Central Economic Work Conference
The overall policy tone has shifted, prioritizing domestic demand, which diverges from the Third Plenum’s emphasis on establishing a modern industrial system. This indicates that policies are not only focused on long-term strategic transformation but also on short-term development. Notably, the conference text makes almost no mention of industry regulation, signaling a departure from the stringent regulatory environment of recent years. Regulatory risks in 2025 are unlikely to be a concern, and the stringent “red light, green light” approach to capital oversight has become a thing of the past.
The market’s negative sentiment on Friday stemmed primarily from the lack of alignment between policy proposals and the traditional policy logic framework. Additionally, short-term selling pressure following the announcement of the conference results contributed to the downturn. Meanwhile, the bond market continues its bullish trajectory. However, limited liquidity has created some obstacles for the equity market.
Based on statements regarding fiscal policy from the Politburo meeting and the Central Economic Work Conference, we anticipate that funds allocated during the 2025 Two Sessions will increase by at least 3 trillion yuan compared to 2024. This includes 1 trillion yuan each for ultra-long-term special government bonds, central government deficits, and local government special bonds, exceeding our previous expectations.
Overall, we maintain an optimistic and proactive outlook on next year’s macroeconomic management. However, financial market volatility remains heavily influenced by sentiment, and we believe heightened volatility will likely be the dominant theme for the stock market in the near term.
Global Perspective
In November, U.S. CPI rose by 2.7% year-on-year, up 0.1 percentage points from the previous month. The risk of a “no-landing” inflation scenario in the U.S. is increasing, making it difficult for U.S. Treasury yields to decline and keeping the dollar index relatively strong.
Under such market conditions, traditional sectors in global equity markets face significant downside risks. U.S. real estate stocks have already seen substantial declines, and stocks tied to global trade are unlikely to perform well, as reflected in the South Korean and Japanese markets. On the other hand, gold is expected to maintain its strength.
A month ago, we expressed significant concerns about the sustainability of the Nasdaq’s rally, primarily due to rising inflation risks in the U.S. At that time, the potential impact of American technological advancements on fundamentals was somewhat underestimated.