In recent months, the Chinese capital markets have seen significant changes fueled by a suite of new policies aimed at revitalizing the economyThe macroeconomic environment appears to be improving, which has bolstered expectations and confidence among investorsSince the end of Q3 2024, this momentum has accelerated, marked by a sharp rebound in risk appetite and a notable recovery in the capital marketsAs a result, the securities sector has shown strong performance, with conditions becoming increasingly favorable and profit expectations growing.

The year 2024 is set to be pivotal for China's capital markets due to the density of policy releasesThe government has introduced The New National Guidelines, which focus on the development goals for the capital markets over the next five years, by 2035, and even mid-century

This outlines a roadmap for achieving high-quality growth in the capital markets.

On the one hand, the New National Guidelines set specific targets that will be rolled out in phasesOn the other hand, they have formed a comprehensive policy framework that emphasizes stringent regulation, risk prevention, and promotion of high-quality development—aimed at addressing deep-rooted issues that have persisted in the capital market over time.

To delve deeper into the details, the comprehensive policy framework focuses on three primary areas: firstly, enhancing the scrutiny of listed companies throughout the entire chain to elevate the quality of listings; secondly, strengthening trading regulations to ensure fairness in the market; and thirdly, guiding and urging industry organizations to re-align their roles to ensure that they act as gatekeepers for the capital markets.

Meetings held recently emphasized the need to stimulate the capital markets and bolster investor confidence

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In late September, the State Council held a press conference where leaders from the central bank and financial regulatory bodies announced a series of policies including interest rate cuts, reduced mortgage rates, and the establishment of new monetary policy tools to stabilize capital market growth.

As October rolled in, officials outlined their plans to enhance macroeconomic policies, focusing on counter-cyclical adjustmentsNew fiscal policies aimed at addressing local government debt were also discussedSince the meetings in September, the government has adopted a mix of monetary and fiscal strategies targeting effective domestic demand expansion, which has released positive signals aimed at fostering a sustained economic recovery and restoring confidence among capital market investors.

New monetary policy instruments, such as swap facilities and repurchase agreements for stock buybacks, have been introduced as mechanisms to stabilize the capital market and introduce additional liquidity

This move is expected to reinforce market liquidity and encourage brokers to pay more attention to capital management, subsequently helping improve expectations and boost investor confidence.

Companies involved in these innovative monetary policies are expected to expand their scale further, providing an opportunity for ongoing support for the market in balancing volatility over the medium to long termWith specific guidelines and regulations that favor non-bank financial institutions, particularly securities firms, the government encourages participation from these entities significantly.

Looking at specific measures, among the other qualified assets, municipal REITs have been included to assist non-bank institutions in enhancing asset management capabilities and to maximize the potential for liquidity through swap operations.

Moreover, through these new instruments, there have been adjustments that alleviate the operational pressure faced by securities firms

Allowing these institutions the flexibility needed in handling their risk assessments while balancing their investment portfolios effectively addresses the concerns with capital management related to market fluctuations.

As a result, this new operational framework has drawn a clearer delineation of responsibilities for non-bank entities, facilitating a new model that encourages leverage among these institutions, aiding them in broadening equity investments to increase returns.

Additionally, these adjustments position the market to function more smoothly, with increased access to capital streamlining liquidity, which in turn supports overall market stabilityThis development pattern signals a shift toward a more robust regulatory environment, which aims to enhance the capacities of capital market operators in managing their assets and portfolios more effectively.

From a broader perspective, the figures illustrate a dramatic rise in the number of listed companies engaging in stock buybacks, which surged from 34 companies in 2012 to 1298 by 2023, a stunning increase that highlights a growing awareness among companies of the importance of managing their market capitalization.

The total volume of stock buybacks in the A-share market also escalated, climbing from 2.635 billion yuan in 2012 to 90.72 billion yuan in 2023, a more than thirty-four-fold increase

This robust trend, however, also suggests an ongoing need for sustained buyback strategies and a long-term vision among these companies to ensure robust market operations.

Despite the positive strides towards increased buybacks, many remain one-off actions lacking coherent strategy, which undermines the potential for impactful long-term trendsHence, the overall activity levels in terms of buyback trends still lag behind more mature markets.

The introduction of stock buyback loans, with a capped total of 300 billion yuan and an interest rate ceiling of 2.25 percent, offers the potential to lower the financing costs for these companies engaging in buybacks significantlyThese policies promote an environment where diverse ownership structures can equally participate and where central enterprises can lead by example, contributing to long-term value creation in broader markets.

Furthermore, the supportive environment enhances the overall operational stability of these companies while nurturing an atmosphere conducive to further investment in the markets, thereby enhancing prospects for a balanced and thriving capital market.

In essence, the ongoing reforms in capital markets have also shifted the focus from financing to investment—emphasizing a restoration of investment functions that enrich investor experiences and bolster their confidence in the market

Overall, the emphasis on price-to-earnings ratios and market valuations will become fundamental to driving home the message of enhancing investor returns.

Given the current environment and ongoing reforms, the capital market dynamics appear set for a promising trajectory, underpinned by the support of innovative policy frameworksThe measures implemented reflect a concerted effort to stabilize and prosper the capital markets, thus making valuable contributions to the overarching economic agenda while facilitating investor engagement and market function.

Since the second half of 2024, the level of investor sentiment has grown significantly, leading to an uptick in activity among securities companies, driving a momentum that also reinvigorates market growth and capital flowWith more companies demonstrating strong recovery patterns, the next few months will be crucial in determining the trajectory of capital market stability and investor trust going forward.