Recently, the market fluctuates greatly. The CSI 300 index has been adjusted for 13 months since its peak in February 2021, and the decline is not low. The valuation is also close to the historical low. Investors are generally concerned about whether the market "bottoms out" in stages. Whether the bottom of the market and the key features of the market since the adjustment of the bottom of the report have led to the reversal of the main and secondary market valuations (including whether there have been five key features of the market since the bottom of the report and the improvement of the basic market valuations in 2008), Effective policy signals and fundamental signals expected to improve are usually important preconditions for the formation of the market bottom.
summary
Recently, the market fluctuated greatly. The Shanghai stock index was as low as 3023 in the early stage. The CSI 300 index has been adjusted for 13 months since its peak in February 2021, and the decline is not low. We recently released "where is the valuation adjusted?" The article believes that the market valuation has been at a relatively low level in history, and investors are generally concerned about whether the market is "bottoming out" in stages. This report combs the characteristics and signals of the six important periodic bottoms of the A-share market since 2008, in order to provide enlightenment for the current judgment.
the key to the formation of phased bottom may be the reversal or expected improvement of the main factors causing the adjustment
There is a lack of regularity in the adjustment period and the length of the bottom of the previous stages. There is a big difference in the duration of the bottom regions. The most crucial factor is the possibility of turning the market adjustment factors or improving them. Historically, the reasons for the formation of the market top are mostly related to the high valuation and the tightening of macro or regulatory policies, and then the fundamentals gradually enter the downward cycle, while the formation of the phased bottom is often combined with the expected improvement of the fundamentals, and this expected improvement is often related to the effectiveness of the policies, therefore, "policy bottom - emotional bottom - growth bottom" is a common bottom mode in the market
market important bottom signal sorting
1) fundamental signal periodic bottom usually corresponds to the overall or structural bottom recovery of the profit cycle. When the market bottoms, it often leads the recovery of profit growth for about 1-2 quarters or basically at the same time. However, with the structural differentiation of the internal profit cycle of A-Shares and the increase of the weight proportion of the new economy, the differentiation of the profit cycle of various industries also led to the difference of bottom rhythm. For example, 2012 and 2016 were only the bottom of the gem and traditional blue chip respectively. With the adjustment, transformation and upgrading of economic structure, the impact of the law of financial data leading the real economy on different industries has also changed. We should pay more attention to the structural characteristics of prosperity in the fields of scientific and technological innovation and green development.
2) policy signal macro policies are born in the economic situation, and their development is often characterized by gradual and orderly progress. There is usually a time lag in the process from policy force to gradual effect and market stabilization and recovery. The time point of market stabilization is closely related to the policy effect. In the second half of the previous market adjustment process, especially in the final period, there are often macro and regulatory support and "stability maintenance" measures, which have a good effect on alleviating short-term liquidity pressure and improving investor expectations. However, whether the medium-term market adjustment can be completed or not often needs to observe the improvement effect of policies on the core contradictions of market adjustment.
3) valuation signal previous periodic bottoms often correspond to investors' pessimistic expectations and emotions. The downward valuation often exceeds expectations, and the subject valuation of heavy institutional positions is mostly compressed to a lower level. However, there are differences in the level of previous bottom valuations, which can be comprehensively evaluated in combination with some indicators with mean regression characteristics, such as the equity risk premium of broad-based index and main style index. Although extremely low valuations can not independently confirm whether the market bottoms out, they often respond to the increase in the probability of achieving positive returns in the medium and long term, and may also bring greater repair flexibility to the market when the marginal improvement of fundamental factors.
4) capital signal a-share phased bottom area is often accompanied by a significant increase in industrial capital holdings or a decrease in net holdings, as well as a significant cooling of market trading sentiment. The bottom period is often accompanied by a turnover level of less than 1.5% or a turnover of more than 60% compared with the previous high. It can also be used as an auxiliary reference in combination with the issuance of public funds and the number of new accounts.
5) behavioral signals historically, the compensatory decline of strong sectors or strong stocks may also be an important behavioral signal in the final stage of adjustment overall, effective policy signals and fundamental signals of improved profit expectations are important conditions for the formation of phased bottom, and signals at valuation, capital and behavior levels can play an auxiliary role in judgment from the market performance after bottoming in previous stages, the bottom grinding period for digesting negative factors often occurs within three months after the emergence of most bottom lows. The main line of oversold rebound is not the leading industry in this stage. When the market sentiment is cautious, the sectors with clear fundamental logic have relative returns.
