The “A-share market” appeared at the end of June, 2012 and July, 2018, and the “A-share market” appeared at the end of June, 2012 and July, 2018. The confirmation of “policy bottom” is usually accompanied by the continuous introduction of policy combination, including monetary policy, fiscal policy and capital market related policies. The focus of monetary policy is to build the “bottom” and the “capital policy” is often the first, while the “capital policy” is often the first. The improvement of market expectations for economic fundamentals and the recovery of confidence in the stock market are the main driving forces for the market to get out of the bottom. For example, the three major policies to rescue the market and the “four trillion” investment plan were issued in 2008; In 2012, the national development and Reform Commission intensively approved more than trillion yuan of infrastructure investment projects, while insurance capital and the national team collectively increased their holdings of a shares; In 2015, seven ministries and commissions participated in the “rescue of the market” of a shares, and the national team made efforts to protect the market with funds; In 2018, the high-level voice for stock market fluctuations, the easing of Sino US trade frictions and the comprehensive reduction of reserve requirements by the central bank in early 2019 are all coordinated with active fiscal policies and relevant policies of the capital market to boost the market’s confidence in economic fundamentals and the stock market.
II. The bottom of A-Shares generally presents the time law of “policy bottom – market bottom – profit bottom” “policy bottom” is usually 1.5-3 months ahead of the “market bottom”: the “policy bottom – market bottom – profit bottom” in 20082009 appeared in September, October and March 2009 respectively, and the “policy bottom – market bottom – profit bottom” in 20152016 appeared in July, August and June 2016 respectively. The “market bottom” is not necessarily ahead of the “profit bottom”: the profit bottom in 2012 is 3 months earlier than the market bottom; At the end of 2018, the profit was synchronized with the market bottom.
III. the market often rebounds after the “policy bottom” is confirmed, but the construction of the market bottom is often not achieved overnight after the intensive introduction of stability maintenance policies, the A-share market often rebounded, which lasted for 6 to 29 trading days, ranging from + 4.4% to + 19.1%. In the rebound stage, the industry sector generally rose. However, the disturbance of external factors or concerns about economic fundamentals may cause the market to fall back again, and the industry sector generally fell in the falling stage. For example, after rebounding for six trading days in 2008, the market weakened again due to the continued weakening of China’s economic data and the sharp decline of the US stock market during the National Day holiday; As another example, in 2018, due to repeated Sino US frictions, the A-share market began to grind the bottom slowly again.
IV. the “policy bottom” of A-Shares in this round has been basically proved. Jinlong Machinery & Electronic Co.Ltd(300032) 00 points are the bottom range, and the probability of “shock upward after grinding the bottom” is high 3 on March 16, the financial committee of the State Council held a meeting. After the Shanghai Composite Index hit the lowest point of 3023, it came out of the “V” shaped rebound market. From the rhythm of previous bottoming of a shares, after the “policy bottom” is proved, the “market bottom” is not too far away. The Shanghai composite index is near Jinlong Machinery & Electronic Co.Ltd(300032) 00 points or a relatively solid bottom. In the future, there will be a high probability of upward shock after the bottom of a shares. We should pay attention to two signals: on the one hand, China’s stability maintenance policy continues to be issued, and the economic fundamentals confirm the bottom; On the other hand, the external disturbance factors such as the rhythm of the Fed’s interest rate increase and contraction and geographical relations are gradually becoming clear.
risk warning: policy strength is less than expected; Repeated outbreaks outside China; Economic growth is less than expected; Global black swan incident, etc.
catalog
body
01 how far is the “policy bottom” to the “market bottom” in the history of A-Shares
The definition of the time point of “policy bottom” in the market is not unified. We define the “policy bottom” as the time point when the market rebounds after the market has fallen for a period of time and the high-level has made positive statements on the stock market and the intensive introduction of policies to stabilize the capital market. After 2008, there were four “policy bottom market bottom” combinations in the A-share market: 1) from September 2008 to November 2008; 2) June 2012 – December 2012; 3) July 2015 – August 2015; 4) October 2018 – January 2019.
