中国股票策略・“慢牛” 指南：背景、动因、挑战与展望-China Equity Strategy _Guide to the ‘slow bull‘ (part 1)_ Background, reasons, challenges and outlook

Summary of Key Points from the Conference Call Industry Overview - The focus is on the A-share market in China, which has been underperforming compared to global indices since 2010, with a widening gap since 2020. The A-share market's long-term trend does not align with China's economic growth, indicating structural challenges within the capital markets [2][10][11]. Core Insights and Arguments 1. Structural Challenges: - The A-share market has historically been financing-oriented, neglecting investor returns. State-Owned Enterprises (SOEs) dominate the market but trade at a significant valuation discount compared to non-SOEs. Additionally, equities represent a small portion of household wealth, leading to an elevated equity risk premium [2][13][20]. 2. Need for a 'Slow Bull' Market: - A 'slow bull' market is deemed essential for transitioning the stock market into a primary wealth reservoir, potentially replacing the property market. This shift could support the 'common prosperity' initiative and enhance confidence in non-SOE sectors [3][62][70]. 3. Reforms Underway: - Current reforms aim to improve investor returns through increased dividend payments, share buybacks, and better information disclosures. These reforms are expected to attract long-term capital and enhance market liquidity [4][46]. 4. Earnings Growth Projections: - The A-share market is projected to see earnings growth accelerate from 6% YoY in 2025 to 8% in 2026, driven by supportive policies and a recovering economy. This growth is expected to be supported by a decline in the risk-free rate and increased household savings allocation into equities [5][61]. Additional Important Insights 1. Valuation Discrepancies: - SOEs, which make up about 45% of the A-share market cap, trade at half the price-to-earnings (PE) and price-to-book (PB) multiples of non-SOEs. This valuation gap is attributed to sector distribution, operating efficiency, and negative investor perceptions [21][22][37]. 2. Household Asset Allocation: - Households in China allocate only about 15% of their assets to equities, reflecting low expectations for stable returns. This is compounded by a preference for fixed income assets, which has been reinforced by high real interest rates [48][53][56]. 3. Impact of Property Market Downturn: - The ongoing downturn in the property market has negatively affected household wealth and confidence, leading to a higher equity risk premium in the A-share market compared to historical averages [52][64]. 4. Government Fiscal Pressure: - Local governments are facing fiscal pressure due to declining land sales revenue, prompting discussions on an equity-based fiscal model to generate additional revenue through state-owned capital operations [85][86]. 5. Investor Composition: - The state holds a significant portion of the A-share market, with estimates suggesting that state-related entities account for at least Rmb33 trillion, nearly a third of the total market cap [71][75]. Conclusion - The A-share market is at a critical juncture, with ongoing reforms and a potential shift towards a 'slow bull' market that could enhance investor confidence and align market performance with economic growth. The structural challenges, particularly regarding SOE valuations and household asset allocation, remain significant hurdles to overcome for sustainable market development [2][3][4][5][21][22].