In recent weeks, the Chinese stock market has been invigorated by a series of government policies that have aimed to boost investor confidence and increase liquiditySince mid-September, there has been a notable surge in leveraged funds entering the A-share marketThis particular influx of capital has led to unprecedented buying activityFor instance, the amount of leveraged funds per day reached historic levels, as buyers flocked to various stocks that began to exhibit strong market performance.

As these changes unfold, questions arise about which stocks are currently favored by leveraged investors and how the market may perform in the future.

To actively engage with the theme of “stimulating the capital market and boosting investor confidence,” the government has been rolling out numerous policies

A key policy enacted was on August 28, when both the Shanghai Stock Exchange and the Shenzhen Stock Exchange revised their implementation guidelines for margin trading, lowering the margin requirement from 100% to 80%. Additionally, on September 1, the Beijing Stock Exchange announced that all listed stocks would be included in the margin financing and securities lending list, with both sets of guidelines coming into effect on September 11.

Many market analysts have commented on these pivotal changesGuotai Junan, for instance, noted that this initiative exceeded expectations and illustrated the government’s determination to revitalize the capital marketBack in 2015, a similar adjustment to margin ratios was also shown to successfully direct financing activities, leading to significant changes in overall financing balances in the market.

The impact of this policy has been immediate and substantial

According to statistics from Wind, on September 11 alone, leveraged investors entered the market, resulting in a net buying of A-shares amounting to 25.541 billion yuan, marking the highest figure since 2021. From September 11 to September 14, the net buying reached a cumulative total of 40.930 billion yuan.

On a stock-by-stock basis, various margin-funded stocks witnessed significant upward adjustments during this time frame.

Data shows that out of over 3,400 stocks eligible for margin financing, more than 2,500 experienced net buying from leveraged funds, accounting for over 70% of the totalNotably, among these, 72 stocks saw net purchases exceeding 100 million yuan.

In terms of sector performance, the new energy and pharmaceutical industries have emerged as major beneficiaries of leveraged buying

Leading the net buying charts is Contemporary Amperex Technology Co., Limited (CATL), a global leader in lithium battery productionClose behind is Mindray Medical International Limited, a key player in the medical device sector.

Furthermore, financial stocks have not been overlooked, as notable entities in the top 20 net buying list include CITIC Securities and East Money Information Co., along with three major banks: China Merchants Bank, Bank of Ningbo, and Jiangsu Bank.

While larger-cap stocks dominate the net buying scene, many small and mid-cap stocks have also caught the attention of leveraged fundsAmong the notable small-cap names that made the top 20 list of leveraged buys are Zhenjiang Hi-Tech Co

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and Higee Communication Co., whose market valuations currently sit below 100 billion yuan and even 50 billion yuan, respectively.

These smaller stocks, though not large in market capitalization, have also performed brilliantly in the secondary marketFor example, the stock price of Zhenjiang Hi-Tech surged over 10% during the period from September 11 to September 14.

Longer-term performance reveals a strong correlation between Zhenjiang Hi-Tech’s market achievements and its improving fundamentalsOn August 25, the company announced a significant profit increase, reporting a net profit attributable to the parent company of 392 million yuan, marking a staggering year-on-year increase of 1,701.61%. Interestingly, it was on the same day that the stock price bottomed out and subsequently rebounded vigorously, achieving an overall rise of over 80% since then, including multiple circuit-breaker limits.

This pattern seems to hold true for other smaller stocks as well; rapid growth in earnings typically leads to noticeable increases in share price

For instance, Suzhou Dazheng’s performance also showed remarkable growth, with a net profit of 12 million yuan, up 784.54% year-on-yearFollowing the earnings announcement, the share price also rebounded sharply, rallying approximately 70%.

Further examples of small-cap stocks experiencing similar trends include Shanghai Electric, Tongfang Co., Ltd., and Xiaomaishop, all of which recorded notable share price increases following strong earnings reports.

Overall, it is evident that leveraged investments have predominantly flowed toward high-performing stocks, including smaller companiesStatistics reveal that 71 of the companies that experienced net purchasing of over 100 million yuan reported profitability for the first half of the year, representing an impressive 98.61% of the sample size

Among these, 43 firms recorded different levels of profit growth.

Prominent investors are also involved in this buying spreeFor instance, Wuliangye, a major player in the liquor industry, was once a highly favored stock of renowned investor Lin YuanAt Wuliangye’s recent annual shareholder meeting, Lin Yuan expressed interest in increasing the dividend payout, drawing considerable attention.

As the largest company in the liquor sector, Wuliangye and Kweichow Moutai have increasingly attracted market interest as the Mid-Autumn Festival and National Day approachLin Yuan has previously expressed a bullish outlook on these investments

In June of this year, Lin noted, “It’s true that overall liquor sales are declining, but the companies we invest in have unique market positions, supplying only a fraction of the demandEven if the market shifts dramatically in the next twenty years, these businesses will find a new balance.”

He further added, “Liquor has been ingrained in our culture for thousands of yearsIf it were to fade out, it would have done so by nowThose who enjoy liquor find joy in itEven with international brands fading, I do not believe Chinese liquor will disappear.”

According to announcements, both Kweichow Moutai and Wuliangye reported stable growth in the first half of the year, with Moutai achieving a growth rate of 20.76% and Wuliangye at 12.83% for net profit attributable to their parent companies.

Interestingly, Ya Ge Er, often referred to as the "stock god" of A-shares, has also been part of this shift, with notable net purchases of over 100 million yuan in Ningbo Bank, where he has been known to increase his holdings during the second quarter.

(The stocks mentioned in this article are for illustrative analysis purposes only and do not constitute any recommendations for trading.)