"I felt it, it was all back."
Stephen Chow's classic line in "Shaolin Soccer" may be the common sentiment of all Chinese investors in the past two days.
In the past two trading days, jd.com, Pinduoduo, NetEase, Baidu four NASDAQ 100 index constituent stocks closed up across the board, after a number of popular Chinese stocks that had been pouring thousands of miles also stopped falling and rebounded. After the opening of the market on Thursday, the Hang Seng Technology Index rebounded retaliatoryly, the constituent stocks collectively opened higher, and the Chinese stocks returning to Hong Kong also successfully escaped. At the same time, the three major A-share stock indexes also rose strongly in the morning, with FTSE A50 index futures rising more than 2%, and the northbound funds frantically swept goods.
The reversal appears a little earlier than expected. What pulled the market rebound was undoubtedly a series of positive news from the regulatory level. At a special meeting of the State Council's Financial Development Committee on Wednesday, regulators interpreted a series of recent hot issues in Chinese stocks, and the rift in international relations is being bridged.
However, from the previous plunge to the current surge, the ups and downs of The Chinese stocks seem to be swimming on the blade, and investors must be very cautious at every step.
Moreover, from the perspective of the current frenzied market sentiment, whether the oversold rally of Chinese stocks is based on fundamental repair or is still dominated by market sentiment is also a topic that needs to wait and see.
Today's situation may be summed up in one sentence: the dawn has emerged, but the future is still dangerous.
(Image from UNsplash)
Hot Chinese stocks have risen across the board, and regulators are expected to break the censorship dilemma?
Judging from the market situation in the past two trading days, Chinese stocks can really breathe a sigh of relief.
In the broader market, the three major U.S. stock indexes were all red on Wednesday, with the Dow and NASDAQ closing up 519 and 487 points respectively, and the S&P 500 index also rose as high as 2.24%, recording two consecutive gains. In addition, the NASDAQ Golden Dragon China Index, which tracks the trend of Chinese stocks, opened higher and closed up 33%.
On the disk, popular Chinese stocks ushered in a wave of violent rebound, and the Internet, new energy, semiconductors and other sectors rose amazingly. Among them, 21Vianet, which had the highest increase, closed up 83.25%, Zhihu and Kingsoft Cloud rose more than 70%, Dingdong Buy Vegetables, Shell, and Douyu rose by more than 60%, Alibaba, JD.com, and Baidu also closed up more than 30%, and a total of 79 Chinese stocks rose by more than 20% throughout the day.
It is worth noting that Baidu's annual increase has taken the lead in turning positive, and the year's decline in Pinduoduo, NetEase, Sohu, Huanju Group, JD.com, Gaotu and Ctrip Group has also narrowed to single digits, and the turnaround seems to be just around the corner.
(Image from Futu Cattle)
The performance of Hong Kong stocks on Thursday was not much more.
The Hang Seng Index opened high and went high, closing up more than 1400 points, up 7.04%, and the Hang Seng Technology Index was also red all day. On the market, SaaS, auto, mobile games, and bank stocks rose, and Chinese stocks returning to Hong Kong also closed up almost all the time. Among them, the highest increase in GDS closed up 32%, Baidu, Bilibili, JD.com, Alibaba and other 8 stocks also rose by more than 10%.
Behind the market reversal, the flow of capital has also begun to change.
During the Asian session on Thursday, the China-wide Internet ETF announced a rise and stop at the opening, and a large amount of capital inflows also appeared in the Hang Seng Technology ETF and Internet ETF.
It is worth mentioning that this trend has been extended for two trading days. According to data reviewed by the Value Institute, there were 332 million net inflows of funds into Hang Seng Technology ETFs on March 15, and The China-wide Internet ETFs, which fell sharply in the past few days, also received 220 million net inflows, ranking in the top two.
Wind's data shows that since the beginning of this year, all 22 Chinese ETF funds in Hong Kong stocks have achieved net inflows, and in the 12 months ending March 15, the net inflows of 22 Chinese ETF funds have reached 106.2 billion, and hot money is flowing into the Hong Kong stock market.
(Image from Oriental Fortune Network)
All of this change is due to changes in the regulatory outlet – on Tuesday afternoon, the Public Corporation Accounting Oversight Board (PCAOB) said it was in active communication with Chinese regulators and had recently held several talks that both sides were willing to maintain a good cooperative relationship.
According to Bloomberg, the PCAOB and Chinese regulators are committed to reaching a new cooperation agreement to inspect Chinese mainland registered in the United States and some Hong Kong auditor firms with mainland business, and adopt a similar cooperation approach to dozens of other countries.
It is important to note that PCAOB may not be as well-known and familiar as the SEC in China, but its importance, especially its role in the U.S.-China financial market relationship, is not inferior to that of the latter.
PCAOB was founded in 2002 by the Enron fraud scandal that broke out in the U.S. Congress the previous year. The PCAOB, which was established under the Sabons Act, is nominally supervised by the SEC, but in fact has close ties with the U.S. Congress and is given the responsibility of supervising and reviewing the audit reports and accounting affairs of listed companies in the United States.
