60-Second Quick Read:

1. China's capital market is likely entering a long-term bull market. Past highs are not insurmountable and may well be surpassed at some point in the future.

2. Economic growth in the fourth quarter could be higher than the 4.6% seen in the third quarter, potentially approaching 5%, and there's even a possibility of reaching 6%.

3. The U.S. elections will not affect the fundamentals of our country's economy. As long as our economic fundamentals continue to improve and solidify, we have sufficient resilience and stability to withstand external risks.

4. It is expected that the Chinese yuan will remain generally stable overall, although fluctuations may still be the norm.

Policies Have Strength, Valuations Are Being Repaired, and Confidence Is Gradually Being Rebuilt

A series of favorable policies recently introduced by the central bank, the China Securities Regulatory Commission, and other departments have made the valuation repair in the A-share market very evident. At the same time, large-scale equipment updates and consumer goods replacement policies in China are also accelerating, which helps to sustain the growth of industrial enterprise profits.

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Regarding the economic and market trends in the fourth quarter, although there are disagreements in the market about the sustainability of the market trend, the incremental policies introduced by the state have played a positive role in boosting market confidence and restoring prosperity. Since late September, market sentiment has been high, and although there have been periodic adjustments, the market activity has been enhanced again as various departments send out positive signals. In particular, the emphasis on the importance of technology by high-level leaders has further boosted market confidence, leading to a significant change in the market from weak to strong.

China's economy has reached a stage where more robust macroeconomic policies are needed to stimulate economic prosperity and enhance the confidence of market micro-entities. The government's policies have begun to be rolled out, and the effects are expected to gradually emerge. Therefore, in this sense, the capital market should enter a new stage of high-quality development that is gradually improving and moving upward. Of course, nothing can develop in a straight line, and the market moves forward amidst fluctuations, so it is not ruled out that at some point or stage during the entire process of moving upward, the market will still experience fluctuations. After all, there are still some uncertain factors in the current international and domestic environment, and it is normal for the market to experience some fluctuations as it contends with these uncertain factors. Investors are hoped not to be deterred by these fluctuations and to remain confident, moving steadily forward in line with the market's rhythm and the government's direction. At the same time, as investors, risk prevention is a fundamental principle that cannot be neglected at any time. One should see potential risks when things are good and opportunities when risks arise.

China's Capital Market Enters a Long-Term Bull MarketIn the capital market, new investors are primarily from the post-90s and post-00s generations, who constitute the main force of incremental capital. However, they might also be a group that faces market adversity, as they entered the market at its peak, leading to some adjustments and potential losses of 30% to 40%. The market has been too volatile, with the initial comprehensive repair trend being overly frantic and fast-paced, affecting the market. Public opinion and policies have also started to be influenced, showing some changes. The disputes in public opinion may impact market confidence and expectations, and policy departments may take measures to cool down the market.

The first round of the market trend was driven by the need to repair the severe devaluation of Chinese asset prices in the capital market, coinciding with the US dollar's interest rate cut, which provided an opportunity for the repair of Chinese assets. Currently, the repair trend is roughly close to a reasonable level, but the value has not been fully realized. If the US dollar interest rates can be further reduced, the repair trend will become more apparent.

The market trend anticipated by the country for economic transformation and the move towards a new stage of high-quality development may not have been fully demonstrated yet. As the intensity of innovation increases and its effects become apparent, it will trigger a market driven by innovation. This could be a long-term trend worth our continued attention and may become the main thread of China's capital market in the future.

Guided by the people-centered development philosophy, the market trends brought about by structural changes such as benefiting people's livelihoods, promoting consumption, structural optimization, and improving the quality of life may still be accumulating and gradually releasing. These changes will have a positive impact on the market, promoting its long-term healthy development.

Regarding the market trends related to big consumption and people's livelihoods, as well as policy-driven trends, we can see that this round of the market is driven by multiple factors, including fiscal policy, monetary policy, and regulatory policy optimization, all of which have not yet fully manifested. Judging from multiple factors, China's capital market has entered a new stage of high-quality development that is continuously stabilizing, improving, and getting better.

Without any unexpected international black swan events or domestic natural disasters, I personally believe that China's capital market should have entered a long-term bull market. The past highs are not insurmountable and are likely to be surpassed at some point in the future. However, the current stage may still be a gradual upward trend, not a rapid leap to a higher level. We can envision a high endpoint for the future, but the process should not be too fast, as it can lead to indigestion, ultimately affecting ordinary investors.

From the policy perspective, we have seen supportive monetary policy, proactive fiscal policy, active consumer policy, and stable investment policy. Therefore, the policy outlook is more optimistic rather than pessimistic.

