Comprehensive Financial Policy Package Intensifies, Securities Firms Provide Comprehensive Interpretations

The financial policies announced at the State Council Information Office press conference to stabilize the market and promote development have sparked heated discussions, with many securities firms paying close attention.

On the morning of May 7, Pan Gongsheng, Governor of the People's Bank of China (PBOC), Li Yunze, Director of the National Financial Regulatory Administration (NFRA), and Wu Qing, Chairman of the China Securities Regulatory Commission (CSRC), introduced the situation regarding "a package of financial policies to support market stability and expectations" at the State Council Information Office press conference and answered questions from reporters. This marked the second joint appearance by the leaders of the PBOC, NFRA, and CSRC at a press conference since September 24, 2024.

At this press conference, the PBOC announced it would strengthen macroeconomic regulation and control, introducing three categories and ten measures, including RRR cuts and interest rate cuts. The NFRA proposed eight incremental policies, such as improving the financing system for the real estate sector. The CSRC stated that it would prioritize serving the development of new quality productive forces and vigorously promote the entry of medium and long-term funds into the market. How should we view the introduction of this series of stimulus policy packages? How will they impact the market?

In response, research institutes of multiple securities firms promptly provided interpretations. Based on a comprehensive analysis of their viewpoints, against the backdrop of ongoing assessments of domestic demand pressures and external uncertainties, the "PBOC, NFRA, and CSRC" have introduced a comprehensive, clear, and pragmatic package of financial support policies, sending a strong signal of macroeconomic regulation and control. This also fully reflects the central government's precise understanding of the macroeconomic situation and is conducive to maintaining short-term risk appetite in the A-share market.

Key Point 1: Policy Package Stabilizes Expectations and Boosts Confidence

This press conference, as a concrete implementation of the relevant policy deployments by the three financial ministries and commissions following the April Political Bureau meeting, has attracted significant market attention. Key issues such as the future pace of monetary policy and the direction of capital market reforms can glean important clues from this meeting. The introduction of a series of policy packages aims to stabilize expectations, boost confidence, and inject a "shot in the arm" into the economy and the market.

Regarding the series of policies announced at this press conference, the Huatai Securities research team summarized them as having clear policy intentions and strong targeting. Aggregate policies primarily target the activation of the capital market, reduction of financing costs, and the release of real estate demand. Structural policies are mainly dedicated to promoting the upgrading of the technology industry, stimulating consumption, boosting the stock market, stabilizing the real estate market, stabilizing the financial system, and providing relief to struggling enterprises. In addition, amidst a significant increase in US-China tariffs and rising uncertainties in external demand, the three financial regulatory agencies jointly held the press conference and arranged to announce multiple incremental financial policies to the market before the opening of the A-share market, highlighting their intention to stabilize the market.

Founder Securities Research stated that this policy package is a key move to "stabilize expectations" in 2025. The coordinated efforts of the three financial departments' policies reflect both the determination to stabilize short-term growth and the layout for long-term economic transformation and upgrading.We expect that as liquidity is released and financing costs decline, this will directly benefit the real economy. Social financing growth in Q2 is expected to rebound, with sectors such as infrastructure and manufacturing investment set to directly benefit. Currently, China's economic foundation is stable, with numerous advantages, strong resilience, and significant potential. With the continuous inflow of long-term funds, the capital market is expected to embrace a sustained positive development trend in the future.

The Guotai Haitong Strategy Team believes that the introduction of this financial stimulus policy package (specifically referring to the economic stimulus policies of the People's Bank of China) is expected to expand liquidity injection, reduce financing costs, and consolidate the stability of the real estate market. Meanwhile, financial support tools will boost consumption of durable goods and services, and strengthen the orientation of support for technology. Overall, policies on technological innovation and domestic demand have become clearer, and the uncertainty of profits is expected to improve.

Xu Fei, head of the Wanlian Securities Research Institute and chief macro analyst, stated that this press conference is a follow-up to the spirit of the Central Economic Work Conference and the Political Bureau Meeting, emphasizing the intensification of macroeconomic regulation and the introduction of a package of monetary policy measures to serve the high-quality development of the real economy, creating a favorable monetary and financial environment for promoting sustained economic rebound and maintaining the steady development of the capital market.

