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Have A-shares bottomed out?
From the Politburo meeting on July 24 setting the tone to activate the capital market and enhance investor confidence, to the promotion fees of the National Development and Reform Commission (20 items of expanding consumption such as real estate and automobiles), the Ministry of Industry and Information Technology, the State Administration of Taxation's August tax reduction and individual tax preferential policies, the central bank's interest rate reduction policy on the 21st (1-year LPR rate cut by 10BP);
Then there is the real estate policy (recognition of houses but not loans, reduction of interest rates on existing loans, optimization of mortgages, etc.);
The China Securities Regulatory Commission (CSRC) tightened IPOs, regulated equity discounts, lowered stamp duty, and introduced and implemented a number of policies such as stabilizing the exchange rate and reducing the reserve requirement ratio;
The A-share market has risen, but some investors remain distrustful, fearing a lower bottom in the market after the policy bottoms.
But don't worry too much, because historical data shows that stock market bottomings tend to lag political bottoms by about 2-6 months, and market bottomings are mostly higher than policy bottoms.
Therefore, entering the market on a political basis often has a good chance of winning and a percentage of profit.
The nature of the A-share foundation and the construction process of the foundation
First, bottom shapes include V-shaped bottom, U-shaped bottom, and W-shaped bottom.
The V-shaped bottom is a quick rebound, the U-shaped bottom is to stay at the bottom for a while to wait for the opportunity to rebound, and the W-shaped bottom is tiring, meaning that after several builds and rebounds, the bottom returns to the bottom. Bottom. This process is repeated twice. Once or several times, test the patience of investors.
The process of building the foundation is usually the policy foundation - market foundation - performance basis. Policy bottoming is usually 2-6 months earlier than market bottoming.
Generally speaking, the policy bottom appears first, and the time frame for the gradual introduction of macroeconomic favorable policies is the policy bottom.
With forward-looking policies promoting the stabilization and recovery of economic and stock market fundamentals, indicators such as earnings growth, annual industrial added value, and industrial PMI of A-share listed companies have all bottomed out. Performance foundation.
The cyclical market low that occurs between the bottom of policy and the bottom of performance is called the market bottom. This is because there is a contest between two forces, favorable policies and downward fundamentals. The level of the market bottom depends on the relative size of these two forces.
If the policy is strong and drives a rapid reversal of fundamentals, the market bottom may be higher than the policy bottom, such as 2008, 2016, 2019. Conversely, the market bottom may be lower than the policy bottom, as in 2012.
Image source: Haitong Securities Research Institute, Coconut Talk Finance
Let's take a look at the policy bottom and market bottom in the history of A-shares.
The first time was in 2008.
In 2008, Lehman Brothers collapsed and the subprime mortgage crisis spread around the world. A-shares basically collapsed. To this end, the stamp duty rate was adjusted from 3‰ to 1‰ on 23 April 2008. On August 15, 2008, the central bank announced a reduction in the statutory reserve requirement ratio and interest rate.
The Ministry of Finance announced on September 19 that stamp duty would be changed from bilateral inheritance to unilateral inheritance. On September 19, the Shanghai Composite Index rose 9.5% and on September 22 it rose 7.8%. But then the market continued to fall, and the lower limit of the Shanghai Composite reached a low of 1,664 points on October 28 and has remained around 1,700 since then.
Until the policy was further strengthened, on November 5, the Standing Committee of the State Council announced the launch of a 4 trillion yuan investment plan to revitalize the economy. The strength of this policy is unprecedented, and the market has certainly bottomed out and begun a sharp and sustained recovery.
The intensity of this policy is unprecedented. The market bottomed on December 31, 2008, when the Shanghai Composite Index was 1,814 points, above the policy bottom. The difference between the policy bottoming and the market bottoming time is about 2 months, and the result is the bottom time in the first quarter of 2019. The cumulative net profit attributable to the parent company was -26% in the comparison period.
The second time was in 2012.
In 2012, the Shanghai Composite Index continued to rise. In response to slowing economic growth, RRR cuts were made twice in February and May, and interest rates twice in June and July 2012. On November 6, 2012, IPOs were suspended to encourage domestic companies. Overseas listings ease the supply pressure of A-shares.
Due to the sluggish market sentiment at that time, the policy bottomed out on December 4, 2012, corresponding to the Shanghai Composite Index of 1949 points. At the end of June 2013, due to the "money shortage", the market fell sharply, and the Shanghai Composite Index bottomed out on June 25, 2013. The lower shadow touched 1849.
Since the steady growth mainly relies on monetary policy, and the financial and real estate policies are not strong, the index point at the bottom of the market hit a new low on June 25, 2013. The time difference between the policy bottom and the market bottom is more than 6 months.
The third time was in 2016.