the index system for judging the periodic bottom of the market may also need dynamic adjustment
With more changes in China's economic level and capital market fundamentals, in the "post real estate era", China needs to find a new driving force for growth and a new balance of growth. China's economic restructuring, transformation and upgrading are also entering a critical stage. The once-in-a-century epidemic superimposes a major change that has not been seen in a century, and the impact of the peripheral environment can not be ignored; In the capital market, the new and old economies continue to differentiate, the proportion of the new economy increases year by year, and the market value proportion gradually exceeds that of the old economy. In addition to traditional macroeconomic indicators, it is also necessary to pay attention to the asynchrony between the Shenzhen New Industries Biomedical Engineering Co.Ltd(300832) trend and the cycle of traditional economy, such as the phased bottom in 2012 and 2018; We also need to pay attention to the impact of external variables. The bottom of the two stages in 2018 and 2020 is related to the digestion of external factors.
what bottom signals have appeared so far in this round of market adjustment
The reasons for the market decline since the beginning of the year are relatively comprehensive. The external factors include the interpretation of the situation in Russia and Ukraine, the expectation of strengthening stagflation, international relations such as the delisting of China concept shares, and the internal factors include market concerns that the steady growth policy faces more constraints, the weak real estate market and credit risk remains to be solved, China's local epidemic situation and industrial supervision. At present, the policy signal is clear and targeted. The support policies in the fields of monetary policy and real estate are more active than in the early stage. The control of the epidemic is also dynamically adjusted. The recent meeting of the financial committee also made a positive response to the problems of China concept shares and platform economy. At present, the fundamental signals still need to be improved. The squeeze of bulk price increases on the profits of the middle and lower reaches, the weak prosperity of real estate, the demand of the housing industry chain and the suppression of consumption have yet to be determined.
Among the auxiliary signals, the current market valuation is close to the historical low, which may have released more risks, while the capital signal and behavior signal need to be observed.
market has gradually entered the grinding stage, and four potential factors will be paid attention to in the future
On the whole, some factors that triggered the market adjustment have been actively resolved at the policy level, the fundamental signal is still weak, the potential inflection point may still need to wait for the effectiveness of the policy to achieve fundamental improvement, and the short-term market may still be repeated, but the similar stage of sharp decline in the early stage may have ended, and the subsequent market may gradually enter the bottom grinding stage. Combined with the adjusted range, valuation and possible digestion of negative factors, we believe that the market opportunities in the medium-term dimension outweigh the risks. In the future, we will pay attention to the following potential factors: 1) the clear situation in Russia and Ukraine and the easing of global inflationary pressure will bring about the marginal easing of "stagflation"; 2) The "steady growth" policy continues to work, especially in real estate and other fields with more concerns. 3) The epidemic situation in China is further clarified; 4) The marginal stability of China US relations and the relative clarity of China concept shares. Structurally, the current main line of "stable growth" may still have configuration value. In the medium term, with the gradual stabilization of growth and the gradual resolution of macro risks, the market may still focus on areas of more sustainable growth, and relevant fields such as high-profile scientific and technological innovation and manufacturing upgrading may be relatively dominant.
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historical experience and Enlightenment of phased bottom
Recently, the market fluctuated greatly. The Shanghai stock index was as low as 3023 points in the early stage. The CSI 300 index has been adjusted for 13 months since its peak in February 2021, and the decline is not low. Where is the valuation adjusted The article believes that the market valuation is also close to the historical relatively low level. Investors are generally concerned about whether the market is "bottoming out" in stages. This report combs the characteristics and signals of the six important periodic bottoms of the A-share market since 2008, in order to provide enlightenment for the current judgment.
a-share historical characteristics of phased bottom
Based on the five rounds of market upside and four rounds of market correction experienced by the A-share market since 2006, and combining the different characteristics of important broad base indexes such as Shanghai and Shenzhen 300 and gem index, we selected six phased bottoms of the market from correction to medium-term rise, namely: the bottom after the financial crisis in November 2008, the historical bottom of gem in December 2012, the historical bottom of whole market valuation in 20132014 The bottom of rapid adjustment in January 2016, the bottom after deleveraging and marginal changes in China US relations in 2018, and the bottom of market fluctuations caused by the global epidemic in 2020. We sorted out the factors that caused the inflection point of the market in the previous bottom stages and the characteristics of important variables (chart 1).
