ated that on June 3, Chongyang Investment issued a statement that after experiencing a huge shake-up at the beginning of the year, the A-share and Hong Kong stock markets have shown strong performance since the Spring Festival. The Shanghai Composite Index and the Hang Seng Index once broke through the key levels of 3100 points and 19000 points. Despite some adjustments in the market in the past two weeks, it is believed that a new opportunity for Chinese stock assets is emerging after three years of continuous decline. Chongyang Investment stated that after the Spring Festival, the Chinese stock market continued to rebound amidst widespread pessimistic expectations. Currently, whether it is the Shanghai Composite Index representing A-shares or the Hang Seng Index representing Hong Kong stocks, the rebound from the February low point has exceeded 20% at one point. While it may not be meaningful to say that the market has entered a technical bull market, there is no doubt that compared to the current market situation in 2023, the market is showing better profit potential. In terms of structure, the sectors leading the market rebound are still high-yield stocks and resource stocks that have been strong since last year. There are two main reasons for this. Firstly, from a fundamental perspective, these sectors have generally stable or slightly growing performance in the economic downturn. In situations of low market risk appetite, these sectors become havens for investors. Secondly, the A-share market still has a strong mean reversion property, with these sectors performing relatively poorly during the 2019-2021 market, and institutional crowding is generally low. Looking ahead, Chongyang Investment believes that with the overall stability of the market indices, market hotspots are expected to shift from defensive sectors to growth sectors. Despite the market having accumulated some gains since the February low point, the relative strength of sectors indicates that investors are still pessimistic about the prospects of the Chinese economy. Compared to defensive stocks, some companies with good long-term growth prospects have a better advantage in terms of adjustment cycles, valuations, and even dividend yields. The Central Political Bureau meeting in late April has sent a more positive signal for stabilizing growth, and adjustments in real estate policies since May indicate a shift from contraction to expansion in real estate policies. The 20th Third Plenary Session scheduled for July will make a comprehensive deployment for further deepening reforms and promoting Chinese-style modernization, all of which will help boost investor confidence. With the push of various policies, if China's economic growth can further rise, these growth stocks are expected to become the leading sectors in the next stage. (I) The downside space and time of the market have been fully utilized The stock market reflects investors' expectations for the future economy. In 2020, China quickly recovered after the epidemic, leading Chinese stock assets to outperform globally. After 2021, as the real estate market entered a downturn, the external geopolitical environment deteriorated, and long-term issues such as demographics became increasingly prominent, Chinese stock assets had entered a bear market lasting three years. It is undeniable that these negative factors are objectively present. But even in the worst-case scenarios, Chinese stock assets have already priced in various negative factors. Based on factors such as aging demographics, the market often compares the current Chinese economy to Japan's economy after the burst of the 1990 bubble. Within five years after the burst of the bubble, the Nikkei Index and the MSCI Japan Index, which represent Japan, fell by about 60%. In this round of bear market, the MSCI China Index and the Hang Seng China Enterprises Index have fallen by around 65%, while the Shanghai and Shenzhen 300 Index, representing A-shares, has also fallen by nearly 50%. Although the surface decline is similar, investors' expectations in the two bear markets in Japan and China are completely different. While the Japanese economy experienced long-term prosperity after the war, especially in the late 1980s when it tried to surpass the United States, even though the market experienced a sharp decline after 1990, overall investor expectations remained optimistic, with a forward P/E ratio as high as 21 times when the market hit a phase bottom in August 1992. In contrast, the MSCI China Index had a forward P/E ratio of only 9 times when the market hit a bottom in February this year. In simple terms, Japan had no "Japan" before, but for Chinese investors, learning from Japan's experiences and lessons has exceeded 30 years, and the adjustment and pricing of market expectations are already very sufficient. The time of market decline is also an important dimension. Historically, even in very large bear markets, the main declines have been achieved within three years. The longest bear market in U.S. stocks occurred in 1929 after the stock market peaked, with the S&P Index bottoming out after experiencing a 33-month decline. After the burst of the bubble in Japan in 1990, although the market's final bottom technically appeared in 2012, the Nikkei Index's first important bottom appeared in the 32nd month after the market peaked, followed by more prolonged and wide-ranging volatility. In contrast, the MSCI China Index hit its peak in February 2021 and bottomed out in February 2024, with a decline lasting 36 months. In the past three years, both the magnitude and duration of the bear market in Chinese stock assets have been sufficient. With significant net inflows of Northbound funds after the Spring Festival, and the Hong Kong stock market outperforming A-shares, it is a clear recognition of the investment value of Chinese stock assets by overseas investors. (II) Market supply and demand dynamics are improving Stocks are a way to allocate social wealth. With economic growth and the expansion of social wealth, the market value of stocks should also expand in the long run. Chongyang Investment believes that both cyclical and structural factors currently favor the stock market. From a cyclical perspective, the proportion of stock market value to social wealth is at historically low levels. One indicator is that the total market value of the A-share market as a percentage of M2 fell to 22% at the end of January, below the lowest point in 2018, and into the historical low range of 2012-14. Another indicator is that the total market value of all Chinese stock assets (A-shares, Hong Kong stocks, and overseas Chinese stocks) fell to 76% of GDP at the end of January, also below the lowest point in 2018, and into the historical low range of 2012-14. In fact, even though the proportion of A-share market value to M2 is at historically low levels, the total market value of A-shares is still generally at historically high levels. With poor market index performance being a significant consequence of excessive new supply. China's stock market financing has topped the global ranking for several years, with a large number of IPOs and refinancings expanding the market value of A-shares but squeezing the space for internal growth. This situation has started to change, with the new "nine regulations" strictly controlling the admission criteria for IPOs, raising the threshold for new stock listings, and tightening refinancing approvals.With strict regulatory measures, the pace of market expansion through external means will be significantly slowed down. This will greatly improve the supply-demand relationship in the market and benefit the endogenous growth of the A-share market capitalization.The new "Guo Jiu Tiao" brings real institutional changes to the A-share market In the history of A-shares, the market has always been focused on financing rather than investment. The main mission of the past two "Guo Jiu Tiao" was to serve the reform of state-owned enterprises and finance the development of emerging industries. Taking the 2014 version of "Guo Jiu Tiao" as an example, the first point after the overall requirements was to develop a multi-level stock market, aiming to help various enterprises raise funds and support the real economy and technological innovation through a multi-level stock market. Guided by the idea, the number of listed companies in the A-share market has expanded from over 2,300 in 2014 to more than 5,300 now, surpassing the number of listed companies on the US stock market. Even from the perspective of supporting technological innovation and developing new productive forces, the number of listed companies is already sufficient. After the introduction of the new "Guo Jiu Tiao", comparisons were made with the "Guo Jiu Tiao" of 2014 and 2004, and it was found that strict regulation and risk prevention have become the main themes. ReYoung Investment believes that this is not bearish for the market, but the greatest good news, indicating that the policy orientation of the A-share market has shifted from a financing market to an investment market. Another important feature of strengthening the market's investment attributes is increasing investor returns. Statistics on mature stock markets such as the United States, Europe, and Japan show that the shareholder net return rate (the proportion of shareholder net return to total market value) in the history of the US, Europe, and Japan stock markets has been between 2-4%, while the A-share market was zero or even negative before 2022. The evolution of regulatory systems, the weakening of the impulse for corporate scale expansion during the period of economic transformation, and the strengthening of intrinsic reward and punishment mechanisms in the market will all make the return to investors in the A-share market increasingly significant. This will also attract more funds into the market, making the A-share market a true reservoir of household wealth and an effective means of increasing value.