On May 21st, a speculative expert from Hexun Investment Consulting highlighted in their market analysis that China has once again cut interest rates. However, the market’s response has been underwhelming. The question arises: Is it that investors’ expectations of the interest rate cut driving the rise of A-shares are too high, or is the interest rate cut itself insufficient? The expert suggests that historical data shows that even with significant interest rate cuts, the A-share index has remained relatively stagnant.
Historical Context and Current Market Dynamics
Looking back, interest rates have dropped from 3% to 4% a few years ago to the current long-term deposit rate of 1.3%. Despite these cuts, the A-share index is still hovering around 3,000 points. The expert argues that simply believing that interest rate cuts will benefit the A-share market is not sufficient for market stability, especially in the context of years of continuous rate cuts.
Analysis of Interest Rate Cuts and Market Response
The expert points out that past interest rate cuts were a slow process and were essentially equivalent to the average dividend yield of the A-share market. For instance, if the average dividend yield of A-shares is 3% and the deposit interest rate is also 3%, then even with an interest rate cut, investors’ willingness to convert their deposits into stocks remains weak. However, as interest rates continue to decline, the difference in interest or dividend income between the two types of assets becomes more pronounced. The greater the income gap, the larger the scale of capital flowing into the stock market.
Current Market Conditions
Currently, investors see the average long-term deposit yield dropping to 1.3%, with the possibility of further reductions. Meanwhile, under the encouragement of the China Securities Regulatory Commission (CSRC), the average dividend yield of the A-share market is gradually rising, and the frequency and amount of dividend distributions by listed companies have increased. As deposit yields drop to extremely low levels while dividends rise, the willingness of capital to weigh the spread significantly increases, leading to a greater inclination to allocate funds to stocks.
Policy Influence and Market Structure
The expert notes that in recent years, the CSRC has been releasing favorable policies, often in a chain. On one hand, the CSRC encourages listed companies to increase the frequency and amount of dividends. On the other hand, it also encourages major shareholders of listed companies to increase their holdings and even provides financial support. This creates a special structure where interest rates are relatively low. Investors can take out loans from banks at an interest rate of only 3%, and if listed companies can maintain an annual dividend of 5%, investors can obtain a 2% interest spread income each year.
Investor Behavior and Market Opportunities
Many investors emphasize that they would rather deposit their funds in banks, even if they do not receive interest. However, in this case, their funds are actually utilized by capital. Investors often feel confused at this turning point because they fail to see market opportunities and have no profit-making effect. Meanwhile, the earnings of banks are also extremely low. In this situation, investors often choose to stay in the bank, while their low-cost funds are utilized by capital.
Policy Logic and Market Direction
The expert points out that many investors feel they can’t keep up with the pace because they haven’t understood the logic behind the policies. Sometimes, policies have already clarified the direction, but many investors still can’t see the opportunities and dare not act easily. When they truly see the opportunity, the market has already completed the transformation, and the gap between current dividends and interest is already very obvious. On one hand, the CSRC encourages listed companies to distribute dividends. On the other hand, it also provides listed companies with conditions for loans to increase their holdings of their own stocks. As long as the listed companies have the ability and conditions to make profits and can meet the dividend requirements, they are essentially “picking up” profits for free.
Future Market Outlook
In this context, even if investors themselves do not actively flow their deposits into the stock market, other funds will do so on their behalf. Therefore, if monetary policy becomes further relaxed in the future, the willingness to enter the market will definitely gradually increase. Understanding this logic will clarify the direction of the future market. This is also one of the main reasons why speculative experts emphasize that the future market is likely to have an upward trend.
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