all previous bottom durations and characteristics are different there are great differences in the duration of market bottom areas over the years. For example, the market bottom lasted less than half a month in 2008, 2012 and 2020, and the market began to reverse significantly. Also, in 2016 and 2018, the market had a "bottom grinding period" of 1-3 months, while the market rose significantly from the bottom after nearly one year of low consolidation in 20132014 moreover, the adjustment range and duration before the market bottomed out are relatively irregular. The current range of this round of adjustment is slightly smaller than the previous mid-term decline of the market, but the duration has been relatively long
there are many reference signals when the market bottoms out, but the most critical factor may be the shift or marginal improvement of the factors causing the market adjustment In the history of , the market always saw a full or partial valuation bubble at the beginning of the market. The macro policy or regulatory turn led to market valuation callbacks, and then the fundamentals entered the downlink cycle. The overall market decline continued to increase. In addition, if the deterioration of the overseas environment, the market could also cause some adjustment pressure. The final market stabilization and recovery are often related to the shift of factors that triggered the market correction in the early stage or the improvement of marginal expectations. It is usually manifested in the improvement of the expectation of fundamentals by the policy force, or the sign that the profit cycle has bottomed out and rebounded, or the reversal of exogenous variables that suppress the market performance. Even if the adjustment caused by the overseas environment in March 2020, the final market stabilization is after the significant easing of China's outflow dynamic environment; If the factors that suppress fundamental expectations have not fundamentally changed, the market is more reflected in the stage rebound in the adjustment cycle.
"bottom of policy - bottom of sentiment - bottom of growth" is a common "bottom" mode in the market in the downward stage of the cycle, when the fundamentals weaken to a certain stage, the counter cyclical adjustment is often carried out corresponding to the policy, and the adjustment intensity is often gradually increased in the middle and late stage of the downward cycle, that is, the "policy bottom" is gradually confirmed; However, it may be difficult for investors to change their cautious expectations of the downward fundamentals immediately. It is difficult for market sentiment to change significantly in the demand stage when the policy force has not significantly improved. With the characteristics of the transaction level, the decline tends to increase at the end of the adjustment in history, until the policy force gradually takes effect, resulting in the marginal improvement of investors' expectations, and the "emotional bottom" of the market is also gradually formed; Policy supply often corresponds to future demand. Before growth stabilizes, the policy of "stable growth" may continue to work, and finally the "bottom of growth" lags behind the "bottom of policy". Although it is a common cycle bottoming mode, the time interval between the three types of bottoms may be uncertain. Historically, the interval between "policy bottom" and "growth bottom" is mostly 2-3 quarters.
valuation, capital and market sentiment signals have certain reference significance and are mainly used for auxiliary reference after the changes of the above key factors although the previous periodic bottom market valuations are low, the lower limits of previous bottom valuations are often quite different, especially in the stage of deterioration of growth expectations. It is difficult to judge the low point of valuation. However, after the improvement or turn of the above key factors, valuation plays an important role in judging the bottom of the market. Similarly, the transaction indicators reflecting market sentiment, the increase of industrial capital or the increase of important investors, and abnormal investor behavior indicators can also be used as auxiliary judgment signals.
chart 1: sorting out the bottom characteristics of previous markets: the factors causing market adjustment have turned or the expected marginal improvement
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 2: bottoming process of six stages in the history of A-Shares
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 3: long cycle index performance, market style, superposition of economic growth and macro policies
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
market signals of periodic bottoming
Fundamental signal
periodic bottom usually corresponds to the overall or structural bottom recovery of profit growth in the cycle except for the periodic bottom in 2014, the previous periodic bottom corresponds to the stabilization and recovery of fundamentals. Generally, the market bottomed out and the profit growth rebounded for about 1-2 quarters, or basically at the same time. Even if the market bottomed out and rebounded in 2014, it also implies the expectation that the reform will bring about the improvement of the fundamentals of traditional industries.
In 2012, only the gem saw a phased bottom, which is related to the general overcapacity of the traditional economy and the weak economic recovery, and the profits of the gem benefiting from the rise of the Shenzhen New Industries Biomedical Engineering Co.Ltd(300832) trend entered the upward cycle; Similarly, in 2016, China's economy saw a comprehensive bottom, especially the strong recovery of traditional industries, and the profit growth of gem fell from a high level. Therefore, only the blue chip sector saw a phased bottom in 2016, while the profit cycle of small and medium-sized start-ups was unfavorable, the performance was relatively poor.
after 2010, the internal profit cycle of A-Shares shows structural differentiation, and the profit elasticity affects the market elasticity after bottoming out with the transformation of China's economic structure and the increase of the proportion and weight of the new economy in the market, A-Shares show the differentiation of the profitability of the new and old economies and the asynchronous cycle internally after 2010. At the same time, the weight of the new economy in the market increases year by year. Therefore, it may be necessary to distinguish industries at the bottom of the profit cycle. Finally, the degree of profit recovery of each part may affect the reliability of the bottom and the elasticity of stock market performance. For example, the aforementioned market structure differentiation after 2012 and 2016, and the phased bottom of the market in 2018 and 2020 also reflect the difference between the structural bottom and the overall bottom of profitability.
