This National Day holiday was somewhat unusual. The unprecedented surge in A-shares before the holiday left countless people restless and anxious, with many hoping for the first time not to have a holiday and to open the market quickly. In the week from September 23rd to September 27th, the Shanghai Composite Index rose by 12.81%, the Shenzhen Component Index by 17.83%, and the ChiNext Index by 22.71%, setting the largest single-week increase in history. The total market value of A-shares soared by 9.6 trillion yuan in a week.
On the last trading day before the National Day holiday, the high market enthusiasm and momentum directly led to an 8.06% increase in the Shanghai Composite Index, a 10.67% increase in the Shenzhen Component Index, and a 15.36% increase in the ChiNext Index, all setting the largest single-day increase in history. The transaction volume of the two markets broke through 2.5 trillion yuan, even surpassing the record of historical bull markets.
With the help of the media, the news of "the bull market is back quickly" is everywhere on the internet, from "Anything But China" to "All in Buy China". The jokes about stock investors and the stock market are endless, similar to "travel plans have changed from not changing to Japan, Europe, and then to space", both online and offline are filled with a lively and cheerful atmosphere.
During the holiday, securities company employees who were urged to work overtime to open accounts finally experienced the joy of voluntary overtime. After all, after the sharp deterioration of the industry situation in the past two years, securities companies may need the bull market to return more than stock investors.
Account opening
Securities companies are also afraid of the aging problem of their customers.
During this holiday, how many people have seen the small advertisements for securities company account opening on social media such as WeChat Moments, TikTok, and Xiaohongshu? How many people chose to open accounts during the holiday, waiting to be the first to rush into the stock market after the holiday?
Although the rumor that CITIC Securities had a backlog of 1.4 million account opening reviews before the holiday was quickly refuted by the involved securities company, the account opening applications of new stock investors did not stop during this holiday. More than sixty securities companies arranged holiday duty personnel to ensure online throughout the process, providing 7*24 hour account opening services.
Recently, a large number of young people have opened accounts
It is said that even the China Securities Depository and Clearing Corporation was forced to work overtime, and opened the unified account platform and identity information verification system in advance on October 6th, to deal with the huge backlog of securities account opening applications accumulated since the holiday.The technical team of the Shanghai Stock Exchange also missed out on the National Day holiday, with the goal of organizing a system startup connectivity test on October 7th to avoid a repeat of the system failure on September 27th due to excessive trading volume, which led to customers being unable to place orders and complete transactions, followed by a flood of complaints.
Of course, the most enthusiastic overtime workers are still the securities firms. This bull market is crucial for them, especially as they place great importance on the new generation of young customers.
In the first half of this year, a chart about the age distribution of A-share investors went viral online. The chart stated that as of the end of May 2024, middle-aged and elderly investors aged 40-65 accounted for about 67.63%, being the absolute main force of A-shares, while investors under the age of 40 accounted for less than 20%, and those under 30 accounted for only 3.48%.
This generation of young people, the main force of consumption, and the pillars of society, seem to have no interest in A-shares at all. Or rather, they do not believe in the story of improving life and achieving financial freedom through investment, nor do they have the "gambling nature" of people from the 1960s and 1970s. They hold the simple idea that "good things will definitely not come to me" and consciously stay away from the stock market.
A-shares have indeed been bearish in recent years, which is despairing. Older investors have at least witnessed and experienced two major bull markets in 2006-2008 and 2014-2015, while young people under 30 have neither tasted pork nor seen pigs run. Those who just graduated and earned some salary to participate are also a large number who were trapped by the funds issued in 2020-2021.
In this situation, it is not a wise decision for young people to enter the stock market to become "chopsticks" (a term used to describe retail investors who are easily manipulated and exploited by larger market players).
At present, the main force of securities investment is still middle-aged and elderly people.
However, for securities firms, being completely abandoned by young people and having a highly aged customer structure is painful. In fact, any industry in China that is abandoned by young people has no future, whether it is consumer industries like liquor, real estate, furniture industries, or financial industries like securities and funds.
