Recently, A-share market has once again entered a low and volatile market. The release of the "New National Nine Rules" impacted A-shares, and the market size and market capitalization style again evolved to the extreme.
Since the "liquidity stock disaster" on the eve of the Spring Festival, the ecology of A shares has undergone many systematic changes, especially a series of regulatory policies and statements, which greatly boosted the confidence of investors. After more than three years of continuous decline, A-share investors are extremely eager for regulatory reform to clean up the shortcomings of A-share and bring the market back up.
There are many reasons why the stock market has changed from a bear to a bull, such as the loosening of the system, the increase of valuation due to liquidity easing, and the improvement of fundamentals due to the improvement of corporate profits. However, in terms of market trends, Whatever the reason for the rise, it is inseparable from a core factor - the support of funds.
The formation of any bull market cannot be separated from the continuous influx of funds, and the influx of different types of funds will bring different styles of quotations. For example, in 2015, the bull market of A-shares was mainly leveraged funds entering the market, and retail investors had high risk appetite, so the GEM with the greatest flexibility led the rise; The bull market in 2019-2021 is mainly the large-scale inflow of public funds and northbound funds. Leading companies with large market space and excellent performance are favored, so the "Mao Index" leads the rise, and the market pursues the "long slope, thick snow" medicine, consumption, technology and other tracks; In the second half of 2023, the small market value style prevails, mainly due to the style exposure of quantitative funds on small and micro disks.
For the current A-share market, which capital accounts for the most important increment, or whether there is enough capital to enter the stock market, determines the next trend of the market. In terms of the whole market, as of April 16, 2024, the total market value of A is about 86 trillion yuan, and the free circulation market value is about 33 trillion yuan. According to the classification of funds in the whole market, they can be divided into the following categories, of which public offering, private placement, northbound, two financing, insurance, industry, etc. are the main funds that determine the market style.
First, industrial capital It is also the largest class of capital in the whole market. Repurchases, dividends, increases and decreases in holdings will all affect changes in industrial capital. Under the current policies of restricting shareholding reduction, restricting IPO and encouraging dividend distribution, industrial capital is expected to gradually increase its shareholding in the future.
Second, public funds Although the scale of public funds continues to reach new heights, approaching 30 trillion by 2023, the scale of equity is not large. Among them, the size of active equity public funds has been shrinking in recent years, about 3.9 trillion yuan. Passive index funds have grown rapidly in recent years, and the scale of domestic index funds has exceeded 2 trillion yuan. When the market earning effect of publicly offered funds is significant, they will enter the market substantially and often become a booster of the market.
Third, private funds By the end of 2023, the total size of private equity funds has exceeded 20 trillion, but among them, securities investment funds, equity investment funds and venture capital funds, private equity investment funds are about 5.5 trillion yuan. Due to the high proportion of absolute return strategies in private placement, the proportion of equity assets is relatively small, and the scale of equity assets is about 2 trillion yuan. Due to the high entry threshold and the fact that the market is not open to general investors, private placement is difficult to become the leader of the whole market style, but it may have a greater impact in specific areas, such as the past CTA strategy, quantitative strategy since 2023, etc.
Fourth, capital from the north is foreign capital , also known as "smart money" by the market. According to wind statistics, as of April 16, 2024, the accumulated net purchase scale of northbound funds is about 1.8 trillion yuan. Northbound funds are generally considered to have a high professional level and a long-term perspective, and their scale and flow are disclosed in real time. This high frequency and activity has a significantly greater impact on A-share than its size, and can often become a market vane.
Fifth, two financing funds 。 The scale of financing is closely related to market sentiment. In the bull market, investors' preference for wind direction has significantly increased, and the scale of financing has soared. On the contrary, in the bear market, risk preference has declined, and the scale of financing has declined. The scale of A-share financing reached an all-time high of 2.25 trillion in June 2015 and a second high of 1.75 trillion in September 2021, respectively. The effect of financing on the rise and fall of the market was very significant in the two bull markets. As of April 16, 2024, the balance of A-share financing is about 1.5 trillion yuan. Except for the extreme market conditions in 2015, the two financing funds generally cannot significantly affect the market style, which is also a market style amplifier.