financial data is leading in real economic growth, but its impact on different industries is different historically, the growth of financial data has an obvious leading role in the growth of the real economy, mainly because after the loosening of the financing environment, enterprises obtain credit and increase investment in fixed assets, and the resident sector increases leverage to promote the growth of real estate sales, thus driving the improvement of the middle and upper reaches of the real economy and consumption. It may take about 1-2 quarters for the growth of financial data to be transmitted to the recovery of the real economy. Although financial data is a good observation indicator of economic growth expectations, with China's economic restructuring, transformation and upgrading also gradually entering the critical stage, and China entering the "post real estate era", after China wants to find a new driving force for growth and a new balance of growth, the effect of the "steady growth" means of traditional credit investment is also changing. In addition to the total level, we should pay more attention to the change trend of structural growth, especially the repair elasticity in the real estate field, as well as the boom change of scientific and technological innovation and green development.
chart 4: the occurrence time of market periodic bottom is usually close to the inflection point of overall or structural profit growth
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 5: contribution of three major industries to China's GDP
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 6: share of market value of all Chinese listed companies
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 7: broad credit is a forward-looking indicator of the expected recovery of economic growth, and the new social finance inflection point is related to the market inflection point
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 8: credit pulse leads China's stock market for about six months
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 9: credit pulse and treasury bond interest rate change in reverse, about 2 months behind
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 10: financial data is leading in corporate profits, but the elasticity of financial data itself is also weakening
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 11: the profit cycle of new and old economic components is asynchronous, which may be the reason for the asynchrony at the bottom of different sectors
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
policy signal
historically, the policy support signals at the bottom of the market stage are also of great significance. On the one hand, the policy force may solve and reverse the early market concerns; on the other hand, the continuous strengthening of the policy may gradually improve the expectation of downward economic fundamentals
there is usually a time lag from policy to market stabilization and recovery during the downturns of economic cycles and market declines, due to the endogenous economic situation of the policy, the strength of the "steady growth" policy is often increased with the increase of downward pressure on growth. In the early stage of the policy, it is often difficult to immediately produce an immediate effect on the downturns of the cycle, and the market sentiment is often still relatively low in the initial stage of policy signals. However, with the gradual effectiveness of the policy, the downward expectation of the cycle begins to reverse gradually, and the market will gradually stabilize with the poor expectation. For example, in 2008, 2012, 2016 and 2018, the bottom of the market was obviously 1-2 quarters ahead of the bottom of the policy growth. Although the relevant policies in 2014 did not bring about the stabilization of economic growth, the policies on key issues such as the weak real estate market and traditional economic reform were relatively strong, which also gradually promoted the stabilization and recovery of the market.
In addition, the support of relevant regulatory policies in history is also a common signal after the market is adjusted to a low level, such as liberalizing institutional restrictions (such as relaxing the refinancing of gem in 2014) and encouraging all kinds of funds to increase their holdings of shares of listed companies. In recent years, with the gradual maturity of the market mechanism, the regulatory policies have also been dynamically adjusted in form.
historically, whether the stability maintenance measures help to resolve the core contradiction of market adjustment is also the key to whether the market can reach the bottom in stages historically, after the substantial adjustment of the stock market, in order to maintain the stable development of the capital market, the policy level may issue some policies conducive to market stability, and the policy force will often have good results, especially the relevant policies that help to improve the main contradiction of market adjustment, which will significantly improve and support the investor sentiment. For example, at the end of 2018, the policy level set the tone to support the development of private enterprises and introduced measures to support the financing of private small and medium-sized enterprises. After the credit risk problems were gradually resolved, the market gradually stabilized.
chart 12: the policy continued to intensify in the fourth quarter of 2018, and the pessimistic expectations of the market gradually reversed and bottomed out
Source: Wande information, Xinhuanetco.Ltd(603888) , China Securities Journal, China International Capital Corporation Limited(601995) Research Department
chart 13: the central bank lowered the reserve requirement several times in 2018
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 14: the decline of credit risk premium is basically synchronized with the market inflection point
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 15: in 2008, the market gradually stabilized under the action of a series of stability maintenance measures
Source: Wande information, Xinhuanetco.Ltd(603888) , China Securities Journal, China International Capital Corporation Limited(601995) Research Department
chart 16: a number of reforms in 2014 reversed the pessimistic expectations of the market for the old economy, and the market bottomed out and rebounded under the catalysis of a series of policies
Source: Wande information, Xinhuanetco.Ltd(603888) , China Securities Journal, China International Capital Corporation Limited(601995) Research Department
valuation signal
historically, the periodic bottom often corresponds to the more pessimistic sentiment of the market, and the valuation is more sufficient or even over reflects the downward profit expectation.
