Q4 Price Level Expected to Boost A-Share Market Gently

【Introduction】The price level in the fourth quarter is expected to rise moderately, boosting a mild increase in A-shares.

As a barometer of economic operations and an important platform for resource allocation, the capital market profoundly reflects the pulse and direction of the macroeconomy. China Fund News specially launches the "Viewing the Macro from the Capital Market" column, striving to keenly capture the dynamics of the capital market, provide forward-looking insights into the macro trend, and grasp the internal logic and core driving force of economic operations.

Reporters from China Fund News, Li Shuchao and Zhang Ling

The latest data released by the National Bureau of Statistics yesterday show that in September, China's consumer market operated generally smoothly, with prices remaining basically stable.

Many industry insiders believe that the current level of inflation is in the early stage of a moderate recovery, and it is expected that there is still room for monetary policy to ease in terms of reserve requirement ratio cuts and interest rate cuts. With a series of incremental policies continuing to be implemented, it is expected that the price level in the fourth quarter will improve; in the medium to long term, the A-share market is also expected to achieve a moderate increase.

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It is expected that the price level in the fourth quarter will likely rise moderately.

Yesterday, the National Bureau of Statistics released the latest CPI and PPI data. In September 2024, the domestic price level remained generally stable, with the CPI rising by 0.4% year-on-year and remaining unchanged month-on-month; the PPI decreased by 0.6% month-on-month, narrowing by 0.1 percentage points compared to the previous month, and decreased by 2.8% year-on-year, with the decline expanding due to the impact of the base period last year.

Huang Runan, the co-chief macro analyst at Guotai Junan Securities, analyzed that structurally, in September, due to the end of summer travel and the influence of the Mid-Autumn Festival, the CPI generally showed a characteristic of rising food prices and falling service prices; the PPI was dragged down by factors such as fluctuations in international commodity prices, among which the price of production materials decreased month-on-month, and the price of living materials slightly decreased month-on-month.

Huang Runan said that in late September, under the boost of a series of incremental policies, many price indicators have shown signs of stabilization. It is expected that this trend will continue in October. In the next stage, with the global interest rate cut trend and the expectation of a soft landing in the US economy heating up, combined with the joint effect of domestic policies and the low base effect, it is expected that the price level in the fourth quarter will likely rise moderately.

Zhou Maohua, a macro researcher in the financial market department of Everbright Bank, believes that from a trend perspective, the price increase is expected to accelerate moderately. Mainly due to the improvement of domestic pig supply and demand, the traditional consumption peak season, and the release of the effects of incremental policies, which will help to boost domestic commodity consumption and investment demand, coupled with the decline in the base, it is expected that the price level in the fourth quarter will improve.Galaxy Securities also stated that it expects the Consumer Price Index (CPI) to maintain a moderate rebound trend within the year, mainly due to the improvement in the carry-over factor. Since the end of September, a series of macroeconomic policies have been introduced, which have boosted market confidence. However, it will still take time for the effects of these policies to be transmitted to the improvement of the fundamentals. The year-on-year decline in the Producer Price Index (PPI) is expected to narrow.

Since late September, a package of incremental policy combinations has been successively launched, effectively boosting investor confidence. This round of policy combinations has clear goals, significant strength, and strong systemic characteristics. They approach from two aspects: enhancing the liquidity of the stock market and boosting the economic fundamentals. They focus on the short term while also considering the long term, effectively boosting the confidence of investors in the A-share market.

Huang Runan stated that promoting price stability and rebound in the next stage is an important factor in further strengthening investor confidence. On one hand, the level of prices is closely related to corporate profits, especially as PPI serves as a leading indicator of industrial corporate profits and inventory levels. Stabilization and rebound are conducive to profit repair on the numerator side.

On the other hand, the level of prices also affects the level of real interest rates. Real interest rates are equal to the difference between nominal interest rates and inflation. A rebound in prices can reduce real interest rates, playing a role in lowering the financing costs for the whole society, and thereby raising the valuation of risky assets.

The implementation and effectiveness of a package of incremental policies are expected to lead to a moderate rise in the A-share market in the medium to long term.

Industry insiders have indicated that with the implementation and effectiveness of a package of incremental policies, it is expected to form a joint force to promote the rebound of price levels, and the A-share market is expected to achieve a moderate rise in the medium to long term.

As early as the press conference held by the State Council Information Office on September 24, the People's Bank of China stated that promoting a moderate rebound in prices is an important consideration for monetary policy. On September 26, the Politburo meeting proposed to "implement a strong interest rate cut" and "promote the stabilization and rebound of the real estate market." On October 12, at the press conference held by the State Council Information Office, the Ministry of Finance stated that it would stimulate consumption potential and expand effective demand by increasing residents' income through multiple measures, increasing government investment through multiple channels, and implementing the "two new" policies with great strength.

"The implementation and effectiveness of incremental policies are expected to achieve a moderate rise in the A-share market in the medium to long term," said Huang Runan.

Zheshang Securities stated that the current level of inflation is in the early stage of moderate rebound, and the endogenous driving force of domestic economic demand still needs to be repaired. It is expected that there is still room for total easing such as reserve requirement ratio cuts and interest rate cuts in monetary policy. At the same time, in a low-inflation environment, it is important to focus on the allocation opportunities of major asset classes.

Zheshang Securities further pointed out that the domestic economy is at a critical point of upward recovery, with relatively abundant domestic liquidity and inflation also in a process of stabilization. Recently, the policy combination has released more positive signals of easing, especially the press conference on October 12, which conveyed information about the tone and focus of fiscal policy. In terms of the stock market, if subsequent fiscal stimulus is implemented, and funds strengthen the "three guarantees" (guaranteeing basic livelihood, wages, and operation), and underpin risks, it will raise risk appetite and help boost market confidence. A-shares and Hong Kong stocks are expected to continue to attack, and the valuation repair is expected to be more significant.Mercantile Macro Analysis: The domestic economy is further releasing signals of stabilization, with a significant improvement in upstream production conditions. Concurrently, industrial product prices have bottomed out and are on the rise, possibly due to the pull effect from the expenditure of fiscal funds on infrastructure construction. The current policy coordination is primarily guided by the approach of "weakening scale, revitalizing stock, and enhancing efficiency." Before inflation shows a significant rebound, policies will continue to be implemented with vigor, and additional policies are still under further research and reserve; subsequent observations will focus on the execution of local governments' "action-oriented" approach and the volume of physical work.

In the view of Mercantile Macro, as a series of policies take effect, internal factors once again become the core contradiction. The impact of subsequent domestic policy execution on assets denominated in Renminbi will be significantly higher than that of the Federal Reserve's monetary policy, making a slow bull market in the equity market anticipated.

Galaxy Securities also stated that in the medium to long term, the strength of this round of policies has greatly exceeded expectations and may become a positive signal indicating a market turning point, with a strong certainty for the long-term upward trend of A-shares.