news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

regarding the title of this article, the author actually had a lot of emotions and thoughts when i wrote it, because the performance of the a-share market since the end of 2022 has caused many secondary market investors to feel deeply disappointed, resentful, and angry. , sometimes making it difficult to reason, but i still want to write down some basic principles, and hope that investors can maintain hope, and observers and researchers can be more rational.

due to various reasons, the writing of this article was delayed for nearly a month. during this period, some significant changes occurred in policies and regulatory authorities, which made reasoning easier.

why a-shares don’t prosper in the long term

in the author's opinion, as far as the a-share market is concerned, the long-term existence of all kinds of monsters and ghosts will amplify into "houses of thousands of cockroaches" whenever the market is down, making it impossible to sort out the problems. based on the author’s observation, the torture of a-shares mainly focuses on three points. first, retail investors, institutions and strategic investors (foreign-funded institutions, large hot money, etc.) believe that each other is irrational, and louder voices believe that retail investors are too irrational. there are so many that the market is irrational; the second is that the system is imperfect, there are too many loopholes, and there are monsters and monsters; the third is why it "cannot be as stable (growth) in the long term as the u.s. stock market."

regarding the first point, the author believes that the instability of a-shares has nothing to do with whether it is an institution or a retail investor. from the perspective of business operations, whether the investor or owner is a private individual, a private enterprise, or the state or government does not directly determine its actual operations. so by extension, why are individual investors assumed to be less rational than institutional investors? if it is because institutional investment information is more diverse and abundant, is it not a problem of individual investors (retail investors)? it may often be caused by unequal information disclosure and unequal market status?

regarding the instability of a-shares, both retail investors and institutions are responsible, and because institutions are stronger, they actually have greater responsibilities. we specify this in terms of alpha and beta returns. the so-called α refers to the company's growth income, which is aimed at early identification (buying low) of a promising company or betting on its future prospects. as the company continues to grow and its performance grows, it will obtain returns from rising stock prices and increased dividends ( (sell high); the so-called beta return refers to buying low and selling high due to market fluctuations (liquidity fluctuations, emotional fluctuations, etc.).market participants often love chasing alpha returns, but often everyone’s pursuit of alpha leads to beta, or even worsens the market environment.

how to understand? first of all, we need to remember some background knowledge. stock funds can be divided into active and passive funds. passive funds are to buy a pool of stocks with a specified proportion and content. once you buy it, it will not move. the price is directly affected by the fluctuation of the secondary market. the active type is "fund manager stock trading". the fund manager judges the timing, content and proportion of buying or selling stocks based on his or her own understanding.

take the rebound after february this year as an example: many active funds and other institutions did not intervene enough in the early stage of the rebound, and the yield curve did not keep up with the market average curve. since active funds have a competitive relationship based on yield, the yield directly affects the willingness of financial consumers to invest equals to the size of the fund.this results in fund managers having to find ways to obtain excess returns so that they can catch up with the market's average yield curve.

the method is to lower the price of the target through many methods such as short selling, cross trading, etc., and then intervene at a low position, and then wait for the market to pick up (commonly known as waiting for the market to lift the sedan chair) to obtain the excess returns from the low position. the reason why it is counted as alpha return is because the pricing is mainly distorted by intervening in market perception, and then institutions buy and wait for the "rediscovery of the price."

the key to this set of content is the "rediscovery of prices" in the market, and then the price appreciation of the assets (stocks) held by institutions. however, the market is an object organized by countless participants, and it falls on specific traders, that is, individual investors. retail investors. so to put it bluntly, this means that institutions smash the market, attract funds, pull up, and then retail investors pay the bill.

however, when all institutions are familiar with this method and use it,retail investors, institutions, and each other have fallen into a "dark forest" state.they no longer trust each other. in order to compete with each other, some institutions will even smash each other's positions and hold heavy positions. retail investors are too lazy to support the institutions. when a certain stock experiences abnormal fluctuations, retail investors often "run first out of respect."

in an incremental market, this kind of game will appear as a positive-sum game due to external incremental support. however, with the continuous loss of liquidity this year, observing the liquidity of the a-share market, we can see that since the market stalled at the end of may, market sentiment is becoming more and more pessimistic, and liquidity is getting tighter day by day. and this is the situation after unreasonable tools such as unlimited securities lending and refinancing have been "confiscated". this negative sum game has become common among most participants. falling into despair, wailing.