the absolute level of the bottom of the previous valuations of the main broad-based index is different. Although the valuation is not the decisive factor for the bottom of market adjustment, especially under the background of macro level factors still having great uncertainty or facing liquidity risk, it is difficult to judge the bottom simply according to the historical valuation low point, but the valuation position has a strong reference value for the market, and in the medium and long term, the valuation position has a strong correlation with the long-term shareholding yield. The undervalued value of the market often means that the medium and long-term investment value appears.
some valuation related indicators have the characteristics of mean regression and have certain reference significance for example, the equity risk premium of CSI 300 has a certain mean regression characteristics. In history, the equity risk premium at the bottom of the stage is basically about twice the standard deviation above the mean.
in the historical bottom area, the growth blue chip valuation of institutional heavy positions is often compressed to a lower level although the historical valuation of growth blue chips in heavy positions of A-share institutions is relatively high and more resilient than the overall performance of the market, in the stage when the market is pessimistic about future profits and in poor mood, this kind of growth blue chips will inevitably make up for the decline and compress the valuation in the later stage of the decline. The P / E ratio index of the top 100 leading companies with foreign positions constructed by us deserves special attention in the historical position of the mean value (18.8x) and double the standard deviation (13.6x) below the mean value.
to sum up, we believe that there is a high positive correlation between equity risk premium and future stock market return in history. The probability of positive return in the next six months corresponding to the high equity risk premium is relatively high. Although the extremely low valuation cannot judge whether the market bottoms out alone, it may increase the probability of high return in the future. Moreover, when the valuation gradually enters the historical low level, the marginal improvement of fundamental factors may bring greater repair flexibility to the market
chart 17: the bottom levels of the previous valuations of the broad-based index are different
Source: Chaoyang Yongxu, China International Capital Corporation Limited(601995) Research Department
chart 18: CSI 300 non-financial has a certain valuation center
Source: Chaoyang Yongxu, China International Capital Corporation Limited(601995) Research Department
chart 19: one time standard deviation above the average equity risk premium is a better bottom monitoring index
Source: Chaoyang Yongxu, China International Capital Corporation Limited(601995) Research Department
chart 20: the growth of heavy positions of institutional investors. The valuation of the periodic bottom of blue chip in history is close to
Source: FactSet, China International Capital Corporation Limited(601995) Research Department
chart 21: distribution of stock market profitability at the bottom of stages in history
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 22: the probability of positive return in the next six months corresponding to the high equity risk premium in history
Source: Chaoyang Yongxu, Wande information, China International Capital Corporation Limited(601995) Research Department
Capital signal
A-Shares tend to increase significantly in industrial capital holdings or decrease in net holdings in the phased bottom area major shareholders and company executives may have a better understanding of enterprise value. Therefore, historically, the increase of industrial capital has often become an important reference for the judgment of phased bottom. If combined with the market turnover, the four phased bottom in 2012, 2014, 2016 and 2018 showed that the transaction volume of phased Industrial capital increase / A shares exceeded 0.3% and the net reduction decreased significantly. Since 2019, with the obvious expansion of the market, the diversification of investor structure and the rise of valuation center, the overall increase of industrial capital holdings has decreased, and the overall increase of net reduction of holdings, so this index has not touched the threshold again. If considering that some shareholders choose to support the stock price through stock repurchase after 2019, the overall indicators counted by the sum of holdings and repurchases of listed companies are also lower than the previous average level, The effectiveness of indicators may be declining.
market tends to have a significant drop in sentiment in the periodic bottom area market tends to have a low turnover rate in the interval when the periodic bottom appears or in a short period before and after. The logic behind this is that after the market is adjusted to a certain level, the forces of long and short sides are relatively balanced, and the selling power is exhausted, resulting in the full cooling of trading sentiment. Based on the turnover rate calculated by the market value of free circulation, less than 1.5% is often a more reliable area. However, if the early transaction is more active, it may be difficult to reduce the low turnover rate to such a low level in the future. Empirically, the turnover rate at the bottom of the stage usually shrinks by more than 60% compared with the high turnover rate in the early period. In addition, the issuance scale of partial stock public funds and the number of new accounts opened in the exchange also have a good effect on measuring market sentiment. For example, the newly established shares of public funds have been at the freezing point for several weeks and the number of new accounts has halved compared with the previous period, but it should be noted that the sufficient cooling of trading sentiment is not a sufficient condition for the periodic bottom, but as an auxiliary judgment index, There may also be a significant cooling of trading sentiment in non historical bottom areas
chart 23: the surge of industrial capital holdings has a certain effect on assisting the bottom judgment in history
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 24: before 2019, the proportion of net capital reduction tends to narrow significantly or even become positive
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 25: limited effectiveness of stock repurchase of A-share listed companies in judging the bottom
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 26: since 2020, the overall turnover of listed companies (overweight + repurchase) / market is lower than that in the past
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 27: the historical stage bottom often corresponds to the obvious cooling of sentiment, and the market turnover rate drops to a lower level
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 28: the issuance scale of public funds decreased significantly at the bottom of history
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 29: the number of new accounts opened in the market often drops to a low level at the bottom of the market, and the previous experience is about half lower than the stage high
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
behavior signal
strong sectors or strong stocks are also common behavioral signals at the end of adjustment in history.
