Market Stabilizes on Influx of New Capital

Last Friday, the A-share market experienced a significant surge, rekindling hopes among investors for a repeat of previous explosive ralliesHowever, as new funds are gradually injected into the market, a more likely scenario is one of steadier upward movementThe upward trend continued on Monday and Tuesday of this week, with both the Shanghai Composite Index and Shenzhen Component Index extending their gains, further accompanied by increased trading volumes across the exchanges.

The Chinese stock market witnessed a remarkable boost from over 110 billion yuan earmarked for stock repurchases.

On the evening of October 20, 23 companies listed on the Shanghai and Shenzhen exchanges were among the first to announce that they—and their major shareholders—had secured loan agreements with banksThese loans are intended specifically for stock repurchases or buybacks, totaling an impressive amount exceeding 110 billion yuan

This marks the official commencement of the initial phase of stock buyback and repurchase initiatives.

Previously, policies had been put in place to establish a framework for stock buybacks by facilitating loans from financial institutions to qualifying publicly traded companies and their primary shareholders, thereby supporting their stock repurchase effortsThis initiative essentially represents the first phase of a broader 300 billion yuan program aimed at encouraging stock buybacks.

This influx of funds provides valuable low-cost capital support to listed companies and their major shareholders, infusing liquidity into the market and helping stabilize market expectations.

Looking specifically at the companies involved in these initial stock buybacks, there is a relatively equal split between state-owned and privately-held enterprisesProminent central enterprises include Sinopec, China Merchants Shekou, China Merchants Energy, COSCO Shipping Holdings, and China Merchants Industry Holdings

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Besides these, Guodian Measurement Technology serves as a local state enterprise, while the participation of 13 private firms includes well-known names such as Maiwei Technology, Zhaoyi Innovation, and Wens Foodstuff Group.

Notably, three listed companies secured loan amounts exceeding 10 billion yuan: Wens Foodstuff Group, Muyuan Foods, and China Merchants EnergyOn October 21, these stocks exhibited impressive gains, rising by 2.44%, 3.23%, and 2.31%, respectively, surpassing the overall market performance.

At this current stage, the Central Bank's willingness to provide substantial loans—coupled with the bold stock buybacks by high-quality state-owned and private enterprises—sends a clear message to capital markets: the prices of high-quality Chinese assets have reached their nadir and cannot drop further.

In the face of market volatility, patience is essential.

Looking to the future, additional capital is poised to continue entering the A-share market.

Firstly, a massive 500 billion yuan initiative known as the “Securities, Fund, and Insurance Companies Swap Facility” (SFISF) has been launched.

The first batch of 20 companies benefiting from this program include heavyweights like Citic Securities, CICC, Guotai Junan, Huatai Securities, and various others

These firms are permitted to use assets such as bonds, stock ETFs, and shares from the CSI 300 Index as collateral in exchange for high-quality liquid assets such as government bonds and central bank bills from the People's Bank of China.

Eastspring Investments has suggested that institutions like Citic Securities, China Merchants Securities, Shenwan Hongyuan, and Guoxin Securities exhibit a high demand for this new business, which could mean a favorable outlook for stocks included in the CSI 300 Index, especially for leading non-bank firms like Eastmoney and Huatai Securities.

Secondly, there has been a concentrated approval of index funds.

Following the successful issuance and listing of the CSI A500 ETF, more market participants have recently received approvals for outdoor index funds that track the CSI A500 Index.

These include ten new CSI A500 ETF linking funds from renowned firms like Huatai-PB, Yinhua, and others, alongside traditional outdoor index funds from firms such as E Fund, GF Fund, and others, which collectively boosts the fund count tracking the CSI A500 Index to over 30. The substantial capital raised by these new funds will continually enter the stock market.

Data from various research reports suggest that the recent surge in the stock market is primarily driven by retail investors injecting new funds, while institutional funds have not dramatically shifted

Additionally, the waiting game played by many institutional investors—awaiting a market pullback or consolidation—has likely contributed to this trend.

Citic Securities noted that institutional participants have not yet heavily engaged in the market.

Initially, the surge in capital can be attributed to impulsive involvement from retail investors, as the market remains dominated by active funds in a phase of strategic policy-driven plays.

Meanwhile, as policy signals and market price signals become more defined, investors are increasingly confident about a potential turnaround.

In terms of market momentum, the current phase is characterized by a competition among active funds, and as policies are fully implemented and stabilize, the expectation is that institutional funds will capitalize on fundamental strengths to progressively elevate the market