Moreover, according to a research report by J.P. Morgan, there may be a negative correlation between population aging and stock market returns. For every 1 percentage point increase in the proportion of the population over 65, the average annual return rate of the stock market will decrease by 0.92 percentage points. Half of the reason is the slowdown in profit growth, and the other half is the decline in valuations.
In other words, if young people neither consume nor have enough courage, the valuation of listed companies will not increase, and the stock market will not rise. After all, no matter how much the silver economy develops, it is far from comparable to the energy of young people.The good news is that this time around, the post-85s and post-90s have finally become the main force among new account openings, and the number of accounts opened by the post-00s has also increased significantly. Even those who do not trade stocks have inquired about funds, which is obviously a welcome development for securities firms.
Mergers and Acquisitions (M&A)
During a bull market, the securities industry's landscape is prone to reshuffling.
Although the importance of brokerage business in the revenue structure of securities firms has decreased with the decline in commissions, account opening is still regarded as the "key" to all business for securities firms and is the foundation for the survival of institutional businesses such as asset management.
In theory, securities firms that acquire more new customers in each bull market will perform better and have more confidence in their future standing in the industry. Even if they are eventually acquired, they can command a higher price.
Therefore, when this bull market began to emerge, the securities sector once again took the lead in rising. The A-share securities concept index quickly rose from 802.92 on September 23 to 1123.40 on September 30, with an interval increase of about 40%, showing a strong momentum to pull up the overall market following the bank stocks.
Internet securities firms are considered to be able to maximize the benefits of account opening, with significant stock price increases. From September 23 to 30, the stock price of East Money increased by as much as 89%, and the stock price of Tonghuashun increased by as much as 88%, far exceeding the current industry leader, CITIC Securities.
Another interesting investment target is Tianfeng Securities, with an interval increase of about 60%. As a securities firm with net profit losses, its stock price trend is even stronger than many leading and mid-tier securities firms. It is difficult to say whether this premium includes expectations for M&A and restructuring themes.
Historically, bull markets have indeed been a good time to speculate on M&A and restructuring themes. Abundant liquidity provides financial support, and market sentiment also gives companies the opportunity to manage their market value through M&A and restructuring. Especially this time, the new policy's "six M&A rules" explicitly support listed companies' M&A and restructuring, even across industries.
After the announcement of the shocking news of Guotai Junan's absorption and merger with Haitong Securities, a new round of major consolidation in China's securities industry has almost become an open secret. Industry insiders should have a premonition that the power and significance of this matter far exceed the merger of CITIC Securities with Guangzhou Securities and the merger of Shenyin & Wanguo with Hongyuan Securities.Moreover, it is rumored that the merger between Guojun and Haitong will proceed at an unimaginable speed. Financial advisors and intermediary agencies have already been involved, and the specific implementation plan is expected to be formulated by the end of this year at the earliest, or by March next year at the latest, emphasizing "speed is of the essence" and not wanting to repeat the mistake of Shenwan Hongyuan missing the bull market expansion period.
However, since the stocks of Guotai Junan and Haitong Securities have already been suspended, eager investors can only flock to the Hong Kong stock market to buy Guotai Junan International, driving its share price from 0.64 HKD per share to 2.18 HKD per share, with a peak increase of over 240%.
The rise in the Hong Kong stock market during the National Day holiday was indeed supported by the securities sector. In the three trading days after October 2, the average increase in the Hong Kong securities sector was 52.24%, with a total transaction volume of 41.963 billion HKD. Among them, CITIC Securities, CICC, and China Galaxy achieved transaction volumes of 10.181 billion, 6.142 billion, and 4.891 billion HKD, respectively.
The Hong Kong securities sector has also set a good example for the A-share securities stocks that opened after the National Day holiday. After all, at the end of 2014, the price-to-earnings ratio of securities was 59.22 times, but by the beginning of this year, it fell to only 20 times. The valuation repair of the sector is imperative.