as for the imperfect system and the inability to grow steadily in the long term like the us stock market, this is actually a problem that is deeply related to each other. in the early days of my country's capital market, it was indeed to solve the problem of capital turnover difficulties of many enterprises. therefore, the original system design was "obviously unfair". the risks for investors were much greater than those for listed companies. although they were all illegal and criminal in terms of difficulty, but it is even easier for a listed company to do whatever it takes to make money than to rob a bank.

this has a typical background of the times,when the capital market was first established, it was to solve the dilemma of the reform of state-owned enterprises in my country and the lack of funds for the development of local enterprises.therefore, in order to facilitate the solution of financing needs, there are naturally a large number of loopholes. after all, "the work goal is to solve the financing problem." the fundamental crux hidden here is that our country is dominated by the commercial banking system and lacks industrial capital; however, the times are changing after the subprime mortgage crisis, our country has transformed from capital scarcity to capital excess. at this time, it has become extremely necessary and urgent to carry out institutional changes.

the overall institutional clearing of the capital market will actually begin with the institutional reform in 2023.taking state council document no. 35 to rectify local debt and local non-standard financing as a clarion call, and climaxing with this year’s ultra-long inspections across regulatory agencies and large financial companies such as banks and guarantee companies,and the ending may still be a long process.

some policies and policy guidelines recently introduced, such as the central government’s clear requirement to protect small and medium-sized investors, such as the financial stability law that has been brewed and passed the first and second readings and the “stabilization fund” derived from the bill, will still take time. to further implement.

in any case, the current financial system is so reasonable and rigorous that it has never been seen before at least in the chinese stock market. it can be said that the current financial system is standing at a new starting point in history.

what is the prosperity of u.s. stocks?

on the other hand, it is necessary to explain that the prosperity of u.s. stocks cannot be copied or imitated.in essence, the current prosperity of us stocks is the prosperity of the us dollar and a liquidity bubble.the u.s. stock market is in a highly bubbly state due to the currency boom. there is no need to whitewash or whitewash it as "this is not a bubble." whether it is a bubble or not can be determined by comparing history and scientific theory.however, the existence of the bubble ≠ the bursting of the bubble, these are two problems.

to put it simply, since the covid-19 pandemic in 2020, the federal reserve has injected a large amount of liquidity into the market by cutting interest rates to 0%, purchasing securities assets, providing living subsidies to residents, and increasing fiscal expenditures. this has led to the first round of surges in u.s. stocks. , and as liquidity spills over, global capital markets benefit, including the a-share and h-share markets;

since the interest rate hike at the end of 2021, the forward guidance of the interest rate dot plot has continuously hinted that the market is hyping up the expectation of interest rate hikes, forming market expectations that "hot money flowing to the united states is profitable". liquidity has increased all over the world, including our country. the general flow to the united states has brought about a shortage of u.s. dollars and a rising u.s. dollar exchange rate. at the same time, the federal benchmark interest rate + the capital market risk-free interest rate implying gdp growth rate has raised the u.s. dollar-denominated rate of return to 8%. superimposed exchange rates the expectation of changes constitutes a strong market attraction.

according to textbooks, the federal reserve is the central bank of the united states and the world's central bank. when the federal reserve raises interest rates, other central banks around the world will also follow suit to increase the rate of return on assets in the local currency market and ensure the attractiveness of hedging the us dollar market. don’t let your own capital outflow be too serious. however, this round of u.s. dollar interest rate hikes is so strong that even europe cannot support the strong appeal of the u.s. dollar market. capital outflows are serious, and the european central bank started cutting interest rates far before the federal reserve.

therefore, from a monetary perspective, the textbook view that raising interest rates is bad for the stock market does not hold true in the current international financial structure.structural changes in the financial market are subject to transmission mechanisms and time lags. the federal reserve's interest rate cuts and interest rate increases have the effect of "collecting water" in international finance as a whole, but in the united states, it has the effect of releasing water. it's like a huge whirlpool with abundant water at the entrance. the only large economy that has not been sucked crazy may be russia, because sanctions have prevented russian capital from flowing out to the west, and these capitals have had a better effect on russian domestic investment.

in addition to monetary reasons, another reason is the dividends and buybacks of us stocks.a-shares have long been criticized for their lack of returns to investors and severely low dividends. since the beginning of this year, a-shares have continued to increase the mandatory requirements for dividends and performance constraints in the reform. in order to boost the capital market, the central bank even invented a repurchase loan with an interest rate of 1.75% for listed companies. a shares are not good, but this does not mean that us stocks are doing well.on the contrary, i think it has gone too far.

