The big reversal, Davis double-clicked
On November 6, A-shares rose sharply, and the downward trend of China's stock market has reversed. China's stock market, including A-shares and Hong Kong stocks, will see the "reversal of adversity" that investors like, realizing the transformation from Davis's double-kill to Davis's double-click. The reason why the market is reversed is not because the Shanghai Composite Index has rebounded by more than 100 points from the bottom, and it is common for the Shanghai Composite to rebound by more than 100 points in history.
The reason for the market reversal is not the A-share itself, but the reversal of the US dollar cycle and the narrowing of the interest rate gap between China and the United States. Readers who are familiar with me may have noticed that in recent years, I have spent almost half of my time discussing and forecasting Fed interest rates, because in my opinion, the dollar cycle has a crucial impact on the valuation and liquidity of A-shares, and I want to popularize this method to all readers. In the past, I also accurately predicted the direction of the market many times by tracking the Fed's interest rate policy. The future is a constant repetition of "history", and this time will be no exception.
For example, in 2006, the Federal Reserve raised interest rates to 5.25%, 2007 was an election year in the United States, and 2007 was an unprecedented bull market in A-shares. Coincidentally, the Fed's interest rate of 5.25% to 5.5% in 2023, and coincidentally, 2024 will be followed by the US election year, so will 2024 also be a bullish year? In the 07 bull market, A-shares rose from 2006 to 6124 in October 2007. And now, at the end of 2023, A-shares have begun to gain momentum again, will they repeat their glory?
For another example, in January 2016, A-shares fell sharply, and some people blamed the circuit breaker, but the real reason was that the Federal Reserve entered a new round of interest rate hikes in December 2015, and A-shares stopped falling on January 15, 2016, on that day, Yellen announced that the Federal Reserve would not raise interest rates in January, and then the interest rate hike was postponed for nearly a year, and it was restarted in December 2016 and raised interest rates until June 2018, when the interest rate hike was only around 2% and stopped, but due to strong expectations of interest rate hikes, A-shares eventually weakened. By January 2019, A-shares fell to 2,440 points.
For another example, in 2020, the Federal Reserve cut interest rates because of the epidemic, the market atmosphere was terrifying, the U.S. stock market was circuit breaker many times, and the Fed eliminated several points of interest rate hikes from 2016 to 2018 to zero, and then the U.S. stock market not only smoothed out the decline, but also hit a new high, and even the U.S. economy also had hyperinflation, and A shares also had a round of small spring from March 2020 to February 2021, when the "core asset bull market" was a hot word in the stock market. And this round of falling below 3,000 points actually started at the beginning of 2022, which was the starting point of the Fed's round of interest rate hikes.
To sum up, if you go back to the 90s and 80s, you will still find the correlation between the dollar cycle and the rise and fall of the stock market, but because the Chinese economy is at different stages of development, the intensity of the response to the dollar cycle and interest rate differentials varies, and there are often months of deviation. In 2007, there was an interesting phenomenon, that is, on the one hand, interest rate hikes and stamp duty were raised, and on the other hand, the stock market did not respond to these negative effects and continued to soar, indicating that the market liquidity was very abundant at that time. That's because in 2007, China was still in the "WTO dividend period" and demographic dividend period, the export-oriented economy enhanced investor confidence, and foreign capital queued up to pour into China, resulting in imported inflation. At present, China's economy is "returning to average", and its growth rate is a little weaker than in 2007. However, the impact of the US dollar cycle on the trend of A-shares still exists, but the intensity is slightly weaker.
A 100-point rally is common, but a dollar policy reversal is uncommon. As early as 2022 and 2021, there were already wealthy people setting up family offices overseas, especially in Singapore, and now there is a cycle of money flowing from European and American government bonds to more dynamic assets, including the Chinese stock market, of course. Of course, the focus of capital this time is bound to be different from that of 2007, because China's economic structure is changing. For example, the popular sectors of today's stock market are games, consumer electronics, new energy photovoltaics, battery energy storage, etc., and the most impressive in 2006-2007 are shipping, bulk commodities, petrochemical energy, and so on. The trends are approximate, but the hot spots are destined to vary greatly. And we believe that the future direction of A-shares is what was said in the live broadcast: the development model of land rental economy with real estate as the core has ended. Judging from the expected birth population of less than 10 million this year, the demographic dividend will also disappear. Instead, there are two directions that are basically certain in the future, one is that China's aging is inevitable, and the other is to give full play to the engineer dividend and guide China's economy into a stage of high-quality development. Therefore, the general direction of stock market investment, which sectors can be bought, which sectors can not be bought to see clearly at a glance, indiscriminate buying may never be able to return to the capital, between plates, between individual stocks will be very differentiated, the future of some traditional industry stocks will be slowly marginalized. The medical sector is beneficial, and the aging population will inevitably increase medical demand. There is an engineer dividend in China's healthcare sector.
Lv Changshun (Cairns) Certificate number: A0150619070003. [The above content only represents personal views and does not constitute a basis for trading, the stock market is risky, and investment needs to be cautious]