and contrary to the backwardness or lack of logic that often appear before the market is close to the top, there is often no difference adjustment near the bottom of the market, the sectors that are relatively resistant to decline or have logic support in the early stage are adjusted, or the hot institutional heavy position stocks are added. The logic behind this is that at the end of the market adjustment, some funds with relatively flexible allocation in the early stage on the floor suffer relatively little damage in the early stage due to holding strong sectors and strong stocks. However, with the valuation differentiation of stocks and sectors to a certain extent, there is a demand for position adjustment of these funds, but the pessimistic market sentiment may lead to almost no incremental funds entering the OTC market, Finally, the position adjustment and stock exchange of on-site funds often lead to a large decline in strong stocks in the early stage. The above-mentioned phased bottoms have experienced the phenomenon of leading the decline in the last stage of the hot sector in the early stage in the last stage (as shown in Figure 30).
chart 30: the compensatory decline of strong sectors or strong stocks may also be an important behavioral signal at the end of the adjustment
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
phased bottom signal comprehensive combing
the reversal of the fundamental factors that triggered the market decline is an important signal of the historical bottom, especially the profit and policy signal market may rebound periodically due to policy events or liquidity support in the process of substantial adjustment. However, if the principal contradiction causing market adjustment does not change fundamentally or improve marginally, poor profit expectation will continue to suppress market valuation. Judging from the recovery at the bottom of the stage in history, the process of the final market stabilization and recovery is usually manifested in the policy force, the gradual reversal of fundamental expectations, and the final improvement of the profit cycle, or the emergence of new factors driving the upward profit cycle.
valuation, capital and behavioral signals can assist judgment from the experience of the bottom of history, the absolute level of valuation in history is relatively irregular, and the capital and behavior signals may appear many times in the adjustment process. It is necessary to use the auxiliary signals reasonably. After the important signals show signs of improvement, the probability of periodic bottom confirmation may be increased in combination with the auxiliary signals. Especially the valuation signal, when the market valuation is close to the historical low level, the marginal improvement of fundamental factors can often bring greater market elasticity.
we should dynamically adjust and judge the profitability and policy signals at the bottom of the market stage according to the actual fundamentals China's economic level and the fundamentals of the capital market have changed a lot in the past 10 years. In the "post real estate era" of the economic level, China needs to find a new driving force for growth and a new balance of growth. China's economic restructuring, transformation and upgrading are also gradually entering a critical stage. The role of the traditional steady growth policy in improving the quality of economic growth may also be changing; In the capital market, the new and old economies continue to differentiate, the proportion of the new economy increases year by year, and the market value gradually exceeds that of the old economy. The difference between the market structure and the economic structure becomes larger, and the structural impact of the Shenzhen New Industries Biomedical Engineering Co.Ltd(300832) trend on the market profit increases. In addition to the traditional macro economic indicators, it is also necessary to pay attention to the profit cycle of the Shenzhen New Industries Biomedical Engineering Co.Ltd(300832) trend to judge the bottom of the market.
external factors may have greater impact on the Chinese market at the level of economic fundamentals, the once-in-a-century epidemic is superimposed with major changes that have not been seen in a century, the impact of supply chain and geopolitical risks occurs from time to time, the competition among major countries is also increasing, China's share in the global economy is increasing year by year, and the impact of the external environment on China's economy may be more complex; At the market level, foreign capital has gradually become an important investor in the Chinese market, and the impact of external risk disturbance on the Chinese market is also increasing. From the two phased bottoms in 2018 and 2020, the market's decline and stabilization are related to external factors. When discussing the market bottom experience, we also need to consider the impact of external variables on fundamentals.
market characteristics after the emergence of periodic bottom lows in history
historically, the bottom grinding period often occurs within 3 months after the occurrence of periodic bottom low periodic bottoms are often accompanied by concentrated exposure of negative factors before they appear, and investors are pessimistic. Therefore, in the process of favorable policies or marginal improvement of factors leading to adjustment in the early stage, investors often need to repeatedly confirm or pass data verification, and the market is prone to repetition due to trading inertia. Therefore, after the low point appears for the first time, the market often has a period of bottom grinding period. Historically, it is mostly within three months, and then the factors that lead to the departure from the bottom area are mostly from the further clarification and resolution of market concerns. For example, in 2008, 2018 and 2020, the market accelerated its rise and left the bottom after the social financing and credit data significantly exceeded expectations and market concerns were gradually resolved.
