These are the three major focal issues in the current A-share market: deposit migration, regulatory stance, and market narrative.

On September 2nd, Morgan Stanley Chief China Economist Xing Ziqiang's team analyzed three core issues currently facing the A-share market in their latest research report: the potential and limitations of household deposits migrating to the stock market, regulators' balanced attitude toward stock price surges, and investors' expectations for economic policy catalysts.

Xing Ziqiang's team believes that although theoretically there are 6-7 trillion yuan in excess term deposits available for reallocation, large-scale capital inflows into the stock market still depend on sustained market momentum and fundamental improvements.

The research report states that regulators maintain a balanced attitude toward stock market gains, neither excessively suppressing nor allowing excessive speculation. China Securities Regulatory Commission Chairman Wu Qing held a symposium with scholars and industry experts last Friday, signaling that regulators are not excessively risk-averse. However, the timing of the meeting, combined with "national team" interventions and window guidance micro-management tools, may curb excessive risk-taking behavior.

Morgan Stanley believes that while economic fundamentals still face challenges, market narrative is improving, with investors shifting focus toward potential policy catalysts and sustainable measures to boost domestic demand.

**Deposit Migration: Limited Scale Dependent on Market Momentum**

Morgan Stanley research shows that the potential for household deposit migration to the stock market mainly stems from excess allocation during 2022-2023. This excess allocation primarily resulted from three factors:

Pandemic lockdown measures that increased household savings rates, real estate market adjustments that forced households to allocate more savings to financial assets, and weak employment markets that reduced risk appetite while directing more savings toward term deposits.

Based on capital flow data, Morgan Stanley estimates total excess term deposits at 6-7 trillion yuan. However, actual migration scale will significantly depend on the sustainability of market momentum.

Morgan Stanley notes that in the first half of this year, financial institutions (particularly insurance companies) have become the main contributors to stock market liquidity, totaling approximately 600 billion yuan, primarily supported by central bank relending tools and more flexible investment performance evaluations.

The report indicates that the deposit migration process currently shows only preliminary signs. Based on seasonal patterns, household term deposit allocation decreased by 300-500 billion yuan in June and July. However, many fund investors who entered the market in 2021 are still seeking to recover previous losses, which constrains migration speed.

**Regulatory Attitude: Balanced Development with More Precise Policy Toolkit**

The research report states that regulators demonstrate a balanced attitude toward recent capital market performance. Chairman Wu Qing's symposium last Friday alleviated market concerns about excessive regulatory risk aversion, but the meeting's timing, combined with more effective micro-management tools, signals support for healthy development while preventing excessive speculation.

Meanwhile, regulatory tools have become more precise and effective. Through "national team" interventions and window guidance micro-management tools that intervene at appropriate times, this may suppress excessive risk-taking.

From technical indicators, the market indeed shows signs of partial overheating. The ratio of margin buying to daily trading volume and the CSI 300 put-call ratio have approached levels from October last year, but the margin balance as a proportion of A-share free-float market capitalization remains stable below 5%. The Shanghai Composite Index's 1.8% pullback on August 27th was the most significant adjustment since this rally began, demonstrating that regulators' precise control has been effective.

Morgan Stanley believes regulators remain committed to long-term healthy capital market development, focusing on advancing "a new round of capital market reform and opening, concentrating on investment and financing functions." Xing Ziqiang's team believes this means continuing to provide appropriate incentives for long-term investment rather than simple policy tightening.

**Market Narrative: Policy Catalysts Become Focus of Attention**

Morgan Stanley states that while macroeconomic fundamentals remain challenging, with most investors agreeing that growth will slow in the second half, compared to 1-2 months ago, investor concerns about export prospects have somewhat eased, with focus shifting toward potential policy catalysts and how to sustainably boost domestic demand.

Xing Ziqiang's team expects that given July data and August PMI showing growth deceleration, policymakers will introduce incremental easing measures targeting consumption (supporting service supply), infrastructure, and real estate. However, considering the relatively stable 5.3% real GDP growth in the first half, fiscal budget expansion and policy rate cuts appear unlikely in the near term, with fourth-quarter decisions dependent on data conditions.

The market anticipates that the "15th Five-Year Plan" to be released in late October and the Central Economic Work Conference will bring more reform signals. Xing Ziqiang's team believes this five-year plan should be more balanced than previous ones, providing clearer guidance on reform priorities beyond industrial policy. If more structural measures emerge regarding reshaping local incentive mechanisms, tax system reform, and tilting economic structure toward consumption, positive economic narratives could be consolidated.

Regarding the consumer goods trade-in policy prospects that investors are closely watching, Xing Ziqiang's team states it's too early to judge, as policy discussions for next year typically begin in November. Their preliminary baseline expectation is that project scale may be reduced but will continue, balancing policy continuity and side effects.