For the Bright Future of A-shares

In recent days, the A-share market has experienced a downturn, leading some individuals to express pessimism regarding the future of the bull market. Is this indeed the end of the bullish run? However, a closer inspection reveals that significant changes have occurred within the market.

In the past few years, regulatory bodies have been actively pushing for reforms aimed at improving the market's institutional framework. The primary focus of these reforms has been to attract both domestic and international long-term funds, thereby increasing the proportion of institutional investors and fundamentally altering the investor structure in the A-share market.

The evolution of investor structure is a crucial indicator of market maturity. A notable sign of this maturation is seen in the relatively modest declines and significantly decreased volatility of A-shares in recent years compared to previous downturn cycles. This stability is a testament to the market's growing resilience.

One of the most apparent changes has occurred since Wu Qing assumed his role, focusing on enhancing the market ecosystem from the supply side. By drastically reducing the scale of Initial Public Offerings (IPOs) and imposing strict limitations on major shareholders' sell-offs, a crucial period of rest and recuperation for the market has been facilitated.

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As of September 24, there have been only 65 new listings on the A-share market this year, with total fundraising amounting to less than 50 billion yuan, which is less than one-third of the amount raised during the same period last year. In stark contrast, the number of companies delisted stands at 51, surpassing the full year's total from the previous year.

Concurrently, 136 listed companies this year have announced commitments not to sell shares, with promises ranging from six months to five years. Moreover, the significant shareholders of listed companies have trimmed their holdings by approximately 14.5 billion yuan this year, a nearly 70% reduction compared to the same period last year.

The rise in the quality and investment value of publicly listed companies has also reached unprecedented heights in the eyes of the regulatory authorities.

Earlier this year, the China Securities Regulatory Commission (CSRC) opened doors wide for large-scale mergers and acquisitions, resulting in 151 companies disclosing essential reorganization events by September 6. In comparison, the total number of similar events throughout all of 2023 was only 131.

This year's focus on mergers and acquisitions contrasts sharply with the chaotic cross-industry mergers seen in 2015. Instead, the current emphasis lies on resource integration within industries and pursuing mergers centered around strategic emerging sectors. The goal is not short-term stock price gains but rather the enhancement of long-term investment value.

Furthermore, policies related to dividends and stock buybacks have seen substantial elevation. In March, measures were proposed for listed companies that had not paid dividends for years or had low dividend payout ratios. Enhanced scrutiny will be applied through mandatory disclosures and restrictions on major shareholders' sell-offs. Companies returning cash to shareholders through buybacks will also see these amounts included in their dividend payout calculations.

All of this is starting to bear fruit. The number of companies planning mid-term dividends this year has already surpassed the total numbers of the previous three years combined, with total dividends achieving a record high for this timeframe. The number of companies announcing stock buybacks reached an unprecedented 1,296, nearly doubling last year’s tally of 611, also setting a historic record. Notably, Kweichow Moutai's buyback plan of 6 billion yuan marks not just a first in over 20 years but also sets the record for 2023's A-share buybacks, sending a clear signal of market support.

Among the biggest policy boosts to the stock market this year has come not from the CSRC but rather from the central bank.

At a press conference before the National Day celebrations, the People's Bank of China announced the establishment of a special re-lending tool aimed at supporting listed companies in buybacks and major shareholders in increasing their stock holdings to stabilize the capital market, with an initial allocation of 300 billion yuan, with potential for future expansions.

In addition, the central bank plans to introduce swap facilities for securities, funds, and insurance companies, enabling these entities to pledge their own stock ETFs and other securities assets to obtain liquidity from the central bank. The initial operation of this swap facility would be 500 billion yuan, with future expansions depending on circumstances.

Comments from central bank governor Pan Gongsheng signify deeper intent: "I told Wu Qing that as long as this initiative is successful, we could add another 500 billion and potentially another 500 billion after that; we are open to this." These words carry profound implications.

Legally, the central bank is restricted from directly investing in stocks. However, the swap facility allows the state-owned central bank to indirectly engage in stock ownership. In an environment where capital is circulating freely within the banking system, the central bank's entry suggests a shift towards the stock market as a novel channel for monetary issuance, enabling it to play a critical role in stimulating the economy and enhancing liquidity.

This essentially equates to China’s version of quantitative easing, which could greatly influence the stock market positively, generating a constant influx of fresh capital.

The central bank's decisive intervention reinforces the acknowledgment of the stock market's pivotal role in navigating the current economic landscape.

According to data from the CSRC, there are approximately 220 million stock investors in China, alongside over 700 million fund investors. When the stock market rises, it translates to a significant increase in the wealth of over 400 million individuals, leading to a substantial boost in consumption. This also positively impacts corporate financing, venture capital growth, and the overall real economy.

While it is true that the implementation and effectiveness of these policies will require time to materialize, the substantial transformation of market ecology coupled with strong national support enhances the appeal of A-shares, opening up fresh avenues for imagination and potential.

It is imperative that we foster a bit more confidence and patience, granting the A-share market the time it requires. Our vision should extend beyond mere short-term stock price fireworks; instead, we should aspire for long-lasting brilliance in the market.