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This is the 1,602nd original article of "Value Office". The article only records the thoughts of "Value Office" and does not constitute investment advice. The author has no group, does not charge for stock recommendations, and does not manage money for clients.

Today, let's talk about a long-term super big good news (the second half).

Caixin PMI

On Monday, Caixin's PMI data for China's manufacturing industry in May recorded 51.7, an increase of 0.3 percentage points from April, which is also the highest since July 2022. Boosted by the Caixin PMI data, Hong Kong rebounded by 1.79% from a low position on the same day.

However, this is inconsistent with the domestic official PMI trend released last Friday. We analyzed this matter over the weekend. The official manufacturing PMI index for May was only 49.5, far below the previous value and the market's expectation of 50.4, which also caused a sharp drop at the end of the Hong Kong market. What exactly is going on?

Chuan Cai Securities said that the trend of Caixin and official PMI in May is inconsistent, mainly because the statistical samples of the two are different.In comparison, the official PMI manufacturing PMI has a larger sample of companies, with a higher weight for large and medium-sized state-owned enterprises, and the sample companies are spread throughout the country; the Caixin manufacturing PMI sample is mainly dominated by small and medium-sized private enterprises, mainly concentrated in the southeast coastal areas. Enterprises in the eastern coastal areas are more involved in export business, and have benefited from the recovery of external demand, which has boosted exports. As a result, the Caixin manufacturing PMI performed better than the official manufacturing PMI in May.

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This actually corroborates our analysis over the weekend: the decline in the official PMI is due to the pace of special government bond issuance being much lower than in previous years, leading to a drag on infrastructure investment. Large and medium-sized state-owned enterprises are more affected by infrastructure investment, so the official PMI data looks quite ugly.

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According to the latest report from S&P, the global composite PMI in April was 52.4%, up 0.1 percentage points from the previous month, expanding for six consecutive months, the highest since June 2023. Among them, the global manufacturing PMI was 50.3%, down 0.3 percentage points from the previous month, and has been expanding for three consecutive months. Overseas demand is recovering, which has driven the production and business activities of small and medium-sized private enterprises in the export-oriented southeast coastal areas, leading to the Caixin manufacturing PMI data continuing to improve.

Anyway, the improvement of Caixin PMI is always a good thing. As the saying goes: this year's domestic demand is not strong, but external demand is still acceptable, the total amount does not need to be worried about, but the structural differentiation will be more obvious.

Impact of the new shareholding reduction regulations

Another policy with a profound impact on the market is the "Interim Measures for the Administration of Shareholding Reduction by Shareholders of Listed Companies", which was released on May 23.

At the same time, the "Several Provisions on the Reduction of Shares by Shareholders and Directors and Supervisors of Listed Companies" issued seven years ago was abolished.In this document, patches have been applied to policy loopholes from seven years ago, such as:

1. Using forced liquidation to reduce holdings.

2. Using divorce to reduce holdings.

3. Using short selling for arbitrage or soft reduction of holdings.

Old-timers in the A-share market know that the A-share market is actually dominated by speculators. The speculators here mainly refer to executives of listed companies, major shareholders, certain private equity funds, big players in the speculative capital, and some public funds and securities firms (mainly in cooperation).The typical method of market manipulation involves listed companies releasing so-called news about mergers and acquisitions, restructuring, and shell companies, with private equity and speculative capital operating the stock prices to skyrocket in a short period, attracting a large number of retail investors to take over. Once the price has been pumped up, private equity and speculative capital first withdraw, followed by company executives and major shareholders cashing out, leaving a large number of retail investors in disarray.

Therefore, it is not that money cannot be made in the A-share market. The Chinese economy has grown more than 10 times in 20 years, and there are definitely no shortage of stocks with 10 times or 20 times returns in the Chinese stock market in terms of quantity. However, the majority of retail investors in A-shares lose money, and only two types of people have made money from the stock market: one is value investors who can hold onto stocks from the bottom, and the other is the aforementioned "rat trading".

Essentially, the first type earns money from performance, while the second type earns money from arbitrage.

According to the Hurun Wealth Report released in March, among China's 133,000 billionaires, 14% are professional stock traders, which is surprisingly much higher than the 7% proportion of real estate investors. Can you believe it? It turns out that stock trading can make money, and can make so much money! However, it is clear that most of this money is earned from the second type of arbitrage.

If these arbitrage capital is not driven out of the stock market, then the ecology of China's A-shares cannot be improved, because the stock market's returns are limited, and if the arbitrage is taken away, the money that can be earned from performance is reduced. The result of bad money driving out good money is that A-shares are full of speculators, with very few value investors and patient capital.

We must see that cracking down on speculation is not something new, and the management will bring it up from time to time, but the effect has always been very limited. In recent years, during the tenure of the last management, there has been a sign of intensification. Everyone will definitely ask: will this time be different?

There is no clear answer to this question. But one thing is certain, you can doubt the effectiveness of the policy, but there is no need to question the determination of the management. Why did the management issue the "Nine Articles of the State"? It is because the capital market has reached a point where reform is imperative.

In the live broadcast, we mentioned that in the past few decades, our economy has been driven by investment. Residents deposit money in banks, the state takes the money for infrastructure construction, and real estate developers take the money to build houses.

But the infrastructure that needs to be built has been completed, and the houses that need to be built are almost finished. This year, a major reason why special bonds are not issued is that there are not enough profitable infrastructure projects to be found. What to do?

There are only two ways, one is to develop high-quality manufacturing industries with high return on equity (ROE), and the other is to guide money into the stock market, allowing the stock market to replace real estate as a reservoir of funds and a perpetual motion machine for residents' wealth.The reservoir must be able to hold water, and it cannot have too much fluctuation, just like housing prices. It's not feasible to fall, and it's also not feasible to jump up and down. The best is to fluctuate upwards like the U.S. stock market, so we said in the live broadcast that the high-level is learning from the United States to change the economic growth model.

When the stock market does not have such a high strategic position, in order to activate the market, the country will default to some interest groups to take advantage of loopholes, just like when the housing prices have not yet soared to the sky, the country also allows people like Xu Daizhi to engage in art troupes and the like. However, when the proportion of real estate in the economy is too large, the importance is too high, and the risk is uncontrollable, it is impossible to indulge real estate developers to mess around.

Therefore, since the "Nine National Articles" have set the direction, during the period when the new village head is in power, we should be able to continue to see a series of policies to combat speculation, cultivate patient investors, and improve the ecology.

The introduction of these policies is often bearish for the market in the short term because those arbitrageurs have lost their arbitrage tools and must definitely break even and smash the market. The recent trend of the market also reflects this. However, after the pain, in the long run, it is beneficial to value investors. The part that was originally taken away by the arbitrageurs will also return to the hands of value investors.