How to understand the logical flow of policies, stay one step ahead, and gain insights into market opportunities? [Masterclass Introduction by Master Xiong Yuan]

This Issue

I started working at the Industrial and Commercial Bank of China headquarters, then moved to Anbang Asset Management for buy-side investments. In 2018, I joined Guosheng Securities to do sell-side macro research. Actually, I haven’t previously systematically shared my policy analysis framework, so this time Wallstreetcn gave me an opportunity to organize how I interpret and judge policies.

From my own experience, everyone knows there are many schools of thought in capital market research—some focus on data, some on policies, some on market news, and others on service. But there are countless paths; making market views more verifiable might be the key. Based on my seven or eight years of experience, I didn’t have a background in macro research in the secondary market before—2018 was my first year transitioning from banking and buy-side asset management to sell-side. I should say that around 2018 and 2019, in my second year in the industry, I was recognized in market awards, which is quite rare.

If I were to share some important insights, or say what advantages I might have compared to other market analysts, it would largely be my own perspective on policy interpretation. But returning to this skill itself, I think today’s audience is here partly to understand policies, and partly to gain market insights. So before diving into the framework, I want to spend 5 to 10 minutes briefly reviewing recent events—things I believe everyone is more concerned about and which might be more helpful.

The first thing you might have noticed is that the U.S. has nominated a new Federal Reserve Chair. Since the announcement, over the past week or two, especially in recent days, gold and silver prices have plummeted. Although this is an overseas event, understanding the underlying logic reveals that, despite many factors influencing gold and silver prices, a significant catalyst in the recent decline—particularly the day before yesterday and the day before that—was the new nominee for Fed Chair. Because this nominee is not the highly dovish type that markets widely expected—meaning not strongly inclined to cut rates—they might cut, but with more moderate means and力度 than market previously anticipated.

In fact, if you analyze this from a policy perspective, the reasoning is similar. As the world’s major central bank, the Fed’s policy moves—something we will also discuss later—are crucial whether analyzing domestic or global asset price changes. They determine the pace and scale of global liquidity injection. Similarly, China’s People’s Bank of China, often called “the Central Mother,” determines the domestic monetary and fiscal easing. The logic is the same. So the first point I want to briefly share is a basic observation.

The second point also relates to policy. You’ll notice that since the beginning of this year—almost a month now—the A-shares market has performed very well in the first two weeks, with the main index soaring. If you follow fund performance, many sector-focused public funds saw nearly 20% gains in just two weeks in January. Sectors like commercial aerospace and brain-computer interfaces surged significantly. From a market perspective, this clearly reflects capital chasing these sectors. Many people asked me how I viewed the market, wondering if the good start to the year means it could reach 5000 points. In my view, if you understand policies, you should be cautious. I remember many investors and fund companies asked me at the time. I said that in the first month or two of the year, especially the first half, many popular sector funds surged rapidly. Based on my judgment, the government was likely to intervene. Because such rapid and sharp increases don’t align with the “slow bull, long bull, healthy bull” approach advocated by the CSRC over the past two years—especially the last year. When prices rise too fast, it’s easy to encounter the so-called “cold at the top,” or what people often call “crowding at the peak,” which warrants risk awareness. While the truth is always correct, there is policy logic behind it.

What I want to illustrate with these two examples is that whether it’s overseas commodity and gold prices or domestic A-shares, their short-term rhythm and overall trend are significantly influenced by policies. That’s why I want to emphasize the importance of policy in today’s opening remarks.

Let me give another example of why policy is important. About a year and a half ago, on September 24, 2024, there was a major policy shift. In the first half of 2024, especially from May to September, the market was very sluggish. I remember vividly because Guosheng Securities, a local brokerage in Jiangxi Province, held a Q3 operational analysis meeting at the end of August or mid-September, just half a month before the policy was announced, where I was invited to give a speech. The leaders said that, given the market trend at that time, the year-end results would likely be heavily loss-making. Since our research team was established in 2018, we had maintained breakeven until then, but in Q3 2024, we were about to incur losses. Then, a series of policies were introduced.

I mention this to show that if you only extrapolate linearly, you might think the situation is dire, leading to layoffs or contraction, and even be very pessimistic about the stock market. But in early August 2024, I wrote weekly reports for several weeks, explicitly indicating “a policy will be coming soon, possibly by the end of September.” Before the policy was announced on September 24, I further said “within half a month at the latest.” I had no insider information—just analysis. When the policy was actually released on September 24, almost no one else dared to say “I predicted this,” except me, because I had been writing weekly reports for five weeks, hinting at policy.

How did I make this judgment? I will explain this in detail later. This event shows that before major policy turning points, although you might sense the direction or probability, pinpointing the exact timing is difficult. However, the underlying logic can be analyzed and discussed. Just as I mentioned earlier, whether it’s China’s reserve requirement ratio cuts, interest rate cuts, regulatory tightening, real estate rescue measures, financial regulation, or internet industry norms, many policies have internal logic. So I want to use this brief opening to connect a few points in a few minutes, helping everyone understand the general thinking framework of our country’s policies.

Another topic many of you have asked about in recent days is worth mentioning. If you look at the past three or four years, especially in private conversations, dinners, or small-group discussions, when asked how to interpret recent Chinese policies, you might often hear people “spitting” or complaining, feeling that many policies are “forced” out—only after data deteriorates or a “crisis” appears do they take action. There are underlying reasons behind this that are worth exploring, and I will elaborate on this later.

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