Chinese Brokers Surge: Is a Bull Market on the Horizon?

In a market climate marked by policy-driven counter-cyclical adjustments and uncertainty over trade policies, pursuing a cautious strategy remains the overarching theme for China’s A-share market. Investors are advised to maintain a measured approach, favoring controlled accumulation of positions at lower levels without chasing sharp rallies.

On Wednesday, the market experienced a broad-based surge in trading volume. Leading the charge was the securities sector, which rallied over 5%, with brokerages such as Huaxin Securities, TF Securities, Pacific Securities, and Jinlong Holdings reaching their daily limit up. Other players like Guosheng Financial Holdings, Founder Securities, Cinda Securities, and China Galaxy Securities also saw gains.

The political bureau meeting in July addressed pressing market concerns, including economic targets, policy tone, and consumption. It emphasized boosting domestic demand through consumption stimulation, with a focus on improving livelihoods and consumption promotion. Measures include increasing household incomes, enhancing consumption capacity and willingness among lower-income groups, and prioritizing service consumption in sectors like tourism, elderly care, childcare, and housekeeping services.

The meeting’s positive signals bolstered market confidence, triggering a strong rally in consumer and brokerage stocks. Throughout the recent downturn, apart from the real estate sector, consumer and brokerage stocks were notably affected. High-dividend stocks continued to attract interest, reflecting market sentiment about economic challenges and stock market weakness.

Today’s market-wide rebound, fueled by the political bureau meeting’s positive impact, along with the robust performance of consumer and brokerage stocks, raises questions about whether a bull market is imminent. However, observing the bond market, where long-term government bonds have continued to rise, indicates that the current rally in consumption and brokerage stocks is not grounded in economic recovery. Instead, it is primarily attributed to a technical rebound from oversold conditions. Despite the high-quality nature of the rebound, its connection to the “bull market vanguard” role of brokerages is tenuous, warranting cautious optimism.

Analysts weigh in on the situation. Huatai Securities suggests that the meeting’s reaffirmation of achieving annual growth targets implies an intensification of counter-cyclical measures – potentially placing August in a policy adjustment window. However, the emphasis on balancing growth stabilization with structural adjustment persists. Amidst economic volatility and uncertainties surrounding US elections and trade policies, pursuing a cautious strategy remains the A-share market’s keynote, cautioning against impulsive advances.

CICC observes that the central political bureau meeting on July 30 conveyed positive signals regarding both macroeconomic and structural policies. With a commitment to sustained and enhanced macroeconomic efforts, alongside a shift towards pro-consumption and pro-livelihood policies, recent fiscal moves, such as allocating approximately 300 billion yuan in ultra-long-term special treasury bonds for equipment upgrades and consumer goods replacement, signal a change in fiscal focus.

However, Citic Securities argues that the central bank’s rate cuts reinforce counter-cyclical adjustments, benefiting the securities sector through improved liquidity and a recovering fundamental backdrop. They highlight the effectiveness of the recent rate cuts in lowering financing costs and breaking negative cycles, potentially supporting the securities sector.

While the unexpected strength from the political bureau meeting triggered a market-wide recovery and a rare 2% single-day gain for the benchmark index, with brokerages surging by 5%, this is likely a technical rebound from depressed levels. As such, overly optimistic expectations should be tempered. In the short term, the securities sector may extend gains on improved sentiment. Yet, in an environment of heightened policy counter-cyclical support and trade policy uncertainties, pursuing a cautious strategy remains the dominant narrative for the A-share market. Investment strategies should remain prudent, advocating for controlled accumulation at lower levels without recklessly chasing rallies.