apple is the world's top spender on stock repurchases, spending $320 billion on repurchases during this decade, distributing almost all (97%) of its net profits to shareholders through dividends and repurchases; qualcomm the funds distributed to shareholders amounted to 192% of net profit, which means that qualcomm must maintain the distribution of funds to shareholders through borrowing debt or selling assets. general electric, a representative of the old economy, distributed 313% of its net profits to shareholders in ten years and created a loss of us$22 billion in 2018.

stock repurchase expenditure ranking list (2010-2019), via culture zongheng

necessary capital retention, technology investment and r&d investment are crucial to the long-term development of enterprises, and dividends to shareholders and investors are also crucial to the long-term construction of the capital market. in terms of this balance, the us stock market is not a good example. enterprises, regulators and investors are the three main bodies of the capital market, and the prosperity of the market depends on the actions of these three.

at present, unprecedented unified and centralized supervision is basically taking shape in my country's financial market, and the institutional and legal system is constantly being improved. with the successful completion of made in china 2025, the continuous advancement of my country's manufacturing technology iteration and the continuous development of the cultural tourism service industry, companies are climbing through the difficult tail end of this cycle. the future capital market is actually determined by investors.

we have seen that our country’s monetary authorities are also learning from this strategy of expectation guidance.the author speculates on this and briefly discusses it. expectation management and expectation guidance actually allow market participants to actively participate. after all, the imagination of the human brain is the most powerful sexual organ when it comes to pornography, and the same is true for the capital market.

across the ocean, the federal reserve cut interest rates by 50bp in september, which actually exceeded expectations.this frequent "exceeding expectations" is the essence of the market in expectation guidance and expectation management.the water release in 2020 exceeded expectations, so the stock market was stimulated to rise sharply. the intensity, frequency and final high of the interest rate hikes from the end of 2021 to 2023 continued to exceed expectations, creating the super attractiveness of the us dollar. the index is high, which also creates strong expectations for the us dollar market, and the stock market is greatly stimulated.

however, it is impossible to release water without any cost. the inflation in the united states has so far declined only slightly, and the core inflation indicators are still not reassuring. the current interest rate cut is nothing more than an attempt to stabilize the national economy through continuous and rapid "unexpected" interest rate cuts. "smooth landing and recovery", the gist of which is to continuously exceed expectations through means such as speed and exceeding expectations. therefore, the author believes that the speed and intensity of this interest rate cut will be in line with the situation when interest rates were raised. as for the pce core inflation issue, it can be then raise interest rates again after inflation picks up again. in the past two years, the author has asserted that from a long-term perspective, it is inevitable for the us dollar system to move towards high interest rates.

this strategy, at least this year, has also been used by my country’s monetary authorities. during the rebound after the end of february this year, the central bank governor interpreted the monetary policy and outlined the market’s expectations;perhaps the biggest origin of the super rebound in recent days is the creation of the financial instrument of securities fund insurance swap facility.

since the beginning of this year, due to the slump in capital, many tools have been used to release liquidity, and liquidity has flowed into the government bond market for "risk avoidance" and mutual speculation. the central bank's repeated calls have still been ineffective; and the essence of this financial tool is the asset structure. moving: "securities companies are allowed to mortgage their stock and etf positions to the central bank and then borrow treasury bonds held by the central bank, and then exchange the treasury bonds for cash. the cash exchanged is only allowed to be invested in the securities market."

from a rational point of view, of course we will find that the risks have not disappeared, but have just transferred. in fact, there is no new profit growth, but the market expectations have been fundamentally reversed, and the expectations of speculation in the government bond market have disappeared, because no matter how much speculation there is, there will be no new profit growth. it is to exchange money for the securities market, it is better to invest directly in the securities market. according to some data, only a few billions of the securities and insurance fund swap facilities totaling 500 billion have been used, but the overall market situation has been completely ignited.

in any case, the capital market is an important part of my country's economic construction in the new era.it was definitely irrational to say angrily that "the big deal is over" before, but now that i have fallen into the fantasy of "getting bigger and stronger", i need to calm down.after all, no matter how the system is built, it can only have the effect of standardizing business processes and balancing risk sharing. for retail investors, it is still the same saying, "the stock market is risky, so you need to be cautious when entering the market."