11. October 2008 “market bottom”: Shanghai Stock Index 1664 points
In 2008, the US subprime mortgage crisis triggered the global financial crisis, and the US stock index was deeply adjusted, but A-Shares fell even more. From October 2007 to October 2008, the A-share market continued its deep decline for nearly a year. The Shanghai Composite Index fell from its highest 6124 points on October 16, 2007 to its lowest 1664 points on October 28, 2008. In this round of bear market in 2008, all industries and style sectors fell, and few companies rose at the individual stock level.
In the process of market decline in 2008, the policies of counter cyclical regulation and stabilizing the capital market have been issued successively since April: on April 23, the Ministry of Finance and the State Administration of Taxation studied and decided to adjust the stamp tax rate of securities (stock) transactions from the original 3 ‰ to 1 ‰ from April 24, 2008. At the level of monetary policy, the central bank has implemented loose monetary policy since September, reducing the benchmark deposit and loan interest rate five times and the deposit reserve ratio four times. On September 18, 2008, the government issued three major policies to rescue the market (the stamp tax on the stock market was changed to unilateral collection, Huijin increased its holdings of ICBC, China Construction Bank and China Construction Bank, and SASAC expressed its support for central enterprises to increase or repurchase the shares of listed companies). The “policy bottom” of A-Shares was clear, and the market risk appetite was greatly boosted. On September 20, the Shanghai Composite Index and Shenzhen composite index both rose by the limit. However, this round of rebound lasted only six trading days, and then the market fell again. On October 28, the lowest point of the Shanghai index was 1664. Until November 9, 2008, the national Standing Committee announced the “four trillion” investment plan, and the A-share market bottomed out and rebounded.
In this round of A-share bottoming, the “policy bottom” appeared on September 18, 2008, and the lowest point of Shanghai stock index was 1802; The “market bottom” appeared on October 28, 2008, with the lowest point of the Shanghai stock index at 1664 points. The “policy bottom market bottom” interval was 1.5 months, during which the Shanghai stock index rose or fell by – 8.2%; The “profit bottom” appeared in the first quarter of 2009, and the “market bottom profit bottom” interval was 4 months. Since the second quarter of 2009, the profit growth rate of A-share enterprises has gradually increased.
12. December 2012 “market bottom”: Shanghai Stock Index 1949 points
In 2012, China’s economy was in the transition period from economic recession to recovery. The “four trillion” investment ebbed, superimposed with the fermentation of the European debt crisis, and the GDP growth entered the “7” channel.
The government work report in March set the GDP growth target at 7.5%, which is the first time in eight years that the GDP growth target is lower than 8%, and listed “steady growth” as the first policy target of the whole year, which also reflects the great downward pressure on the economy in 2012. In April 2012, the industrial added value fell to 9.3% from 11.9% in March, which was significantly lower than the market expectation. The downward trend of economic fundamentals exceeded the expectation, making the market pessimistic expectation continue to ferment.
Since May 2012, China’s monetary policy has been more relaxed, and the central bank has cut reserve requirements and interest rates continuously from May to July; On June 20, the CSRC said it would relax the shareholding ratio limit and increase the shareholding limit of all foreign investors from 20% to 30%, but the market is still in a downward trend. From April 2011 to the end of 2012, the A-share market continued to decline. During this period, the Shanghai stock index fell from the highest 3067 points on April 18, 2011 to 1949 points on December 4, 2012.
In September 2012, the “policy bottom” of A-Shares has been basically confirmed, the policy of stabilizing growth and capital market has been intensively implemented, and the market confidence has been greatly boosted. From September 5 to 6, the national development and Reform Commission approved more than trillion yuan of infrastructure investment projects for two consecutive days, releasing the signal of steady growth. On September 7, the Shanghai stock index rose by 3.7%; Since September 28, the insurance capital and the national team have collectively increased their holdings of a shares, and the positions of many insurance giants such as China Life Insurance Company Limited(601628) , Ping An Insurance (Group) Company Of China Ltd(601318) , The People’S Insurance Company (Group) Of China Limited(601319) , Taikang Life Insurance and so on have exceeded 10 billion yuan in three days; Huijin increased its holdings of four major banks in the secondary market, increased its holdings of 6.2663 million ICBC shares and 188124 million BOC shares in the third quarter; On November 6, IPO was suspended; On December 5, the meeting of the Political Bureau of the CPC Central Committee made it clear that the economic work in 2013 should “strive for progress while maintaining stability”. The Shanghai stock index rose 2.87% that day, and then A-Shares rebounded for two and a half months.