When discussing the impact of tariffs, China International Capital Corporation (CICC) believes that the biggest issue facing both enterprises and the market is uncertainty. On the one hand, China's economy has long-term growth potential, with a large scale and strong resilience, and the valuation of China's A-share market is not expensive. On the other hand, the impact of tariffs may bring downward pressure on economic growth, causing significant disruptions to short-term business operations and market investments. As signs of economic weakness emerge, a package of easing policies has been introduced in the financial sector, including adjustments to policy interest rates (which are seen as facing various constraints in the market). Timely action is beneficial for stabilizing market confidence.

Key Point 2: Continue to resolutely increase the inflow of medium and long-term funds into the market

The press conference expressed a positive stance on supporting the capital market, with all parties working together to stabilize the market and expectations, highlighting the consistency of macroeconomic policy orientation. The package of policies targets two major aspects: the inherent stability of the capital market and the inflow of medium and long-term funds. It not only stabilizes investor confidence during critical periods but also promotes the formation of a coordinated investment and financing ecosystem in the capital market, enhancing the medium and long-term allocation value of equities.

Zhong Linnan, a senior macro analyst at GF Securities, stated that the China Securities Regulatory Commission (CSRC) pointed out that "all parties should continue to collaborate to increase the scale and proportion of various medium and long-term funds entering the market, expedite the issuance and implementation of the 'Action Plan for Promoting the High-Quality Development of Public Funds', and strive to form a virtuous cycle of 'increased returns - increased capital inflows - market stability'."Both the funds of Huijin Company and the two tools supporting the capital market possess certain counter-cyclical attributes, while insurance and public funds are more market-oriented, exhibiting stronger pro-cyclical characteristics. On the one hand, counter-cyclical funds are utilized to form an anchor of expectations and safeguard the lower limit of risks; on the other hand, pro-cyclical funds are stabilized and revitalized, introducing fresh capital, which collectively helps to enhance the effectiveness of policies and improve the resilience of the capital market.

Cheng Qiang, Chief Economist at Debon Securities, mentioned that the essence of the policy to encourage medium and long-term funds to enter the market is to reverse the imbalanced pattern of the capital market that "emphasizes short-term gains over long-term value" through institutional design. In addition to the policies of the National Financial Regulatory Administration encouraging insurance funds to enter the market, the China Securities Regulatory Commission (CSRC) has stated that it will release the "Action Plan for Promoting the High-Quality Development of Public Funds," urging fund companies to shift their focus from "emphasizing scale" to "emphasizing returns." Multiple departments have also announced that they will expedite the release of the measures for the administration of major asset restructuring of publicly listed firms and relevant regulatory guidelines, supporting a series of reform measures such as the transformation of publicly listed firms through mergers and acquisitions. These measures are expected to accelerate the improvement of the investor structure, further enhance market confidence and valuation levels, strengthen the full-chain support for enterprises, especially technology-based firms, and reflect the strategic positioning of the capital market in supporting new quality productive forces.

Xu Fei pointed out that "technological innovation" is the focus of the package of financial policies announced at the press conference. In terms of structural monetary policies, the People's Bank of China (PBOC) will increase the quota for re-lending to support technological innovation and technological transformation from 500 billion to 800 billion, and create a risk-sharing tool for technological innovation bonds to facilitate corporate financing. In terms of financial regulation, opinions on promoting the high-quality development of technology insurance will be formulated to provide safeguards. In the capital market, emphasis will be placed on serving new quality productive forces, deepening reforms, protecting investors, and enhancing institutional inclusiveness. Xu Fei believes that measures such as supporting the entry of medium and long-term funds into the market, enhancing the inclusiveness of the multi-tiered market system, and boosting investor confidence will contribute to the improvement of market risk appetite, ensuring and supporting the long-term healthy development of the capital market with greater vigor, promoting the development of new quality productive forces, and strengthening support for the real economy.

It was mentioned at the meeting that the widely respected investor Warren Buffett is set to retire this year, but the fundamental principles of value investing, long-term investing, rational investing, and striving to reward investors will not "retire."

Wang Shuguang, a member of the Management Committee of China International Capital Corporation (CICC), believes that this profoundly reflects the regulatory authorities' firm determination to promote the high-quality development of the capital market: on the one hand, efforts are made to enhance the quality of publicly listed firms, consolidating the foundation for the healthy and stable development of the capital market; on the other hand, continuous improvements are made to the investor protection mechanism to effectively safeguard the legitimate rights and interests of investors. This not only inherits the internationally mature investment philosophy but also marks an important milestone for China's capital market to mature and move towards high-quality development.