Investors with good memories should remember that in April 2020, it was a statement by PCAOB Chairman William Duhank and SEC Chairman Jay Clayton that sparked discussions about hard financial decoupling and the ensuing bloodbath of Chinese stocks.
From this point of view, the PCAOB's willingness to take the initiative to open the door to communication this time may represent a change in the attitude of the SEC and even congress at the highest level in the United States, which will undoubtedly lay the foundation for friendly dialogue between the regulators of the two sides.
China's attitude is also very positive. At the special meeting held on Wednesday morning, relevant people pointed out that the regulators of the two sides have maintained good communication, made positive progress, and are committed to forming specific cooperation plans, and the relevant departments continue to support various enterprises to list overseas.
After the official tone is set, the controversy in the market about whether Chinese stocks can still go public in the United States can finally be stopped a little. The door to overseas listing will not be closed, which is also a shot in the arm for Chinese companies that are still preparing for listing plans.
However, returning to the performance of U.S. and Hong Kong-listed Chinese stocks, the Value Institute believes investors should still be cautious.
In the previous "Five Days of Life and Death" of Chinese Stocks: Who was the bubble bursting, who was wrongly killed? In the article, we have analyzed that the plunge in the previous few days was more dominated by market sentiment and the capital changes behind it, and has been separated from market fundamentals. As mentioned in the article, Alibaba, JD.com, Pinduoduo and other head Internet giants, as well as Weilai, Xiaopeng, Ideal and other auto stocks, have rebounded after a significant overshoot.
In fact, not only the violent rally in the past two trading days, but also the value institute expects that the performance of the broader market in the following trading days is inseparable from this principle.
(Image by Pexels)
Capital undercurrents are surging and Chinese stocks that have oversold and rebounded are still at risk
Various data show that the current market sentiment indicators are very volatile.
In the US stock market on Wednesday, as all the major indexes pulled up, CNN's Fear and Greed Index recorded 20, up 3 points from the previous session's reading, indicating that the market is still in a state of extreme panic. Meanwhile, the VIX Panic Index has been at a high level since the outbreak of the Russian-Ukrainian conflict, with a single-day surge of 10% on several trading days since the end of February.
The Value Institute also notes that the options market's bets on the volatility of the VIX index are also becoming more and more bold. Michael Kramer, founder of Mott Capital Management, a well-known investment firm, reported last week that the VIX index may hit a 40-point high in the near future, which indicates that the volatility of US stocks will rise further.
Obviously, the above indicators and the U.S. stock market performance on Tuesday were misaligned, and also revealed the current anxiety and confusion of investors. Due to their lack of confidence in the stock market's prospects, they may seek refuge in the options market in the near future, which in turn will lead to accelerated capital flows, further boosting stock market volatility.
Another phenomenon worth noting is that the large inflow of funds from the China-U.S. Internet ETF mentioned above certainly indicates the confidence of capital in Chinese stocks, but the scale of funds flowing out of the market is also very large. Data show that last week, northbound funds continued to record net outflows, up to 36 billion net outflows hit a new high in the past two years.
In addition, Wind statistics also show that as of Wednesday's Hong Kong stock close, the secondary market closing price of some cross-border ETFs has a premium over the reference net value of the fund shares on the day, indicating that this round of violent rebound may have deviated from the normal trajectory again.
The Value Institute believes that under the domination of fanatical market sentiment, the capital flow behind Chinese stocks is actually full of uncertainties, and each dark arrow may be right in the heart of investors.
So in this high-volatility, high-uncertainty market environment, how should investors deal with themselves? The key may be twofold.
The first is to keep an eye on capital dynamics.
As we all know, the liquidity of US stocks is mainly provided by institutional investors, and the impact of the us stock market trend on Hong Kong stocks and A shares is still strong. Therefore, keeping up with the dynamics of capital at this stage is an important basis for judging the differentiation of each hot stock and each sector in the next stage.
According to the observation of the Value Institute, the international capital predators are currently sharply reducing the target price of head and large Chinese stocks, which may be deliberately suppressed, but they are favored by sectors and stocks with high growth, current valuation and low price-earnings ratios.
According to the data, JPMorgan Chase has significantly lowered the rating and target price of many Internet giants such as Tencent, Alibaba, Meituan, JD.com and NetEase. Among them, Xiaomo's rating of the two giants of Tencent and Ali has been reduced from overweight to underweight, and the target price of the former has been lowered from HK$570 in the previous stage to HK$265, a rather alarming decline.
Given that the Fed's interest rate hike boots have officially landed in the early hours of Thursday morning, the withdrawal of foreign capital is an expected trend as dollar liquidity tightens. In response to this situation, the Value Institute believes that investors should remain cautious and focus more on sectors with higher prosperity, such as medicine, new energy, semiconductors, etc.
The second point is to pay attention to the control of risks and avoid blind entry and short-selling. After all, as analyzed above, the current market sentiment indicators are still very unstable, and it is probably too early to talk about the return of the value of Chinese stocks.