The most clear logic is not the rebound of the industry, but the rebound of the industry although there may have been many policies to stabilize the market or fundamentals in the early stage, as the market is still relatively fragile near the bottom of the stage, the main line of market rebound is often the sector with the clearest fundamental logic rather than the sector with the largest decline in the early stage. We combed the industry performance in the three months after the first low point of previous markets and found similar characteristics. For example, after the market saw a low point in October 2008, the first to stabilize and recover is the infrastructure fields such as building materials, power equipment and new energy, which benefit from the government's increased investment, rather than finance and real estate, which are still at risk despite strong policy support; In the three months after the market saw a low point in 2014, the TMT sector with high prosperity in the early stage is still the largest increase, rather than the old economy and finance; During the epidemic in 2020, the market was led by the necessary consumption and medicine with relatively little damage or benefit.
chart 31: in the historical stage bottom area, most of them continue to grind the bottom within 3 months after reaching the bottom, and the market deviation from the bottom is mostly within 10%
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 32: the obvious growth of new social finance often becomes the catalyst for the bottom regional market to reverse the pessimistic expectation
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 33: three months after the market saw a low point, the industry leading the rise is not highly related to the previous oversold, but may be the industry with the clearest fundamental logic
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
what bottom signals have appeared so far in this round of market adjustment
a brief analysis of the reasons for market adjustment at the beginning of the year
the adjustment from the beginning of the year to the first ten days of February is more from China's growth environment, with external marginal impact. The specific reasons include: 1) the market is worried that the strength of steady growth policies faces more constraints, the pressure on economic growth is large, and high-frequency data reflect that real estate sales are relatively weak and lack of improvement, and credit risk lingers. 2) In the relatively strong "manufacturing growth" field in 2021, the stock price and valuation are relatively high, the position is not low, and there is a lack of catalyst in the short term.
3) With the increasing inflationary pressure in the United States, the expectation of the Federal Reserve to raise interest rates is rising. At the same time, the interest rate of US bonds has risen sharply and US stocks have corrected. 4) In terms of China US relations, the inclusion of some Chinese units in the "unverified list (UVL)" by the US Department of Commerce has aroused market concerns, which has a great impact on the relevant biomedicine, technology hardware and new energy vehicle industry chain.
since 3, the main contradiction and early stage of market adjustment have changed. Multiple factors exceeding expectations from overseas and China dominate the market correction, and funds going north have flowed out sharply The possibility of further stagflation in the Ukrainian oil market is mainly represented by the possibility of further inflation in the Russian oil market. 2) The United States has imposed sanctions on Russia, and many countries will hold general elections in 2022, raising geopolitical risks. 3) In the early stage, the SEC tightened the supervision of China concept shares, causing concerns about the delisting of China concept shares, resulting in the adjustment of China concept shares and Hong Kong shares. The funds going north had a cumulative net outflow of 67 billion yuan in seven trading days Chinese factors include: 1) the epidemic has been repeated locally recently and the scope of influence has increased. 2) The market still has more concerns about the policy strength of "stable growth". The lower than expected financial data in February reflects that the credit demand is still relatively weak, and the peripheral situation is complex, which brings greater challenges to "stable growth". 3) Investors are generally worried about the expansion of the scope of industrial regulation. 4) After continuous correction, there may also be investors' stop loss or redemption of funds, resulting in negative feedback.
chart 34: the overall yield of public funds has been poor since the beginning of the year, especially the funds in the field of manufacturing growth and consumption
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
chart 35: since the beginning of the year, only coal has risen, and the manufacturing growth with a large increase last year has significantly callback
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
what are the bottom signals in the current market
After the substantial adjustment of the market since the beginning of the year, whether the market bottomed out has become the focus. We sort out the signal characteristics of each dimension of the current market based on the above dimensions (Chart 36).
current policy signals are clear and targeted, and fundamental signals need to be improved at present, the market fundamentals are still facing some pressure, especially at the structural level. The price rise of bulk commodities squeezes the profit margin of the middle and lower reaches, the weak investment and sales of real estate, and the superposition of the impact of the epidemic on the housing industry chain and the whole consumer industry. The fundamental signal is still not clear at the structural level. The current policy level signal is relatively clear and more targeted than that in the early stage. In addition to a series of stable growth policies to deal with the weak total growth, the support policies for the real estate field are more active than that in the early stage, and the control of the epidemic is also undergoing positive adjustments. The meeting of the financial committee also made a positive response to the market's concerns about China stocks and platform economy. At present, some factors causing market adjustment have been actively resolved at the policy level, but the fundamental signal is still weak, and the potential inflection point may still need to wait for the effectiveness of the policy and the operation of the cycle itself.