From the market perspective, the market changes have been faster than expected. With the introduction of a series of incremental policies, the capital market has experienced its first active period, and a comprehensive asset price repair trend has emerged. Now, with the valuation repair basically in place, the market may start to shift towards a more structural focus, leaning more towards value and growth trends, with differentiation likely to accelerate and stock selection becoming particularly important.

If the market can reach a higher level, such as 3400 or 3500 points, it may enter the third stage, with a comprehensive upward trend, and may even reach 3600 or 3800 points, or even 4000 points. The key now is whether the market can reach a higher level from the current level.

The economic performance in the fourth quarter will be better than in the third quarter, possibly approaching around 5%.When analyzing the economic data for September, we can observe some positive changes. For instance, the Consumer Price Index (CPI) rose by 0.4% year-on-year, the Producer Price Index (PPI) fell by 2.8% year-on-year, and the Purchasing Managers' Index (PMI) increased by 0.7 percentage points compared to the previous month. The GDP for the first three quarters grew by 4.8% year-on-year, and the value added of the industrial sector above designated size grew by 5.8% year-on-year. These figures indicate that although the GDP growth in the third quarter was not as strong as in the first two quarters, some indicators have begun to rebound from a dynamic perspective, showing positive changes.

The implementation of new policies has brought about an increase in market confidence and economic vitality, with the rise in PMI being an important indicator. However, the effects of the new policies have not yet fully manifested, and it is expected that in the coming months, as the policies are gradually implemented, the economic data will further improve.

In terms of financial indicators, M2 has shown some improvement, but the decline in M1 remains significant, indicating that the economic recovery is not yet complete. Therefore, we need to continue to intensify the implementation of policies while seeking breakthroughs in systemic reforms.

Overall, although we have seen a trend of marginal economic improvement in the short term, the overall target set by the policies has not yet been achieved, and continued efforts are necessary. At the same time, we must also be vigilant about new situations and problems that may arise and not be complacent. For the future, we look forward to the sustained efforts of policies bringing about more positive changes.

We have reason to believe that the economic performance in the fourth quarter will be better than in the third quarter. Firstly, the issue of insufficient demand will be improved under the influence of national policies, especially with the increased investment efforts leading to a stabilization and rebound in investment growth, and the consumption trend is also steadily upward. In terms of exports, although the situation in October may be better than in September, whether it can further improve in November and December remains to be seen. Overall, it is possible to achieve a relatively stable trend in exports in the fourth quarter.

From a production perspective, despite the impact of abnormal weather in the second half of the year, agriculture has essentially been determined, and it is another relatively good year. As the foundation of the economy, if the production of major agricultural products, livestock, and farmers' income can remain stable, it will lay a good foundation for the stability of the entire economy.

In terms of industry, it has been a bright spot in the economy since the beginning of the year. With the support of national policies, the industrial sector has undergone positive changes. The overall industrial growth rate has remained relatively stable, close to the normal level. Therefore, we expect that industry will not reverse in the fourth quarter but will continue to improve. From the perspective of national conditions, the service industry is also more bullish than bearish, generally showing a stable upward trend.

In summary, with stable agriculture, improving industry, and a stable and upward service industry, from both the supply and demand perspectives, it is possible that the economic growth in the fourth quarter will be higher than the 4.6% of the third quarter, possibly close to 5%, and it cannot be ruled out that it could reach 6%, definitely higher than 4.6%.

What will the future incremental policies be?

The central bank has announced new news, including stock buybacks, increased re-lending, and plans to continue lowering reserve requirements and interest rates. These measures aim to provide more liquidity support to the market. Although the specific implementation strength and pace of these policies have not yet been clarified, they have already demonstrated the country's positive attitude towards economic stability and boosting market confidence.The central bank's current round of reserve requirement ratio (RRR) cuts and interest rate reductions has not yet concluded, and we can anticipate that more policies will be introduced in the future. In terms of fiscal policy, although the direction is clear, the specific implementation intensity and pace are still awaiting the completion of legal procedures. This includes the potential increase in local government debt, the core capital injection into the six major commercial banks, and adjustments to the direction of local special-purpose bond usage, all of which are possible areas for additional policy measures.

Despite the clear direction of policy, the exact timing and implementation pace are not yet fully clear. We can continue to look forward to and track the development of these policies. The use of the central bank's two innovative tools and other monetary policy instruments is conducive to stabilizing the capital market and the real estate market.

Against this backdrop, investors should pay attention to the country's macroeconomic policy package, including both existing and additional policies, and how these policies collectively affect the stock market, real estate market, consumption, and economic growth. The synergy and consistency of policies will bring new momentum, but this also depends on whether various departments can form effective coordination.