If Guojun and Haitong resume trading in late October, the securities sector may become even more lively at that time.
Long Bull
The release of liquidity by policies is only the first step towards a bull market.
Whether it is retail investors, institutions, or securities firms and banks, the emotions of market participants are now in place, fearing that they will not be able to catch up with this bull market. After all, China has never experienced a bull market like the US stock market that lasted for ten years, and missing it once often means waiting another ten years.
The emergence of the bull markets in 2007-2008 and 2014-2015 was not only supported by monetary policy easing but also based on the foundation of China's economic takeoff. However, this round of bull market, which is just taking shape, appears in a macro environment that is not very optimistic, and so far it can only be called a "policy market."
Some analysts even compare this market with the 519 market in 1999, believing that the government's strategy is to let policies take effect in advance when the economy faces deflationary pressure and the stock market is sluggish for a long time, in order to promote the market to start quickly and drive the repair of balance sheets.The Politburo meeting held in late September and the press conference by the State Council Information Office marked significant innovations and incremental policies, primarily aimed at stabilizing asset prices.
In the real estate sector, for the first time, the phrase "promoting a halt in the decline and stabilization of the real estate market" was introduced. Supportive policies such as reducing the interest rates on existing mortgages, unifying the minimum down payment ratios for mortgages, and optimizing the re-lending policies for affordable housing were proposed. First-tier cities also followed suit by further relaxing purchase restrictions. It is said that before the National Day holiday, many landlords increased the listing prices of their second-hand homes.
In terms of the stock market, the central bank governor indicated the creation of two monetary policy tools: a swap facility for securities, funds, and insurance companies, and a special re-lending facility for stock buybacks and increases in holdings, to support the stable development of the financial market. Many investors have a more straightforward understanding of this, which is that the central bank will provide "unlimited ammunition" for the A-share market.
During the window when the Federal Reserve lowered interest rates by 50 basis points, China gained policy space and then concentrated its efforts to present an unexpected "big gift," directly transforming market sentiment from panic to exuberance.
Even though these policy funds have not yet actually flowed into the stock market, the funds that flowed in through bank-broker transfers a few days before the National Day holiday were sufficient to cause the A-share market, which previously had a daily trading volume of only 500 billion, to "rise with the tide."
The current ample liquidity is only the first step towards a bull market, as every bull market in history has not been achieved overnight. Early on, it can rely on valuation repair brought about by improved liquidity, while later on, it requires solid fundamentals for support.
According to the National Bureau of Statistics, China's manufacturing Purchasing Managers' Index (PMI) for September was 49.8%, an increase of 0.7 percentage points from the previous month, reaching a new high in nearly five months, which is a good start for macroeconomic data stabilization. The more critical data is whether consumer spending can really pick up after the National Day holiday, driving corporate profits and employment back to normal.
In this process of returning, peripheral negative news will continue to emerge. After all, in today's financial warfare, no one can easily admit defeat.
On October 4th, the Federal Reserve could not wait to use the September non-farm employment data, which greatly exceeded expectations, to suppress the expectation of interest rate cuts within the year. On the same day, the European Union voted to pass a resolution to impose additional tariffs on Chinese electric vehicles. These negative news indeed caused some disturbances in the trends of Hong Kong stocks and Chinese concept stocks.A bull market without the support of the real economy cannot go far, and relying solely on the rise of the securities sector is also insufficient to pull up the overall market. After all, in historical bull markets, finance often leads the charge only in the initial phase, while industries closely related to consumer spending, such as information technology and discretionary consumption, will play a pivotal role in the mid-term.
It is hoped that in addition to being busy with account opening, margin trading, and IPOs, securities firms will also take the time to reflect on how to truly achieve financial services that support the real economy, and to write well the five major chapters of finance. This would allow the broad population to benefit from investing in Chinese assets, rather than leaving behind a mess after another stock market disaster.