Huijin entered the market to protect the disk, and the stock market began to stop falling and rebound before the holiday red envelope market

Executive Summary:

Before the holiday, the stock market finally stopped falling and rebounded, and the Shanghai Composite Index rose 3.23% on February 6, and the good mood of the holiday returned. The reason for stopping the fall and rebounding is for the shareholders to have a good mood, and to have a happy New Year, Huijin has entered the market to protect the disk! However, the tens of billions of purchases of state-owned assets are obviously a drop in the bucket for hundreds of billions of yuan in A-share transactions every day. What can be done to restore investor confidence and reverse the market decline?

First, the stock market finally stopped falling and rebounded before the holiday, and the Shanghai Composite Index rose 3.23% on February 6, and the good mood of the holiday returned.

After the opening of the market on February 1, San Lang said that the Shanghai Composite Index will most likely hit a new low before the Spring Festival, and asked everyone, "I just haven't figured out yet, what should the new bottom after the diamond bottom breakdown be called?"

On the afternoon of February 2, the Shanghai Composite Index fell below the 2,700-point integer mark, once the lowest test was 2,666.33 points, and the last half an hour was pulled to 2,730.15 points, with an amplitude of 4.5% on the day, down 1.46% from Thursday.

For this reason, on Saturday, February 3, San Lang apologized to everyone in the article "The Shanghai Composite Index Fell Below 2700 and Hit a New Low and Hundreds of Millions of Shareholders Broke Their Defenses, When Will the Stock Market Stop Falling and Turn Bullish?". And told everyone in the article, "The probability of the Shanghai Index breaking through 2600 years ago is very low, and everyone is safe for the time being."

The stock market trend on Monday and Tuesday confirmed Saburo's prediction. On February 5, the Shanghai Composite Index closed at 2,702.18%, down 1.02%, but closed above 2,700, on February 6, the Shanghai Composite Index rose 3.23% to close at 2,789.49 points, and the Shenzhen Component Index rose 6.22% to close at 8,460.38 points.

Do you know why the Shanghai Composite Index was quickly pulled back after falling below 2700, and was able to get out of a wave of rebound before the holiday?

Second, in order for shareholders to have a good mood and have a happy year, Huijin has entered the market protection!

Perhaps because shareholders used their Weibo accounts as tree holes or wailing walls, complaining about the incompetence and bottomlessness of the capital market, which eventually attracted the attention of the leaders, the relevant authorities carried out the most powerful administrative intervention in the history of the stock market, the regulators stepped up scrutiny, suspended many policies that could have a negative impact on the stock market, and the regulators are trying to overcome the "super weak" confidence of global investors in A-shares.

The most crucial move is that, as in 2015, national teams such as Central Huijin have stepped in to support stock prices, which finally stopped the stock market from continuing to decline on Monday and spurred a strong rally in the stock market on Tuesday.

According to Goldman Sachs estimates, these funds, often referred to as "national teams", have bought more than 70 billion yuan worth of local shares in the past month. Goldman Sachs also disclosed in the report that state-owned enterprises and sovereign wealth funds may have been involved in the acquisition.

According to Bloomberg, citing people familiar with the matter, the big leadership will be briefed by the regulator on the state of the financial markets. If the Bloomberg news is true, the expectation of such a meeting underscores the leaders' expectations for strengthening investors' confidence in the Chinese economy by stabilizing the capital market, and on the other hand, it also strengthens the urgency of regulators to stabilize the market and the national team to bail out the market.

On February 6, Central Huijin Investment, a strategic investor in China's top bank owned by China Investment Corp, which has a market capitalization of 9 trillion yuan, said it had recently bought more index-linked exchange-traded funds, speculated by the CSI 500 and CSI 1000, to help maintain market stability, but Huijin did not disclose the exact amount of its purchase.

Although Huijin's claims have not been confirmed or denied by regulators, the China CSI 300 index, which tracks the 300 largest companies on the Shanghai and Shenzhen exchanges, rose 3.48% to 3,311.69 points after the release of Huijin's report. Since the beginning of January 2021 and last Friday, the index has fallen 38% from 5,212.93 to 3,179.63, hitting a five-year low.

According to the Bull Riding Research Institute, from the beginning of this year to last Friday, the market value of the A-share market lost 16 trillion yuan, while the market value of the Hong Kong stock market lost another 3 trillion yuan.

While regulators have suspended many trading instruments and some special trading policies for institutions, the scrutiny of transactions has also been greatly strengthened, reviving fearful memories of the evaporation of the 30 trillion yuan market value in 2015. But it is worth affirming that the entry of state-owned funds into the purchase will help break the downward spiral of the stock market falling 🡪 selling 🡪 falling and then falling 🡪 and selling again, helping to prevent the further spread of investors' fear.

3. What can be done to restore investor confidence and reverse the market decline?

Although the stock market has basically stabilized before the Chinese New Year, investors can at least recover their losses, although it is difficult for investors to make up for all their losses. Saburo still wants to say a few words about the national team, regulators and investors:

First, to radically change investors' expectations of the stock market, or to truly enhance the internal momentum of the stock market's sustained rally, a comprehensive plan of reform, policy coherence, and a response to structural macroeconomic weakness is needed.