From June 2015 to January 2016, A-shares experienced three crashes. This round of stock market crash is characterized by technical, leveraged and speculative. The main reasons are excess liquidity and an imperfect stock market system. And not weakness in macroeconomic fundamentals.
The easing policy was launched in January 2016, and 2.5 billion yuan of new credit was added in January 2016. On February 2, 2016, the central bank issued a policy to reduce the down payment ratio of housing transactions. On February 19, 2016, the Ministry of Finance issued a document on reducing the down payment ratio for individual housing transactions. In terms of housing deed tax, the central bank cut the reserve requirement ratio by 0.5 percentage points on February 29.
The bottom of this policy came on January 27, 2016, when the Shanghai Composite Index was at 2638 points, and the market bottomed on May 26, 2016, when the Shanghai Composite Index was 2780 points.
The policy was moderate, and the performance bottomed out in 2016Q2, and the net profit of the parent company increased by -4.7%. However, because A-shares have experienced three sharp declines in the past and stock market valuations are at historical lows, although A-shares have fallen back after the policy bottom, the market bottom is still higher than the policy bottom. This time, the bottom of politics and the bottom of the market are somewhere in between. The interval is about 4 months.
The fourth time is in 2019.
In 2018, due to the sharp adjustment of the market due to Sino-US trade frictions, the favorable policy continued at the end of 2018. On October 19, Vice Premier Liu He was interviewed on hot economic and financial issues, sending a positive signal of market stability; On January 4, 2019, the PBOC announced a reduction in the reserve requirement ratio by 1 percentage point to support the development of the real economy and reduce financing costs;
On January 23, the meeting of the Central Committee for Deepening Reform approved the establishment of a science and technology committee and a pilot registration system;
On February 22, the Politburo meeting of the CPC Central Committee stressed that finance is an important core of national competitiveness.
The introduction of the multi-directional stable growth policy has unprecedentedly positioned the stock market policy. In addition, the science and technology innovation board launched and piloted the registration system. The political bottom quickly recovered, hitting 2,440 points on January 4, 2019.
Since then, the market has retreated in a battle between politics and fundamentals. On August 6, 2019, the market bottomed out to 2733 points, but the market bottoming index was not lower than the policy bottom.
At the end of the second quarter of 2019, the cumulative net profit of the parent company reached the lowest level in the second quarter of 2019, an increase of 6.5% over the same period in 2019. The difference between the bottom of the policy and the bottom of the market is nearly 6 months.
If the impact of the epidemic is taken into account, the market has bottomed out on March 19, 2020, and the Shanghai Composite Index has fallen to at least 2646 points, not lower than the policy bottom in January 2019. Development takes place in 2020. In 2020Q1, the financial profit of the parent company increased. Quickly ran out - 24%.
To sum up, market bottoms tend to lag behind political bottoms, which is a historical law and lasts about 2-6 months.
Image source: Huatai Securities Research Institute
This round of policy bottom line, market bottom line, performance bottom line analysis
Next, let's talk about the policy bottom of this stock market, so that we can make cost-effective investments in terms of policy bottom and market bottom.
The lower limit of this policy is effective from April 29, 2022. In response to the impact of the crises in Russia and Ukraine, which are placed on top of the coronavirus pandemic, the Politburo meeting on April 29, 2022 called for an increase in macroeconomic policies. Adjust and maintain the normal operation of the capital market.
On May 25, the government held a national teleconference on stabilizing the economy. Li Keqiang, then Premier of the State Council, called for the implementation of various policies to stabilize the economy.
Positive policies drove the stock market to recover, rising to 3,424 from 2,864 on April 27, 2022. However, the epidemic then recurred, affecting the economic recovery and bottomed out again at 2885 on October 31, 2022.
In November 2022, with the optimization of the epidemic policy, the real estate side also brought the "three arrows" policy benefits, and due to the demand for computing power and application brought by the ChatGPT large model, A-shares opened a new round of rise. It will rise to 3418 points by May 9, 2023.
Since the second quarter of this year, domestic demand has recovered slowly, while external demand has weakened. The pace of domestic economic recovery has slowed. In the first half of 2023, the cumulative net profit attributable to the parent company of all A-shares was -4.32% in the comparison period. The development of A-shares is also unstable and weak. In this context, the Politburo meeting held on July 24 has activated the tone of policies to increase capital markets and investor confidence and expand consumption: promotion fees (real estate, automobiles, etc.) by the National Development and Reform Commission, the Ministry of Finance, and the State Administration of Taxation to reduce IIT and IIT policies;
On August 21, the central bank cut interest rate policy (1-year LPR cut interest rate by 10BP);
Then there is the real estate policy (recognition of houses but not loans, reduction of interest rates on existing loans, optimization of mortgages, etc.);
The CSRC has issued and implemented a number of policies such as tightening IPO subsidies, standardizing equity reduction, reducing printing costs and transaction fees, and stabilizing exchange rates.