Key Point 3: The A-share market is expected to continue its upward trend, with the "tech narrative" becoming clearer

At the meeting, Wu Qing, Chairman of the China Securities Regulatory Commission (CSRC), mentioned that "the stability of the stock market concerns the overall economic and social situation, as well as the vital interests of hundreds of millions of investors." This time, the People's Bank of China, the China Banking and Insurance Regulatory Commission, and the CSRC once again sent signals to the market about intensifying financial support for the real economy's rebound and improvement, and maintaining the stable operation of the capital market. The CSRC's deployment reflects the triple logic of "stabilizing expectations, promoting transformation, and strengthening foundations." The A-share market is expected to continue its upward trend, and the narrative logic of tech stocks will become clearer.

The Fixed Income Team of Zheshang Securities stated that the 507 package of monetary policy measures marks the beginning of a policy mix to hedge against tariff shocks. The implementation of dual cuts (RRR cuts and interest rate cuts) has opened up downside room for funding rates and short-term bonds. In the short term, medium- and short-term bonds are expected to outperform long-term bonds, which may face profit-taking pressure. From a medium-term perspective, after the bond market's main focus returns to trading fundamentals, the probability of long-term bond yields breaking below previous lows is increasing.

Regarding the introduction of a series of policies, Huajin Securities summarized that their impact on market trends is generally positive, further consolidating the foundation for a slow bull market in A-shares. From the earnings perspective: boosting domestic demand and stabilizing foreign trade are conducive to improving economic and earnings expectations. From the liquidity perspective: short-term liquidity may further ease. Firstly, macro liquidity may further ease: first, the meeting reiterated the need for "timely RRR cuts and interest rate cuts," and short-term monetary easing policies such as RRR cuts may be implemented; secondly, the meeting proposed the creation of new monetary policy tools. Secondly, efforts to continuously stabilize and invigorate the capital market may lead to a sustained inflow of stabilizing funds. From the risk appetite perspective: the accelerated implementation of existing policies, as well as efforts to stabilize and invigorate the capital market, may lead to a recovery in market sentiment from low levels. Firstly, clarifying external risks and accelerating the implementation of existing policies are conducive to dispelling market concerns about economic and earnings pullbacks; secondly, the policy intent to stabilize and invigorate the capital market is conducive to enhancing the willingness of long-term and active funds to enter the market. From the overall tone of the meeting: sectors such as technology, service consumption, cross-border e-commerce, securities firms, and the real estate chain may benefit.

Yuan Chuang, Chief Economist and General Manager of the Research and Development Center at Caixin Securities, stated that since April, A-shares and Hong Kong stocks have gradually moved upward after breaking out of their correction ranges. Entering May, with publicly listed firms completing their annual report disclosures, a temporary easing of tariff shocks, and proactive responses from macroeconomic policies, A-shares and Hong Kong stocks have demonstrated strong resilience. Market indices are expected to gradually rise, exhibiting a structural upward trend with fluctuations. After adjustments in March-April, the valuation levels of tech stocks have now returned to a relatively reasonable range, and market trading congestion has significantly decreased compared to mid-to-late February. It is expected that tech stocks will become the main trend for the entire year and even the next few years.

The Guotai Haitong Strategy Team believes that the upward trend in China's stock market is far from over, with emerging technologies as the main theme and the financial cycle as the dark horse. During the critical time window for verifying external demand pressures, policymakers have once again demonstrated their determination to reverse the economic situation and support the capital market. The continuity of China's policies will stabilize the risk outlook, and the team remains bullish on A/H shares.

The Galaxy Securities Macro Team stated that, considering the strong resilience demonstrated by the capital market amid recent external shocks, they believe that with Chinese publicly listed firms having low reliance on the US and the continuous strengthening of domestic support policies, the attractiveness of China's capital market to global investors will continue to rise. With the implementation of liquidity support policies such as RRR cuts and interest rate cuts, the domestic stock market is expected to maintain a steady growth trajectory, with the "tech narrative" logic becoming clearer.

The Shenwan Hongyuan Research Team mentioned that the critical period for policy layout and performance verification has just passed, and the subsequent pressure from the pullback in external demand may gradually emerge. The implementation of growth-stabilizing policies has become the main imbalance affecting the capital market. Structurally, the consumption recovery trend has already played out to some extent, and the technology sector, whose performance improvement trend has been reinforced by first-quarter earnings reports, is also rapidly recovering. However, the sustainability of both types of assets remains to be seen. At this stage, the concentrated implementation of financial easing is strongly correlated with stabilizing the capital market. This is conducive to maintaining short-term risk appetite and helps to keep the overall activity of the A-share market high during this critical window. In the short term, the A-share market is expected to exhibit an upward impulse.