On January 23, Saburo said in the article "Why Do A-Shares Crash on Monday? Because the Stock Market Is a Barometer of the Economy" that market manipulation, insider trading, non-standard information disclosure, refinancing, automatic redemption of option products, exchange rate decline, foreign capital smashing, etc., these small problems are not the fundamental reasons for the continuous decline of the stock market at all. After all, the stock market is a barometer of the economy, and the problem of the continuous downward trend of the stock market is not at all in the stock market itself, but in the macroeconomy.

Since 2021, Saburo has reminded policymakers and policymakers that the biggest problem in China's macroeconomy is the economic development model. If we want to promote post-pandemic economic recovery, we must shift the economic development model from debt-driven to consumption-driven. Changing the economic development model involves the reform and adjustment of the national income distribution system and the social security system.

Since the beginning of 2023, the relevant departments have paid attention to the huge constraints of the sluggish consumption on economic recovery, but all the promotional fee measures for minor repairs and subsidies have no effect. We have also tried to stimulate the economy through continued monetary easing, but Saburo has repeatedly warned that if we do not change the capital distribution system, income distribution system, social security system, and state-owned enterprise protection system, monetary easing will also become ineffective due to serious capital mismatch.

We must promote the second reform and opening up, and readjust all social and economic policies according to this goal, so that it is possible to establish a consumption-driven economic development model and repair many serious structural problems in the macroeconomy.

Second, before the comprehensive plan is formulated and implemented, the national team needs to increase investment in order to stabilize the stock market.

During the 2015 stock market crash, the stock price bubble burst after market regulators cracked down on illegal leveraged trading. A-shares fell by more than 40% between June and August of that year, wiping off more than 30 trillion yuan in market value. According to CEIC, the bull market is crucial to China's economic slowdown, as stock valuations as a percentage of GDP have fallen from a record 79% in 2021 and 67% in 2015 to around 50% now.

A-shares weakened amid the "long-term disappointment" of global funds. As of January this year, they have sold a record 201 billion yuan of shares from the A-share market for six consecutive months.

The market trend entering the first month of the new year makes it impossible not to compare the current stock market with the stock market in 2015.

But what is obvious is that the tens of billions of purchases made by the national team are obviously a drop in the bucket for hundreds of billions of A-share transactions every day. Such an intervention can certainly prevent the rapid deterioration of investor confidence and the rapid decline of the stock market to a certain extent and in a short period of time, but it is likely that it will not be able to completely restore investor confidence and completely change the downward trend of the market.

Compared with 2020, when the U.S. stock market responded to the impact of the new crown epidemic, the S&P immediately made a $1.5 trillion repurchase capital injection after the first circuit breaker. According to the consensus of professional investment institutions, the national team may need to invest at least 200 billion yuan, or close to 1% of the circulation of the A-share market, to effectively stabilize the market.

Third, scratching the boot and taking it lightly cannot establish stock market discipline. In the face of a market full of holes, we must strike hard.

This year's plunge has also prompted the SFC to go into overtime mode. It vowed on Sunday to implement more market stabilization measures to stabilize expectations and confidence, and to deal with unusual market volatility. It recently sued Beijing Zuojiang Technology, which develops chips, for false reports.

The statement comes after measures were taken last month to prohibit major shareholders from lending their shares to others to short the market and issued a new warning about fraud. In addition, the SFC also prohibits top-tier brokers from facilitating cross-border derivatives that perpetuate sell-offs.

In September 2023, the China Securities Regulatory Commission fined the company 2 million yuan for inflating its revenue by 230 million yuan, and the five responsible persons were fined 500,000-600,000 yuan respectively, which shareholders felt was too light. However, from 2016 to 2021, Black Peony has inflated its revenue by a total of 4.2 billion yuan in 6 years, and the CSRC only criticized the chairman, general manager, and financial director by name, which is even lighter.

At the end of last year, Senyuan Group was fined only 308 million yuan by the China Securities Regulatory Commission for manipulating Senyuan Electric stocks, which is also very light compared with the punishment in the United States.

If the China Securities Regulatory Commission (CSRC) fails to benchmark the regulatory authorities in the United States to supervise the market, I believe that no matter how many shifts are worked and how many systems are formulated, it will not be able to build a relatively open, fair, honest market that can win the confidence of investors.

Fourth, the market is risky, and investment needs to be cautious.

As I said in the article "When will the stock market stop falling and turn bullish?", I said in the article "The Shanghai Composite Index Falls to a New Low and Breaks the Defense, When Will the Stock Market Stop Falling and Turn Bullish?", we now have three major problems in the macro economy: one is a serious oversupply, the second is the high debt ratio, and the third is the risk of decoupling and breaking the chain with developed countries continues to rise.

And now the measures that can solve the above three problems, inspire everyone's confidence, guide bullish expectations, and promote the stock market from a weak market to a bull market are the second reform and opening up. There is no other way.

Until then, the stock market should have a decent rebound after the national team enters the market, but the reversal will be difficult. Everyone should remember that "the market is risky, and investment needs to be cautious".

[Author: Xu Sanlang]