It should be noted that this is not only applicable to the US and Hong Kong stock markets, but also to the internal market. The latest research report of Huaxia Fund pointed out that there are more stop losses in the market at present, and the level of risk appetite is about the same as that of 2011, lower than during the circuit breaker in 2016 and 2018, which shows that some of the bottom funds still have the possibility of panic killing.
All in all, buffett's most reasonable quote is not outdated now: When the market is greedy, remember to keep afraid.
How to prevent risks? Dual main listing is an important option
Being cautious about the frenzied market is perfectly true not only for investors, but also for listed companies in the whirlpool.
In fact, although there have been two consecutive trading days of violent pulling, the performance of Chinese stocks during the year is still unsatisfactory.
Taking the Internet sector with the highest market capitalization and the largest volatility as an example, only a few of the U.S.-listed Chinese stocks, such as Baidu, Autohome, and Vipshop, have achieved positive growth. As the protagonist of this round of surge, Kingsoft Cloud still fell by 64% during the year, and Zhihu, Didi, New Oriental and Bilibili also fell by more than 40% during the year.
For these enterprises that are still mired in the mud, it is urgent to reduce risks and seek a way back.
On Wednesday morning, according to the Wonder News Agency, Kingsoft Cloud said it was considering a secondary listing in Hong Kong to adapt to the changing market and regulatory environment and provide liquidity protection for shareholders.
The Value Institute believes that if the news is true, Kingsoft's return plan to Hong Kong may be implemented very quickly, just like Weilai, which almost parachuted into Hong Kong stocks in early March. In addition, OneConnect, a subsidiary of Ping An Group, also submitted a listing application to the Hong Kong Stock Exchange last month.
Obviously, after this round of rare plunge baptism in the world, the Chinese stocks listed in the United States understand that they need to pave the way for themselves as soon as possible.
So is it really a better choice than re-listing after privatization and delisting, dual primary listing and secondary listing?
In this regard, the Value Institute believes that although dual listing is not applicable to all enterprises, it is an optional optimal solution for the U.S.-listed Chinese stocks that meet the requirements at this stage.
On the one hand, the cost of dual listing is lower than that of privatization and delisting, and the uncertainty will be reduced when the equity capital remains circulating.
Debon Logistics, which was officially acquired by JD.com not long ago, is facing the choice of whether to privatize and delist, and the outside world has many doubts about its valuation of up to 13.5 billion. Another example is Beijing Capital Land, which completed its privatization last year, with a total cancellation price of HK$5.289 billion, and the cost is quite staggering.
On the other hand, companies that have tried to double-list on the stock markets of the United States and Hong Kong have handed over a stable report card, which also provides a reference for latecomers.
For example, BeiGene, which was included in the provisional identification list, landed on the NASDAQ in 2016 and returned to Hong Kong in 2018, and the current trend of the stock market in the United States and Hong Kong is almost no difference, maintaining the stability of the market value and stock price to the greatest extent.
More importantly, compared with giants such as Alibaba, Baidu and NetEase, which returned to Hong Kong for the second listing, the dual-listed Chinese stocks fully meet the regulatory requirements of the two places, which is not only more convenient to return A-shares in the future, but also expands the shareholder base.
(Left: BeiGene Hong Kong stocks, right: BeiGene U.S. stocks)
For the trend of dual major listings, Hong Kong regulators have long expected it. The Financial Secretary, Paul Chan, said in February that mainland enterprises have a huge market financing need and Hong Kong is ready for this:
"The SFC and the Hong Kong Stock Exchange are reviewing the Listing Rules on the Main Board and studying to amend the listing conditions to meet the relevant fund-raising needs, taking full account of the relevant risks."
As mentioned in a previous article by the Institute of Value, the return of Chinese stocks to Hong Kong stocks is a more practical choice than A shares, and now the key is to see whether the two sides can bridge various differences as soon as possible and create a better listing environment.
For a large number of U.S.-listed Chinese stocks that are still at the center of the storm, the good signal released by the regulatory authorities is undoubtedly a timely rain, but they must also realize that everything is still variable in the future. Whether it is privatization and delisting, secondary listing or double primary listing, it is always right to be prepared for both hands.
Write at the end
In this morning's report, almost all mainstream media, including China Fund News, Securities Times, 21st Century Economic News, Sina Finance and economics, used the same word to describe the performance of Chinese stocks last night: the Great Miracle Day.
I believe that friends who are familiar with Hong Kong dramas should know that this allusion has been carried forward, thanks to TVB's masterpiece "Big Time". In the film, the miracle moment when the Hsiung Finger pulls a thousand points in a single day, and the protagonists' alternating wandering between heaven and hell, have become classics in the hearts of countless people.
But based on the moment, the Value Institute wants to borrow another line from the film to give to this fanatical market: the stock market has no eternal winners, and this era has become so fast that it is too fast to distinguish between good and bad.
Considering the current high volatility of the stock market and the unstable capital flow behind it, maintaining a reverence for the market at all times is the foundation for every investor to settle down.