In this round of A-share bottoming, the “policy bottom” and “profit bottom” appeared in September 2012. On September 5, the lowest point of Shanghai stock index was 2029; The “market bottom” appeared on December 4, 2012, with the lowest point of the Shanghai stock index at 1949. The “policy bottom / profit bottom – market bottom” was separated by three months, during which the Shanghai stock index rose or fell by – 3.4%.
1.3. August 2015 “market bottom”: Shanghai Stock Index 2850 points
In the first half of 2015, A-Shares rose sharply with the help of leveraged funds. The Shanghai stock index rose from the highest near 3300 at the beginning of the year to 5178 on June 12. During this period, the Shanghai stock index rose or fell by 60% and the gem index rose by 165%. The balance of A-share financing increased from 1 trillion yuan at the beginning of the year to 2.27 trillion yuan in the middle of the year, accounting for 5% of the circulation market value of A-shares. A large number of illegal over-the-counter capital allocation with up to 5-10 times leverage poured into the stock market, contributing to the “surge” of the stock market, and the market turnover and turnover rate continued to reach a new high. Since mid June, the regulatory authorities have strictly investigated the over-the-counter capital allocation. The scale of A-share financing and financing began to decline, from the highest 2.27 trillion yuan to less than 1 trillion yuan. The transaction volume of the two cities has gradually shrunk, and the leveraged funds burst one after another, driving the sharp decline of the market index. In the 17 trading days from June 15 to July 8, the Shanghai index and the gem index fell 32% and 39% respectively.
From the end of June to July 2016, China’s “rescue” policy was intensively introduced. On June 27, the central bank cut reserve requirements and interest rates. On the afternoon of July 4, the State Council convened a meeting of the three committees of the party, the Ministry of finance, the SASAC and the heads of major central enterprises to discuss the Countermeasures of the financial market. The decision-makers tended to rescue the market decisively and forcefully. From July 5 to July 9, seven ministries and commissions including the central bank, the Ministry of finance, the SASAC, the CSRC, the CBRC, the CIRC and the Ministry of public security participated in the A-share rescue. The national team funds made efforts to protect the market, and public offering and securities companies also actively participated. Specific measures include: the Shanghai and Shenzhen Stock Exchange lowered the A-share transaction handling fee and transaction transfer fee, the central bank assisted in providing liquidity support to China Securities and exchange corporation through various forms, the CSRC restricted the reduction of major shareholders of listed companies, the securities and Exchange Corporation’s net subscription of the four blue chip ETFs of 39.5 billion yuan, 21 securities companies jointly purchased the blue chip ETFs, and promised that the Shanghai Stock Exchange would not reduce its holdings below 4500 points, self purchase of public funds, and open the subscription of restricted funds The CSRC increased the quota of QFII from US $80 billion to US $150 billion, and the Vice Minister of public security led a team to the CSRC to investigate malicious short selling, etc.
In this round of A-share bottoming, the “policy bottom” appeared on July 9, 2015, with the lowest point of Shanghai stock index at 3373; The “market bottom” appeared on August 26, 2015, the lowest point of Shanghai stock index was 2850 points, and the “policy bottom market bottom” interval was 1.5 months, during which the Shanghai stock index rose or fell by – 16.5%; The “bottom of profit” of A-Shares appeared in the second quarter of 2016, and the “bottom of market – bottom of profit” interval was 9 months.
14. January 2019 “market end”: Shanghai Stock Index 2440 points
In 2018, affected by China’s financial deleveraging and Sino US trade friction, A-Shares faced the dual pressure of downward earnings and downward valuation, and the market adjusted for a long time. The Shanghai Composite Index fell from its highest 3587 point on January 29, 2018 to its lowest 2440 point on January 4, 2019.
