The sound of the starting gun has fired for the second wave of the bull market!

At 3:21 PM yesterday, the release of a significant meeting's content sent the Hong Kong stock market soaring, as the Hang Seng Index rebounded from a decline of 0.33% to an increase of 2.76% almost instantaneously.

Chinese concept stocks rejoiced overnight, with the Nasdaq Golden Dragon China Index rising by 8.5%—its best performance in a single day since late September

Meanwhile, the leveraged FTSE China ETF skyrocketed by 24% in just one night.

Today, trading volume on China's A-share market surged by 500 billion, hitting over 2 trillion once againThis marks the 50th consecutive trading day that the total transaction volume exceeded 1 trillion, setting a record for the longest streak in history.

What was it about the hefty meeting's announcement that sparked this explosive movement in Chinese assets?

01

Critical Signals! Dual Financial and Monetary Easing

Ming Ming, chief economist at CITIC Securities, noted that the major meeting indicated several important signals:

Firstly, macro policies are becoming "more proactive and effective," as the phrase "moderately loose monetary policy" has resurfaced after several years, along with a new proposal for "enhanced extraordinary counter-cyclical adjustment."; Secondly, for the first time, they placed emphasis on "stabilizing the property market and stock market," making it a key focus of next year's economic work; Thirdly, there is a renewed commitment to "vigorously boosting consumption," placing it in a more prominent and vital position

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This opens up room for monetary easing, indicates a more proactive fiscal policy, and shows a focus on expanding domestic demand comprehensively with super-cyclical countermeasures expected to be unveiled.

These policy statements reflect a historically rare tone, and following their release, both the Hong Kong stock market and the FTSE A50 Index saw rapid rallies—what does this indicate?

The introduction of "extraordinary" counter-cyclical adjustments for the first time has led to market expectations that next year's policy will not only increase in intensity but will likely surpass existing policy tools.

With a tone of "more proactive" fiscal policy, it is anticipated that next year's fiscal policy will be significantly more robust than this year's.

The monetary policy stance has shifted from "stable" to "moderately loose." Historically, this "moderately loose" stance was only adopted during the global financial crisis in 2009 and 2010.

Finally, the entire market is witnessing the long-awaited cycles of monetary easing in both China and the U.S.!

Looking back at the policy shifts since September 24, it becomes apparent that the Federal Reserve's 50 basis points cut on September 19 was a crucial point in time, leading to significant changes.

In August, it was a concerning moment when the 10-year government bond yield reached the 2% mark; however, it has since transitioned into the 1% range, hitting a new historical low of 1.867% today

This is why the market is more focused on the "moderately loose" monetary policy mentioned for the first time in 14 years.

What’s even more eye-catching is that the meeting placed "vigorously boosting consumption" in a more prominent and essential position and emphasized "stabilizing the property and stock markets," reaffirming a shift in policy thinking.

It is well-known that insufficient effective demand is a critical constraint on economic growth, often hampered by the struggles faced in the property and stock markets that impact residents’ asset income.

The September meeting mentioned "stabilizing the real estate market" and "boosting the capital market" while the December meeting explicitly highlighted "stabilizing the property and stock markets," signifying a desire to improve the private sector's asset position to support the real economy.

When it comes to investment, concerns about fundamentals remain, as many believe that if profitability does not improve, significant market uptrends are unlikely.

The premise of this argument is that stock market rises must wait for economic recovery—is this truly the case?

Historical data suggests otherwise; both the U.S

stock market in 2009 and the Japanese stock market in 2012 rebounded ahead of economic recovery due to ample liquidity and undervaluationsSimilarly, the rebound of the A-share market since September 24 can be categorized as "valuation leading."

From the perspective of the chain linking policy bottoms, market bottoms, and profitability bottoms, if a profitability bottom is to exist, the market anticipates it may emerge as soon as the third quarter of next year, whereas profitability expectations typically precede actual profits by three quarters, suggesting that key assessments of profitability trends may occur around March to April next yearSignificant policy announcements are also expected post the key meeting in March next year.

This implies that until then, profitability and policy do not need to be validated

However, each important meeting and economic data release may serve as critical moments for intense capital competition, resulting in increased market volatility.

02

Strong Historical Performance of Broad-based ETFs

With increasing market uncertainties, broad-based indices provide investors with balanced, simple, and direct investment tools

A review of previous rounds of bottom rebounds shows that broad-based indices, due to their high capital utilization (lectively over 95% in ETFs) and coverage of mainstream leading stocks, have historically performed outstandingly.

