Since 2022, the world’s major markets have fallen indiscriminately, and A-Shares have also fallen unilaterally along with the peripheral markets. As of the closing on February 17, the Shanghai Composite Index fell 4.72%, the Shenzhen composite index fell 9.65% and the gem index fell 14.53%. Such a trend is rare in the 32 year historical deduction of a shares. In my impression, this situation has occurred only when the market peaked in 2008 and circuit breaker in 2016. This inevitably cast a shadow on the hearts of all market participants, including institutions. For a time, the voices of “market peaking” and “bear market opening” were rampant, and a pessimistic and negative atmosphere shrouded the A-share market.
However, in the author’s opinion, the current round of adjustment of the A-share market is mainly affected by the high inflation in the United States, the rising expectation of interest rate hike by the Federal Reserve, geopolitical tension and other external emotions. In fact, the A-share market itself does not have room for significant adjustment. On the contrary, A-Shares are now ready to start a new rising cycle.
the A-share market in 2022 does not meet the conditions of “bear walking”
According to the author, the spring market will be staged at the beginning of most years of the A-share market under the background of loose money liquidity. But what is different from the past is that when everyone is full of expectations for the A-share market in 2022, the market shows a unilateral downward trend, especially the adjustment of industry leading companies once again caught all market participants off guard. So, what is the reason for this situation?
In my opinion, first of all, the deterioration of the external market environment is a factor; The year 2021 witnessed a three-year rise in the A-share market, followed by a three-year gain in 2021. Therefore, the market itself has the need for shock and even adjustment. For this change, the author tends to think that it is a technical adjustment or periodic adjustment, because this is not caused by the deterioration of China’s economic fundamentals. We should know that in 2021 affected by the epidemic, the economy of the world’s major economies is still in the process of difficult recovery, while China’s economy is still showing a trend of rapid development, with an annual GDP growth of 8.1%, far ahead of the world’s major economies.
It should be noted that such economic growth is also constrained by many factors, such as epidemic prevention and control, sluggish consumer side, rising commodity prices (causing inflation), deleveraging of real estate, production restriction and reduction of enterprises (under the background of carbon neutralization), reduction of education burden, rectification of medicine and the Internet. Without these factors, China’s economy might have taken a big step forward.
In fact, in the expectation of stabilizing the economy and ensuring employment, loose monetary policy and active fiscal policy are increasing, such as the central bank’s RRR reduction and interest rate reduction. In addition, the national development and Reform Commission has also accelerated the approval of major infrastructure projects and industrial projects. At the same time, key infrastructure projects of local governments have started one after another, which has laid a solid foundation for the recovery of the real economy.
Therefore, the author believes that under the policy exceeding expectations, the A-share market in 2022 does not have the conditions to “bear”.
From the perspective of valuation, the A-share market does not have room for significant adjustment. Take the Shanghai stock index as an example. So far, its dynamic P / E ratio is 13.33 times, while its average p / E ratio since 1999 is 16.98 times (see Figure 1).
The same is true from the perspective of the main sectors that determine the market trend. According to the author, at present, the total market value of Listed Companies in Shanghai, Shenzhen and Northern stock markets is 94.85 trillion yuan, of which the total market value of banks, non bank finance (mainly securities companies) and “two barrels of oil” is 18.40 trillion yuan, accounting for 19.40%, and their valuation levels are at historical lows.
to the starting point of the “cyclical” epic market?
On the contrary, in 2022, A-Shares are likely to usher in an epic market. First of all, because each round of market-oriented reform in the A-share market can give birth to a certain level of bull market, such as the “May 19” market of policy intervention in 1999, the “6124 point” market of share reform and exchange rate reform in 2005, and the “5178” market of monetary relaxation and destocking in 2014. In my opinion, the comprehensive registration system that may usher in 2022 provides this opportunity.
Coincidentally, according to the author, it has been eight years since the starting point of “5178” market in 2014, 16 years since the starting point of “6124” market and about 23 years since the starting point of “May 19” market in 1999. In this regard, the average starting time interval of each epic level market is about 8 years (see Figure 2). Now, is this the beginning of a new upward cycle?
Secondly, the three epic markets in the history of A-Shares have similar macro backgrounds, such as the sluggish overseas economy, blocked exports, and the freezing point of China US relations. Today, the A-share market is also facing these challenges.
Finally, from the point of view of Shanghai Composite Index and Shenzhen composite index, it is now near the neckline built in 2014. In other words, the two market indexes have returned to the “origin” at the end of 2014 and the beginning of 2015. Although the capital market is a barometer of the real economy, there has been a qualitative leap in China’s economic fundamentals. For example, from 2014 to 2021, the GDP expanded from 63.65 trillion yuan to 114.37 trillion yuan, while the capital market has stagnated, which is obviously inconsistent with the positioning of the capital market and the basic laws of economic operation. Moreover, China has become one of the countries with the fastest economic development in recent years, but the growth of the capital market is far behind that of other major economies in the world, which is also unreasonable. Because there is no reason why our country is prosperous and strong. After making remarkable achievements in the economic field, the capital market is calm. Taking the United States as an example, its typical bull market was from 1990 to 2000. The main reason is that the disintegration of the former Soviet Union and the end of the struggle for hegemony between the United States and the Soviet Union in 1991. Therefore, the United States has become the only superpower in the world, and its economic volume has developed unprecedentedly.
Therefore, the author believes that the dormant A-share market may be brewing a market with its own logic.
Of course, due to changes in the external environment, the A-share market may fluctuate to a certain extent in the future. But when standing at “6124 points”, who accounting compared with the stock index fell from more than 1300 points in 2005 to 998 points? It should be pointed out that at the time of market adjustment and increased volatility, it may be the time for us to choose a good company. For example, in the adjustment in 2005, we can see that some good companies represented by Jiangxi Hongdu Aviation Industry Co.Ltd(600316) , Shandong Gold Mining Co.Ltd(600547) , Yunnan Chihong Zinc & Germanium Co.Ltd(600497) , Henan Yuguang Gold & Lead Co.Ltd(600531) have refused to decline, and then generally walked out of a 10 fold trend.
“Through all the hardships at present, the rest of my life is a smooth road”. The author wants to use this sentence to describe the current A-share market. We achieved financial leverage reduction in 2018, overcame the trade war in 2019, overcame the impact of the epidemic in 2020, and (basically) completed the rectification of real estate, education and medical care in 2021. Now it can be said that the most difficult time in the A-share market has passed, and youth is on the way.