On October 19, 2018, vice premier Liu He gave an interview on the current hot economic and financial issues, answered questions on the healthy and stable development of the stock market, support for private enterprises, “national advance and people retreat”, and said that the government attaches great importance to the healthy and stable development of the stock market. On the same day, Yi Gang, Liu Shiyu and Guo Shuqing were interviewed by the media respectively to make a strong voice on the recent stock market fluctuations and release positive signals. On the same day, after the stock index fell to a phased low of 2449 points, it opened a round of “oversold” rebound. On November 1, Xi Jinping chairman held a symposium on private enterprises to solve the problem of difficult and expensive financing of private enterprises; On November 5, Xi Jinping chairman announced at the opening ceremony of the Expo that he would set up a science and innovation board in Shanghai Stock Exchange and pilot the registration system. From October 19 to November 19, A-Shares experienced a month of rebound, with the Shanghai index and the gem index rising 9% and 16% respectively.
On November 20, the US Trade Representative Office updated the “301 investigation” report on China and made new accusations on China’s technology transfer, intellectual property rights and innovation. Affected by the repeated friction between China and the United States, the A-share market began to grind slowly again. The market really bottomed out on January 4, 2019, when the central bank announced an overall reduction of reserve requirement by 1 percentage point, and the Shanghai Composite Index rose sharply after hitting the lowest point of 2440. From January 4, 2019 to April 8, 2010, the Shanghai Composite Index rose by 31.7%.
In this round of A-share bottoming, the “policy bottom” appeared on October 19, 2018, the lowest point of Shanghai stock index was 2449; The “bottom of profit” was synchronized with the “bottom of market”, which appeared at the end of 2018 / early 2019, and the lowest point of Shanghai stock index was 2440. The time interval of “policy bottom – market bottom / profit bottom” is about 2.5 months; Spatially, the lowest point of the Shanghai stock index is close. Looking back, the “policy bottom” near 2449 is a solid bottom, which is a better time for medium and long-term funds to allocate assets.
02 characteristics of the bottom of previous structures of A-Shares
the confirmation of “policy bottom” of A-Shares is usually accompanied by the continuous introduction of policy combination, including monetary policy, fiscal policy and capital market related policies.
In terms of policy implementation, monetary easing often precedes , for example, from September to December 2008, the central bank cut reserve requirements four times and interest rates five times in a row; From May to July 2012, the central bank reduced the reserve requirement once and the interest rate twice; In June 2015, the central bank cut interest rates and targeted reserve requirements; From June to October 2018, the central bank reduced the reserve requirement twice fiscal policy and capital market policy are the key points to build the “policy bottom” of a shares. The improvement of market expectations for economic fundamentals and the recovery of investors’ confidence in the stock market are the main driving forces for the market to get out of the bottom , for example, the three major policies to rescue the market and the “four trillion” investment plan were issued in 2008; In 2012, the national development and Reform Commission intensively approved more than trillion yuan of infrastructure investment projects, while insurance capital and the national team collectively increased their holdings of a shares; In 2015, seven ministries and commissions participated in the “rescue of the market” of a shares, and the national team made efforts to protect the market with funds; The high-level voice against stock market fluctuations in 2018, the easing of trade frictions between China and the United States and the comprehensive reduction of reserve requirements by the central bank in early 2019 are the combination of active fiscal policies and relevant policies of the capital market, which boost the market’s confidence in economic fundamentals and the stock market.
A shares generally show the time law of “policy bottom – market bottom – profit bottom” when bottoming all the time . The “policy bottom” is usually 1.5-3 months ahead of the “market bottom , for example, in 2008,” policy bottom – market bottom – profit bottom “appeared in September 2008, October 2008 and March 2009 respectively; In 2015, “policy bottom market bottom profit bottom” appeared in July 2015, August 2015 and June 2016 respectively but the “market bottom” is not necessarily ahead of the “profit bottom” , for example, in 2012, the profit bottom was 3 months earlier than the market bottom; In 2018, the bottom of profit kept pace with the bottom of the market.
