the meeting emphasized the need to truly "boost the market." On the evening of September 26th,the Central Financial Office and the China Securities Regulatory Commission jointly issued the "Guiding Opinions on Promoting Medium and Long-term Funds into the Market."

In terms of consumption,this meeting,whether it is stabilizing housing prices,stabilizing the stock market,or grassroots "three guarantees," firmly grasping "employment," or promoting the private economy,supporting old-age care,and creating new business forms,the ultimate focus is to improve consumption.

"For the stock market,the previous downturn was due to the market's lack of confidence in the economy.I believe that as a series of policies are introduced and implemented,as long as the market has confidence,funds will naturally flow in.The continuous trillion-yuan trading volume in the past two days can prove this point.Although there may be fluctuations in the short term due to the approaching holiday,or due to a larger short-term increase,it is necessary to actively be optimistic and do more," Huang Cendong said.On the evening of September 26th,CITIC Securities published an article titled "Do It," stating that the September Politburo meeting unusually analyzed the economic situation,the lifeblood of the nation,involving policies in multiple fields such as finance,currency,capital markets,employment,and the private economy.

"The signal is clear,and it can be summarized in one word: Do It!The 'package' of policies released by the State Council Information Office on September 24th has already sent a positive policy signal,and more targeted and effective policies for stable growth can be expected to take effect in the future," said CITIC Securities in its research report.

However,some institutional insiders are relatively cautious."Investors' expectations for related policies may be too high,which could overdraw the subsequent space," one institutional insider believes.

Cheng Liang,the fund manager of Thirty-Three Degrees Capital,also stated that a real bull market requires a reversal in the fundamentals to improve,and the current overall economic fundamentals still need to be observed,so a conservative mindset is currently being adopted.

Foreign capital is optimistic about A-shares.

The strong performance of China's A-shares is also attracting the attention of foreign institutional investors.

David Tepper,a legendary figure in the U.S.hedge fund industry,said on September 26th that he did not expect China's policy strength to be so great,and he would buy all Chinese assets.

Tepper said in an interview with the media: "I originally thought that the Fed's interest rate cut decision last week would lead China to relax its policies,but I did not expect them to make such a big move.This is a complete turnaround."

In terms of purchasing assets,he said,"I will buy everything,I will buy ETFs,I will also buy futures,and I will buy all of them." Tepper believes that even after the recent surge,there is still a lot of room for growth in the Chinese stock market.

Morgan Stanley believes that from a technical point of view,China's CSI 300 Index may still have about 10% room for growth in the short term.Led by Laura Wang,Morgan Stanley strategists released a report on September 26 stating that this forecast is based on the bank's analysis of the borrowing cost of China's re-lending program (2.25%) and the current dividend yield of the CSI 300 Index (2.46%).

Morgan Stanley said that the Politburo meeting and the stimulus plan announced by the central bank and other regulatory agencies earlier this week were very positive.What really surprised the market were the market stability measures,which can be described as unprecedented.The bank pointed out that the most important thing now is to follow up quickly,clarify the details and timetable for implementation.

Morgan Stanley's Chief Equity Strategist for China,Wang Ying,commented on the policy "big gift bag," saying that policy support measures will help improve investor sentiment and liquidity,and promote a positive response in the onshore and offshore markets in the short term.A-shares may outperform the entire emerging market.

"The policy released by the central bank on September 24 exceeded market expectations.It can be said that this is the most comprehensive easing policy since 2015.Although some measures did not exceed expectations,the overall easing intensity was greater than our forecast.The comprehensive package of measures is clearly aimed at restoring market confidence," said Zhu Haibin,Chief Economist of China and Head of Economic Research for Greater China at JPMorgan Chase.

Scott Rubner,Managing Director of Global Markets at Goldman Sachs,wrote in a report to clients that the Chinese stock market has been strong recently,"I really think this time it's different for China."

Data shows that,boosted by policy benefits,the NASDAQ Golden Dragon Index closed up 10.85% on September 26,once rising by 13% during the session,setting the largest intraday gain since March 2022.

Rubner said that the long-awaited recovery of the Chinese stock market may finally have arrived,and investors should want to participate; a FOMO (Fear of Missing Out) mentality has begun to emerge in the Chinese market,and the market consensus is beginning to shift.This rise may not be a contrarian trade.

Rubner observed that market demand for Chinese stocks is at a record high.On September 24,the collective net purchase amount of Chinese stocks on the books of Goldman Sachs PB business (Prime Brokerage Business) was the largest single-day net purchase amount since March 2021 and the second-largest single-day net purchase scale in the past decade,almost entirely driven by long positions.