Sixth, insurance funds It is also the main force in the market's long expected "long-term funds". The long-term nature of insurance funds makes them prefer fixed income assets. For the allocation of equity assets, it reached the highest level in 2015. Since 2016, the proportion of equity investment of insurance funds has hovered around 12% - 14%. There is still much room for improvement from the regulatory ceiling of 45%. By the end of 2023, the balance of fund utilization in the insurance industry is about 28 trillion yuan, of which the share of stock and fund investment is 12%, totaling about 3.3 trillion yuan, of which the share of stock assets is about 2 trillion yuan. Generally speaking, the stability of insurance funds makes them prefer to stabilize interest collection assets, such as banks and real estate in the past.
Seventh, bank financing funds It is also one of the most important products in residents' financial management. From the perspective of the type structure of financial products, the scale of equity products is relatively small. By the end of 2023, equity assets accounted for less than 3% of the total scale of about 29 trillion yuan in bank financial products, of which equity assets accounted for only about 800 billion yuan. Both the stock and incremental space have little impact on the equity market.
Eighth, social security fund , which is also the long-term capital in the market. According to the data released by the Ministry of Human Resources and Social Security and the Council of Social Security Fund, by the end of 2022, the total amount of social security funds is about 2.9 trillion yuan. According to the regulations of the Ministry of Finance on social security fund investment, equity assets can account for up to 40% of social security fund investment. Since the social security fund began to enter the market in 2001, the proportion of investment in equity assets has been rising, and the investment performance has been excellent. Since 2001, except for a few years, there have been 19 years of positive investment returns. According to wind statistics, the market value of shares held by social security funds in A-shares through direct investment and entrusted investment exceeded 400 billion. In the future, with the advocacy and encouragement of supervision, it is expected to continue to increase the proportion of A-shares in all assets.
Ninth, national team funds 。 For A-shares, national team funds are not normal funds. Historically, national team funds only enter the market through various channels when there is an abnormal sharp drop in the market. There are several typical times. From 2008 to 2013, in order to stabilize the market, the central Huijin mainly purchased the shares of China Agriculture, Industry and Construction Bank. In 2015, Huijin, CSF, securities dealers, fund companies and other institutions joined the market to support the bottom by establishing special funds and other means. Since October 2023, various national team funds such as Huijin and CSF have entered the market to stabilize the stock market by increasing their holdings in state-owned banks and buying ETF funds. When the market is depressed, the national team can form a significant impact on the market style. Because it mainly enters the market by increasing its holdings in banks, securities, insurance and other industries, as well as by buying broad-based ETFs, the impact on the market is mainly dominated by the value style, and the stock of central state-owned enterprises has increased significantly.
Finally, retail funds, hot money and other funds in the market. It belongs to follow fund, which also plays the role of market amplifier and cannot dominate the market style.
It should be noted that the stock price in the market is priced by incremental capital. Which capital has the largest "marginal change" during the characteristic period, that is, which capital dominates the style in the market. Typical examples are the big bull market of GEM dominated by leveraged funds entering the market in 2015, and the bull market of "core assets" led by the growth of public funds from 2019. Therefore, for the future A shares, the capital with the largest incremental change determines the market style.
From the above types of funds, retail investors, hot money and other funds belong to the "follow type" funds, which can promote the market. They can dominate the theme speculation market. The style of chasing up and killing down is significant, which is difficult to form a long-term and stable inflow, and also difficult to affect the overall market style.
From the perspective of future incremental funds, insurance funds, social security funds and national team funds may become the next major market incremental funds. Since 2022, the regulation has also loosened the restrictions on long-term funds entering the stock market from various dimensions, such as increasing the upper limit of equity asset investment and reducing the risk factors of stock assets. From the perspective of the investment style of these long-term funds in history, there is a significant preference for the value style. At present, when the northward funds are stagnant and public funds lose the trust of the basic people, the stock market funds that can be expected to enter may only have various long-term funds, and the investment preference of such funds is also expected to help A shares out of the long-term trend in the future.
[Note: The market is risky, so investment should be cautious. In any case, the information or opinions contained in this subscription number are only for exchange of views, and do not constitute investment suggestions for anyone. Except for special remarks, the research data in this paper is supported by Flush iFinD]
This article was originally written by "Xingtu Financial Research Institute", and the author is Huang Dazhi, a senior researcher of Xingtu Financial Research Institute