Just on September 15, the central bank cut the reserve requirement ratio of financial institutions by 0.25 percentage points to free up liquidity. The bottom of the insurance end index of this round is 3053 points of the Shanghai Composite Index on August 25.
After the policy bottomed, the market sentiment remained relatively pessimistic due to concerns about fundamentals and the economic situation, and the market continued to fall. Recently, the market has continued to be sluggish, and the trading volume for many consecutive trading days is only A, about 700 billion yuan. The market can be said to be basically stable. A "numb" fall.
From April 2022 to now, this bottom-up cycle has become more tortuous. It has the characteristics of a W-shaped base. Bottoming out and bottoming out tests investors' patience and confidence.
From historical experience, the lack of headlines, weak transactions, and declining investor expectations are all typical characteristics of the policy bottom turning into the market bottom. (Source: Huatai Securities)
From the perspective of market sentiment, the bottom formation process of A-shares was initially triggered by weaker fundamentals, which triggered a weakening of market sentiment. Investors at the time, no matter how pessimistic their thinking, were always affected by excessive market sentiment. Interpretation. When the pendulum of emotions swings to the extreme of pessimism, it swings back.
Image source: A-share memorandum
Of course, if we can build an investment in the bottom zone and hold it for the long term, the power of time may help us get good returns.
Source: A-share memorandum. Previous ups and downs of the index are not indicative of future development and do not represent investment advice.
Therefore, we think the bottom line of this stock market cycle is more complicated. So far, there are two relatively clear policy bases. The first is the April 2022 National Conference Call for Stabilizing the Economy, and the second is the reduction of stamp duty in August 2023.
These two foundations form the basis of the "W" dual policy. Although a pair sole is more frustrating, it is also generally stronger and has more support.
When does the current round of market prices end?
Finally, let's talk about the bottom of the market that everyone is most worried about. Current position of A shares: Combined with historical PE (TTM), the current PE (TTM) of Fengquan A is 17.41, which is 31.88% of the historical position. That is, only 31.88% of the time in history has it fallen below this value. , which is close to 1 times the standard deviation of 16.83 (-1). Historically, at a relatively low level, a lower valuation position can provide a margin of safety and odds for the market to bottom.
For the current level of market bottom, it is still necessary to pay attention to the progress of the fundamental recovery and the expected duration and effect of the policy implementation.
At present, the policy continues to land, and the bottom of the market needs to be repeatedly polished on the emotional side. Economic data needs to be improved, and policies are less than expected, which is expected to encourage policy implementation to accelerate and even strengthen policy efforts.
Capital signals are of course equally important. The flow and structure of funds are more in line with market expectations and indicate liquidity risk.
From the perspective of the strength of this policy, it may be difficult for the bottom of the current round of the market to be lower than the bottom of the policy. With the implementation of mainland policies or the strengthening of political strength, the fundamentals of the economy and stock market will bottom, and investors' expectations for the economy and returns are expected to recover.
Of course, in order to have a deeper understanding of the latest developments in the home furnishing market, readers are encouraged to read the relevant research reports.
Here, I have selected 5 latest research reports on banking and securities related industries, which are provided to you free of charge.
(Screenshots of some research reports)
The way to get it is also very simple. Just follow the instructions in the image above. Be sure to respond with the word "report".
These reports cover topics such as the central bank's interpretation of the second RRR cut, securities weekly reports, and weekly bank reports, and provide in-depth interpretation from multiple dimensions such as data and market dynamics. You should read them.
(Disclaimer: This article is based on the objective analysis of the public knowledge of Yetan Finance, does not constitute investment advice, please do not use it as an investment basis.) ）
Disclaimer: The above content and materials are derived from the Internet, and the author of this article does not intend to target or allude to any real country, political system, organization, race, or individual. The above does not mean that the author of this article endorses the laws, rules, opinions, behaviors in the article and is responsible for the authenticity of the relevant information. The author of this article is not responsible for any problems arising above or related to the above and does not assume any direct or indirect legal liability.
If the content of the article involves the content of the work, copyright images, infringement, rumors or other problems, please contact to delete. Finally, if you have any different ideas about this event, welcome to leave a message in the comment area to discuss!
Disclaimer: The above content and materials are derived from the Internet, and the author of this article does not intend to target or allude to any real country, political system, organization, race, or individual. The above does not mean that the author of this article endorses the laws, rules, opinions, behaviors in the article and is responsible for the authenticity of the relevant information. The author of this article is not responsible for any problems arising above or related to the above and does not assume any direct or indirect legal liability.
If the content of the article involves the content of the work, copyright images, infringement, rumors or other problems, please contact to delete. Finally, if you have any different ideas about this event, welcome to leave a message in the comment area to discuss!