Taking the A500 index and equity hybrid fund index as examples, if we consider the period from one month before to one year after the four lowest points of the Shanghai Composite Index, the CSI 300 and A500 indices have significantly outperformed the hybrid equity fund index on three occasions, with average rebounds exceeding 50% across four occurrence.

Prior to the announcement of this meeting, Wall Street investors similarly opted to buy into CSI 300 ETFs and futures for FTSE China three times leverage as a tactical position

EPFR data indicates that from November 28 to December 4, there was a net inflow of $210 million into A-shares, ending five consecutive weeks of outflows.

Recognizing that every type of fund product serves its purpose, expecting one single product type to be a cure-all is unrealistic; the same holds for broad-based ETFsVarious indices such as the ChiNext Index, MSCI China A50, Shanghai Composite 50, CSI 300, CSI 500, A500, CSI 1000, and STAR Market 50 each operate under different logicThe focal point must be how to penetrate the heart of the issue.

Historically, when macro policy stimulus increases and the economic situation improves, high market capitalization ETFs, such as the SSE 50 ETF (510050), A50 ETF (159601), and CSI 300 ETF, dominate performance.

From the perspective of primary industry distribution, both the SSE 50 and CSI 300 indices emphasize traditional big finance and consumer sectors, while also incorporating a larger proportion of new economy sectors.

The new generation core broad-based A500 index leans toward large- and mid-cap styles, covering 35 secondary sectors of the CSI and incorporating leading stocks in burgeoning industries, better representing the trajectory of China's economic transformation

The A500 index has become the quickest to surpass 100 billion in history, with the A500 ETF (512050) attracting 11.3 billion yuan since its launch.

In contrast to the A500, the CSI 500 index selects stocks ranking from 301 to 800 in terms of market capitalization on the Shanghai and Shenzhen exchanges, representing mid-cap stocks that tend toward growth, while the CSI 1000 and ChiNext indices focus on small-cap growth.

Recently, the market style has clearly favored small-cap growth stocks, driven by the overall market under a regime of wide monetary and fiscal policies, an uplift in risk appetite, and the expectation that both M1 growth and GDP growth will begin to recover, compounded by a new technological cycle represented by artificial intelligence, which boosts higher valuations for indices such as the CSI 1000, STAR 50, and STAR 100.

As of December 10, only the CSI 1000 index registered gains post-October 9, with significant funds flowing into growth-oriented broad-based ETFs, including the CSI 1000 ETF (159845), CSI 500 ETF (512500), and the ChiNext 100 ETF, which saw net inflows of 13.979 billion yuan, 5.989 billion yuan, and 2.074 billion yuan this year, respectively.

Reflecting on past market trends, when A-share companies confirm profitability turning points, growth styles tend to remain robust during market uptrends and top oscillations, whereas value styles are often more reactive towards the tail end of market peaks.

03

Summary

Taking a look back at today’s performance of A-shares, the market exhibited a pattern of opening high and closing lower

By market close, the Shanghai Composite Index was up by 0.59%, the Shenzhen Component by 0.75%, and the ChiNext by 0.69%. Fortunately, trading volume increased significantly by 566.7 billion, totaling 2.2 trillion, demonstrating that market activity remains vibrant.

Beneath the market hesitance may lie concerns about whether nominal GDP can improveHowever, investment is fundamentally about expectations and marginal changes; once trends establish, they become increasingly hard to change.

The Federal Reserve's initiation of its first easing cycle in four years will undoubtedly have profound implications for our investment logic over the next two to three years

The alteration in policy direction is evident: the reintroduction of "moderately loose" monetary policy after 14 years leads to a synchronization of easing in both China and the U.S.

Currently, the 10-year treasury yield has officially entered the 1% range, marking the advent of a low-interest-rate era that will cause an increasing number of deposits to be withdrawnFollowing the policy shift in September, the reduction of 570 billion in resident deposits during October is noteworthyThe critical question then arises as to where this capital will go.

With real estate returning to its residential purpose, apart from debt investments, equity markets are expected to evolve into a new vehicle for residents' wealth

This context underpins why the commitment to "stabilizing the property and stock markets" is being emphasized for the first time in a meeting announcement.

Policies are steering in long-term funds and patient capital to enter the market, stabilizing the ecosystem structure of A-sharesRecent news indicates that mainstream broad-based index products are likely to introduce personal pension Y shares, including products like the CSI 300 Index, CSI 500 Index, and A500 Index.

A close examination of the high-frequency economic data since the policy shift in September reveals a marginal improvement in the economy