- 2024-11-27
- News
Will A-shares Enter a Fundamental Bull Market in 2025?
With the introduction of a series of incremental policy measures, the A-share market rose temporarily before entering a phase of volatility. In this context of expanding policy space, what other easing measures are on the way, and what will their scale be? Where do investment opportunities lie in the A-share market for 2025?
At the CITIC Construction Investment Securities 2025 Capital Markets Summit held on November 26, the general manager of CITIC Construction Investment Securities, Jin Jianhua, stated that from a medium to long-term perspective, advantageous conditions for China's economic development—such as a solid foundation, strong resilience, and vast potential—remain unchanged. China boasts a super-large market, a complete industrial system, strong supporting capabilities, and significant growth space, all of which will persist over the long term.
Regarding the macroeconomic environment of 2025, Huang Wentao, the chief economist and co-head of the research and development department at CITIC Construction Investment Securities, believes that external uncertainties are increasing, making internal circulation more vital. Anti-deflation measures are underway, and policies are expected to become more robust, likely to include stronger initiatives focused on people’s livelihoods and consumption, with domestic technological demand being a central theme.
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How will the A-share market evolve? Chen Guo, the chief analyst of strategy research at CITIC Construction Investment Securities, anticipates that as policies gradually strengthen and demonstrate effectiveness, a bull market in 2025 is likely to transition from a “liquidity-driven bull” to a “fundamentals-driven bull.” Although fluctuations and divergences are inevitable during this process, the market will not lack investment opportunities, and there is optimism about the year-end and New Year cross-period trading.
Fiscal Policy Enters an Expansionary Cycle
Since the beginning of this year, the geopolitical landscape surrounding global economic trade has become increasingly complex, leading to a contradiction and difficulties in China's economy, characterized by sluggish domestic demand, weakening foreign trade, and the pains of transformation.
“From a medium to long-term perspective, external challenges pose short-term difficulties for China's rise, but the long-term outlook is not pessimistic,” Huang Wentao stated. Constant international policy disruptions have impacted China's external development; from China's own perspective, real estate inventory remains relatively high, with a de-stocking cycle of about 30 months, and there is still room for mortgage rates to decline. Traditional economic driving forces may wane or stagnate, making it imperative to follow the path of innovation, transformation, and high-quality development in China.
In his view, challenges also present opportunities, and the momentum of China's economy is shifting. After September 24, policies underwent a fundamental shift towards a "multi-pronged approach."
“China has a rich array of policy tools and significant policy space; the focal point for policy in 2025 will be the expansion of fiscal policy,” Huang Wentao believes. Among next year’s macro policies, fiscal policy holds the most potential for imaginative progress; in addition to the already announced 10 trillion yuan debt relief package this year, there is considerable room for improvement in deficit rates, special bonds, and extraordinary treasury bonds.
Chen Guo also noted that fiscal measures are expected to gain further momentum. Beyond debt relief, increasing the central deficit rate, real estate reserves, dual uncertainties, and welfare for the people are likely to become key areas for fiscal effort. Reforms in the income distribution system need to be further deepened. Domestic financial and credit cycles are expected to reach a turning point, marking the start of an upward cycle. The capacity cycle is also likely to bottom out in 2025.
Liquidity Expected to Remain Loose
In late September of this year, the A-share market experienced a brief surge before entering a volatile phase again. In response, the market has shown differing views on future trends: some believe the bull market will continue with ongoing policy initiatives, while others, more cautious, think the stock market has already reflected certain expectations and will depend greatly on forthcoming policy actions; pessimistic views express caution about the future.
Chen Guo maintains a medium-term optimistic perspective on the “confidence reassessment bull” in the Chinese stock market. He asserts that the core logic revolves around “supporting asset prices + resolving debt + bolstering domestic demand in 2025 + contraction of actual supply + enhancing shareholder returns + breakthroughs in new industries,” pursuing multiple paths to ultimately end deflation.
Reflecting on previous bull markets in 2009, 2016, 2019, and 2020, Chen Guo expects this bull market to unfold in three phases: the first led by proactive policies—valuation repair; the second focused on fundamental expectations—overall volatility with multiple threads running parallel; the third confirming trend in fundamentals—recovery affirmation with stable index growth, along with cyclical and industrial movements.
“Currently, we are positioned in the second phase, wherein liquidity is generally ample, risk appetite is at a high level, and profitability has not yet confirmed recovery but shows better validation expectations; the market lacks a clear leading theme, often advancing through multiple threads, with active thematic investment opportunities,” said Chen Guo. Based on experiences from market bottoms to confirming trends in fundamentals, it typically takes around 5 to 8 months.
How should one invest in this second phase? Chen Guo told a reporter from Yicai that while policy directions remain unclear, investments can be themed around industry and concepts that do not rely on stimulus policies. After the Central Economic Work Conference convenes, a more focused approach to policies that benefit specific directions is advisable.
He also mentioned that he is optimistic about the cross-year trend at the end of this year and leans towards overweighting several main themes: in asset reassessment, benefiting sectors such as finance and real estate debt relief; resilient assets in the new form of production benefiting from fiscal support and themes related to service consumption and in-depth supply-side reform.
Chen Guo believes that liquidity support will be a key factor in the early stages of the bull market, expecting that by 2025, the Chinese economy and A-share market will remain in a relatively loose liquidity environment, with continued monetary easing policies such as reserve requirement cuts and interest rate reductions; the funding structure driving the bull market will quietly change, with new regulations on major reductions by listed companies during bullish periods already starting to impose restrictions on such activities, under policy support directing funds towards new form production and strategic emerging industries.
“Under a neutral hypothesis (where domestic demand policies fully offset potential external demand shocks and prices rebound reasonably), the trend of A-share profit recovery can be confirmed in the second half of 2025, and investment prospects will gradually return to normalcy,” said Chen Guo. If the bull market progresses to its third phase, with confirmation of recovery in fundamentals, the focus will shift to cyclical stocks; should growth sectors present opportunities in industrial cycles, they will also evolve simultaneously.
Regarding the outlook for China's stock and bond markets in 2025, Zhou Junzhi, chief macro analyst at CITIC Construction Investment, believes that the liquidity trend has yet to conclude, and a bullish start for A-shares in 2025 is likely as long as the market continues to leverage liquidity. The possibility of a transition to a trading phase based on fundamentals for Chinese stocks and bonds in 2025 will largely depend on whether interest rates decrease to an appropriate level. Sectors related to international supply chain restructuring and those with absolute competitive advantages supporting the rise of non-U.S. shares in the export chain may provide structural opportunities for the Chinese stock market.
From an asset allocation perspective, Yao Ziwei, head of financial engineering and fund research at CITIC Construction Investment, recommends focusing bond allocations on long-term debt based on the latest macro signals. Equity investments should adopt a strategy combining dividends, broad market coverage, and growth, where dividends and broad market assets serve as the core holdings. Meanwhile, gold signals remain within an optimistic range.
Looking ahead, as market trading becomes increasingly active and passive index funds thrive, markets will become more efficient, making it harder to generate Alpha, necessitating more meticulous and in-depth research. In particular, short-term price and volume Alpha resulting from mispricing may soon hit a cyclical low; it is advised to focus on the long-term impact of fundamentals on stock prices, especially as liquidity improves, growth factors are expected to recover.
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