As an open economy, China is also affected by external factors. The Federal Reserve's interest rate reduction policies, geopolitical turmoil, and economic policy adjustments of other major countries may all have an impact on China. Therefore, we need to pay attention to the coordination of domestic and foreign policies, as well as the uncertainties of the external environment.

The U.S. election will not affect China's economic fundamentals.

In the upcoming November, the U.S. election will become the focus of global attention. Regardless of who is elected, the attitudes and positions of both parties on China policy are consistent and will not change significantly. Therefore, we should not harbor any wishful thinking, expecting substantial changes in U.S. policy towards China. Some unfavorable policies towards China implemented during the Trump administration have not been abandoned after Biden took office, so it can be anticipated that regardless of who is in power, the U.S. attitude towards China will still be dominated by competition and containment.

In the current international relations, although there are some areas of cooperation, such as global climate change, geopolitical issues, and nuclear weapon control, the U.S. may seek cooperation with China. However, in terms of high-tech, national security, and ideology and values, the U.S. attitude towards China remains hostile and unfriendly. Therefore, we need to remain vigilant and not let our guard down, and continue to do our own work well, which is fundamental.

No matter how the external environment changes, we must steadfastly implement policies for stable growth, market revitalization, real estate market stability, and job security. As long as our economic fundamentals continue to improve and consolidate, we will have enough resilience and determination to withstand external risks.

The Federal Reserve's interest rate reduction density may be slightly adjusted, but the direction will not change.

Looking at the current economic, political, and social situation in the United States, the direction of the Federal Reserve's policy is relatively clear. The U.S. economic fundamentals are beginning to show signs of fatigue, necessitating some adjustments to the primarily contractionary macroeconomic policies, especially monetary policy. Due to considerations of high debt and economic fundamentals, the Federal Reserve may continue to implement interest rate reduction policies, with only the density of rate cuts possibly being slightly adjusted, but the direction will not shift from rate cuts to rate hikes.For China, if the Federal Reserve's interest rate cut policy continues, it will provide greater policy space for China. If the intensity of the rate cut diminishes, it will naturally impose certain constraints on China's policy space. Therefore, we need to be prepared on two fronts: first, to prepare for the scenario where the Federal Reserve does not cut rates or does so without enthusiasm, and second, to prepare for how we can further expand policy space if the Federal Reserve does cut rates.

In terms of monetary policy, the central bank governor has clearly indicated that reserve requirement ratio (RRR) cuts and interest rate reductions are highly probable events. If the Federal Reserve cuts rates in November, China may lower its RRR again. If the Federal Reserve does not cut rates, there will be some uncertainty regarding whether China's policies will be implemented. Therefore, when observing monetary policy, it is indeed necessary to consider the direction of the Federal Reserve's policies.

Furthermore, when adjusting monetary policy, the central bank will take price factors into account, looking at both asset prices and commodity prices. Therefore, changes in the Consumer Price Index (CPI) and Producer Price Index (PPI) may also affect decisions regarding RRR cuts and interest rate reductions. If price levels remain low, the likelihood of RRR cuts and interest rate reductions will further increase. Conversely, if price levels rise significantly, the central bank may wait and see, or reduce the intensity of its actions.

Finally, relevant policies are still awaiting the completion of legal procedures. Before that, the market may still have some ridicule and questioning, but these are normal phenomena. What is important is that we need to focus on the ultimate implementation and effectiveness of the policies.

China's fiscal policy is strictly constrained by the Budget Law, and any budget adjustments require legal procedures, including review and approval by the National People's Congress (NPC) or its Standing Committee. Therefore, despite many speculations about the Ministry of Finance's possible actions, the announcement of specific policies still needs to wait for the completion of legal procedures. The originally scheduled Standing Committee meeting of the NPC may take place around October 25th, but the specific date has not been announced yet, and the market has various expectations, including whether it will be held after the U.S. elections.

The renminbi will generally remain stable, but fluctuations may still be the norm.

From the perspective of the exchange rate market, the renminbi experienced a strong rebound after the first round of rate cuts by the Federal Reserve. However, with changes in the market and external environment, some new changes have emerged in the renminbi market. This week, the renminbi's exchange rate against the U.S. dollar depreciated by about 0.8%, returning to a level above 7.1. The future trend of the renminbi will mainly depend on changes in China's economic fundamentals and the implementation of policies. It is expected that the renminbi will generally remain stable, but fluctuations may still be the norm.