auxiliary signals, the current valuation signal is gradually providing support the current market valuation correction still has some space compared with other historical stage bottoms in all dimensions, but it is close to the historical valuation low or value area, and the medium-term risk at the valuation level has been fully released. Moreover, with the further clarification of the inflection point of the fundamental signal in the future, the full correction of the current valuation will also create greater flexibility and space for the market recovery. The financial level and behavioral level signals are still not obvious.
chart 36: the latest information about the bottom signal of market history
Source: Wande information, China International Capital Corporation Limited(601995) Research Department
potential future market turnaround
On the whole, although there is great uncertainty at the bottom of the short-term judgment, based on the above analysis, we believe that some market concerns have been actively resolved by policies, there are still fundamental concerns in the process of improvement, and the short-term market may still be repeated, but the stage similar to the sharp decline in the early stage may have ended, the subsequent market may gradually enter the bottom grinding stage, and the trading volume may shrink empirically in the medium term, combined with the Chinese market, the callback time has reached 13 months since the peak in February last year, which is one of the longer adjustment periods in the history of China's stock market, and the cumulative adjustment range is not small; On the other hand, the market valuation has also reached a relatively low level in history, and there have been many accumulated internal and external negative factors, we believe that the medium-term opportunity may be more inclined to opportunity than risk. In the future, the market will focus on the following factors that suppress market fundamentals and have a potential Turnaround:
1) the situation in Russia and Ukraine and the pressure of global inflation eased From the perspective of the "expected inflation period" in Russia and the "expected inflation period" in the mid-1970s, the report points out that the key factor may increase the risk of inflation and the performance of the "stagflation period" in the near future, Short cycle inflation expectations fall, improve the fundamentals and policies, and the market as a whole, especially the middle and downstream industries, will still usher in a turnaround. At present, there is still high uncertainty in the interpretation of the situation between Russia and Ukraine, and the short-term commodity prices and inflation expectations still have a certain suppressive effect on the market. If the geopolitical risk situation is further clarified in the future and the commodity prices gradually approach the high point and fall back, the Chinese market, especially the middle and downstream industries, may gradually usher in a turnaround.
2) "steady growth" has gradually taken effect, especially in areas with more concerns at present since the central economic work conference at the end of last year, the tone of "steady growth" has been clear and the policy has been gradually strengthened. However, as China's economic restructuring, transformation and upgrading have entered a critical period and gradually entered a "post real estate era", superimposed with the impact of external supply risks, the steady growth policy in the new stage is facing a more complex situation. Since the beginning of the year, the weak sales in the real estate market, the credit risk is still being resolved, and the consumer demand of residents is still not strong. These characteristics also reflect that the traditional steady growth model may face more constraints and challenges, which may mean that the time lag from the initial policy to effective is lengthened, and as the steady growth policy gradually plays a role in the real estate and consumption problems worried by the market, The downward pressure on the aggregate and structural levels of the economy is expected to be alleviated.
3) the epidemic situation in China has been gradually controlled and the restrictions on economic activities have been reduced recently, the epidemic situation in many places in China has risen rapidly, and the provinces affected by the epidemic account for a large proportion of the national economy, which brings some challenges to the overall growth, especially the recovery of consumption. However, the recent approval of antigen testing, the change of treatment plan and the promotion of specific drugs have made relatively positive progress. Moreover, according to the anti epidemic experience of overseas countries and Hong Kong, China, we expect that the peak of the epidemic may not be too far away. If the epidemic situation in China is gradually alleviated and the restrictions on economic activities are reduced in the future, it will also contribute to the recovery of economic fundamentals.
4) the marginal stability of China US relations and the relative clarity of China concept shares the recent meeting of the finance committee made a positive statement on this issue, and the video call between the heads of state of China and the United States also released a relatively positive signal.
Structurally, the current main line of "stable growth" may still have configuration value, but we expect that in the medium term, as the growth gradually tends to stabilize, the macro risks will be gradually resolved, and the growth elasticity of traditional profits may be declining. The market may still focus on areas of more sustainable growth, which may be relatively beneficial to the growth style, and relevant fields such as scientific and technological innovation and manufacturing upgrading that maintain a high outlook may be relatively dominant. Moreover, considering that the proportion of the new economy in the capital market has increased significantly, the sustainability and flexibility of the future growth of sci-tech innovation Shenzhen New Industries Biomedical Engineering Co.Ltd(300832) is also important for the medium-term turnaround of the market.