“policy bottom” is confirmed, the market often rebounds, but the construction of the market bottom is often not achieved overnight after the intensive introduction of stability maintenance policies, the A-share market often rebounded, which lasted from 6 trading days to 29 trading days, with a rebound range of + 4.4% to + 19.1%. In the rebound stage, the industry sector showed a general rise. The reason is that when the “policy bottom” is confirmed, A-Shares have experienced a period of decline, and the market valuation is usually relatively low. The introduction of a series of favorable capital market policies has repaired the market sentiment. However, the disturbance of external factors or concerns about economic fundamentals may make the market fall again, and the industry sector shows a general decline in the decline stage. For example, in 2008, after rebounding for six trading days, the market weakened again due to the continued weakening of China’s economic data and the sharp decline of the US stock market during the National Day holiday; As another example, in 2018, affected by the repeated friction between China and the United States, the A-share market began to grind the bottom slowly again.
03 the “policy bottom” of this round has been basically proved, “shock up after grinding the bottom” has a high probability
From this year to March 15, the market continued to decline, due to the interference caused by the deterioration of the external geographical environment, the instability of China’s macro policy expectations, the abnormal fluctuation of China concept shares, the reflection of Internet platforms and real estate problems in the capital market and other factors. Since March 16, China’s policy level has taken frequent measures to “stabilize expectations and stabilize the market”. From the financial commission of the State Council, “one bank and two sessions”, the meeting of the foreign exchange bureau, and the postponement of the real estate tax, market confidence has been greatly boosted.
On March 16, the golden stability meeting was held. It was expected that the problems discussed at the meeting were the reason why the market hesitated or even continued to fall sharply, and clearly determined to “respond in time to the hot issues concerned by the market”; The meeting mentioned that “any policy that has a significant impact on the capital market should be coordinated with the financial management department in advance to maintain the stability and consistency of policy expectations and be accountable when necessary”, which will help to implement the subsequent policies to stabilize the stability of the capital market.
After the gold stability meeting, the “one bank, two sessions” and the foreign exchange bureau held special meetings to make arrangements for implementation. 1) The CSRC said: “we will continue to strengthen communication with US regulators and strive to reach an agreement on China US audit and supervision cooperation as soon as possible. We will pay close attention to promoting the implementation of new regulations on the supervision of overseas listing of enterprises, support all kinds of qualified enterprises to list abroad and maintain smooth channels for overseas listing” “Spare no effort to maintain the stable operation of the capital market, vigorously promote the improvement of the quality of listed companies, encourage listed companies to increase their holdings and repurchase, guide fund companies to purchase their own shares, improve the system and mechanism conducive to the participation of long-term institutional investors in the capital market, support all kinds of qualified enterprises to list abroad, actively cooperate with relevant departments, and effectively resolve the risks of real estate enterprises”; 2) The central bank mentioned: “monetary policy should take the initiative to respond, and new loans should maintain a moderate growth”; 3) The cbcirc mentioned “guiding insurance institutions to allocate more funds to equity assets”; 4) The safe mentioned “maintaining the steady operation of the foreign exchange market, strengthening the monitoring, judgment and macro Prudential Management of the foreign exchange market, and actively preventing and resolving the risk of external shocks”; 5) In addition, the relevant person in charge of the Ministry of Finance said on the pilot of real estate tax reform: “there are no conditions to expand the pilot cities of real estate tax reform this year”.
the “policy bottom” of A-Shares in this round has been basically proved. The Shanghai stock index Jinlong Machinery & Electronic Co.Ltd(300032) 00 points is the bottom range, and the probability of “shock upward after grinding the bottom” is high 3 on March 16, the Shanghai Composite Index got out of the “V” shaped rebound after hitting the lowest point of 3023. On that day, the Shanghai Composite Index rose 3.48%. From the rhythm of A-share bottoming since 2008, after the “policy bottom” is proved, the “market bottom” is not too far away. The Shanghai stock index is near Jinlong Machinery & Electronic Co.Ltd(300032) 00 points or a relatively solid bottom. In the future, there will be a high probability of upward shock after the bottom of a shares. We should pay attention to two signals: on the one hand, China’s stability maintenance policy continues to be issued, and the economic fundamentals confirm the bottom; On the other hand, the external disturbance factors such as the rhythm of the Fed’s interest rate increase and contraction and geographical relations are gradually becoming clear.
04 risk tips
The policy strength is less than expected; Repeated outbreaks outside China; Economic growth is less than expected; Global black swan incident, etc.