If our fundamentals perform well, as we expect economic growth in the fourth quarter to be above 4.8%, there is no reason for the renminbi to depreciate significantly. On the contrary, if the fundamentals are not like this, the renminbi may tend towards weakness. External factors are also very important. If the Federal Reserve can make two rate cuts as expected in the future, whether by 0.2 or 0.3 percentage points, or even more, then the stability of the renminbi exchange rate will be more secured. If the Federal Reserve does not cut rates, it may have a certain impact on the stability of the renminbi.

Geopolitical risks, U.S. dollar interest rates, and other factors will cause significant fluctuations in gold prices.

The fluctuations in gold prices are influenced by a variety of factors, including geopolitical risks, U.S. dollar interest rates, and the movement of speculative capital. Gold, as a precious metal with commodity, financial, and political attributes, is affected by the forces of multiple factors. Currently, the commodity attribute of gold is relatively stable, while the financial and political attributes have significant uncertainties. Geopolitical instability may increase the demand for gold, thereby affecting its price. Investors need to pay attention to these factors and how they affect the supply and demand balance in the gold market.In the realm of international politics, the impact of the Russia-Ukraine conflict on the market may have been largely digested. The market might perceive that the conflict is unlikely to spiral out of control, and is more likely to be a stalemate or fluctuate between good and bad periods. Unless Western countries increase their support for lethal weaponry to Ukraine, the conflict is relatively limited and not sufficient to completely disrupt the market. At present, attention to conflicts in the Middle East may have a significant impact on gold prices.

The outcome of the U.S. elections will also influence the market. Although the current approval ratings of Trump and Harris are close, the election results could affect gold prices in the short term. From a medium-term perspective, the relationship between the U.S. and China merits attention, especially potential conflicts in the Taiwan Strait and the South China Sea, which could cause significant fluctuations in gold prices.

Investment Opportunities: Focus on the technology sector, consumer goods, and other areas

Overall, we maintain a cautiously optimistic outlook on the economy and capital markets for the fourth quarter. With policy support, the market is expected to continue to stabilize and improve. We advise investors to maintain confidence, pay attention to policy trends, and seek structural investment opportunities.

National policies, while pursuing economic stability and healthy market development, are also striving to balance the needs of different stakeholders. These policy adjustments are expected to become the norm to adapt to the changing economic environment and market demands. For investors, focusing on structural trends, value growth, and innovative sectors may be key points for future investments. At the same time, investors need to have patience and determination, preparing for the long term, as the development of markets and economies is a long and complex process.

In terms of investment opportunities, it is recommended to focus on the technology sector and the consumer goods sector, which may benefit from policy efforts, such as food and beverages, automobiles, home appliances, and pharmaceuticals. Additionally, high-quality growth stocks in areas like intelligent driving and artificial intelligence are also worth paying attention to. Furthermore, the theme of restructuring and mergers may become an important direction for the market.

Follow up on three policy incremental opportunity areas

Investors are advised to pay attention to three areas worth tracking and focusing on. The first is fiscal policy, especially the direction and intensity of incremental policies, which will have a positive impact on overall economic stability, capital market support, and investment in people's livelihoods. Although the incremental part of fiscal policy is still going through legal procedures, once it is clear, it will bring obvious positive effects. Previous policy directions, such as "two priorities and two new areas," have been gradually accumulating and showing effects, pointing the way for investors and bringing opportunities.

The second is the field of corporate restructuring and mergers, which the China Securities Regulatory Commission (CSRC) has repeatedly emphasized. To stabilize the capital market and improve the quality of listed companies, the country has made new IPO policies more scientific, strict, and transparent, raising the bar, and hoping to optimize listed companies and unlisted assets through mergers and acquisitions. There are already some restructuring cases underway, and this area will become more prevalent in the future, as the overall quality of listed companies and the structure are not yet fully resolved.

The third is the issue of market value management, which both the State-owned Assets Supervision and Administration Commission (SASAC) and the CSRC have proposed to include in the assessment areas. For abnormal fluctuations in the market value of listed companies or situations where the value falls below net assets, the state may introduce a series of policy requirements. The central bank has recently clearly proposed two tools, one with a value of 500 billion, and another with a value of 300 billion, one being the so-called alternative tool, and the other being the so-called repurchase tool. These policies will play a role in future market value management, providing new opportunities for investors.From the perspective of the transformation in the country's development phase, shifting from high-speed to high-quality growth and from investment-driven to innovation-driven growth, innovation is an eternal theme. Whether it is technological innovation, business model innovation, institutional innovation, or product structure optimization innovation, all will provide new investment opportunities for investors. These are the aspects that investors should focus on closely.

Lastly, there have been some expectations in the market regarding fiscal policy recently, including anticipation for policies that are considered favorable, but there are also conservative views that argue there is no commitment to specific amounts. Investors are looking forward to the introduction of more related policies in the near future.