July 1, 2015

Playing A-shares depends on whether your heart is strong enough

The Shanghai Composite fell 223.52, down 5.23%; Chongbai fell 6.68%; down 2.15 yuan per share.

There's nothing to say, it's blindfolded, there are many loopholes in your profit model, hurry up and fix it. There should be a strategy for dealing with such extreme markets.

I read an article by Tao Dong today, and I was inspired to reprint it, which will help me understand the situation.

Tao Dong is a Managing Director and Chief Economic Analyst for Asia at Credit Suisse, and a member of the China Chief Economist Forum. He is an international friend, so he may be objective when looking at the problem.

Excerpt from "A Share Crash".

The trigger point and risk contagion channel of this stock market adjustment are all in the over-the-counter highly leveraged private allocation. Many over-the-counter allocations have not been properly regulated and regulated, and the scale of private allocations has rushed to 1.5 trillion yuan under the bull market sentiment, of which the fundraising scale of the three allocation channels of umbrella trust, single trust and online P2P should exceed 1 trillion. These leveraged investment products have a forced liquidation clause, and once the market falls to an agreed level, the stock position will be forced to sell. The forced liquidation accelerated the decline of the market, and brought out a new forced liquidation, and the market was burned and operated.

Under the panic and mandatory characteristics, the good news of the People's Bank of China's interest rate cut did not give the market any respite, and it was quite an itchy feeling. The author believes that it is difficult for market-oriented monetary policy to stop panic and mechanical deleveraging, because macro policy and micro risk awareness and mandatory deleveraging are not at the same frequency at all, which is a policy mismatch and time limit mismatch. It's like a bicycle that crashes against a cliff with a failed hand brake, and the brake doesn't work.

In the end, the problem will be solved, and I am afraid that I will have to use the sole friction to stop the bicycle. That is administrative intervention, which gives leveraged funds a respite through a visible hand. Administrative intervention has always been Beijing's arsenal of crisis response, and Beijing generally does not mind anti-market intervention. The V-shaped rally on the day in A-shares should see the will of the government.

Is this the end of this bull market? Definitely. From the beginning to the end, this bull market has seen the hand of the government, and it is a policy bull market. First of all, the bull market is the need to maintain stability, the economy is so poor, and the people are busy counting money. ticket, and don't go to the streets to make trouble. Second, the capital market is an important channel for transmitting central bank liquidity to the real economy. Moreover, securitization (e.g., securitization of local infrastructure projects, securitization of potential bad debts of banks) is a shortcut to clean up the policy stagnant left by the previous administration. All of this has been done, so from a policy point of view, there is a need to maintain a lively capital market. The author believes that Beijing has always agreed with the direction of the bull market, but it feels that the speed and leverage of the bull market need to be adjusted. The reflex killing brought about by the clean-up of over-the-counter capital allocation is estimated to be unexpected by Beijing, so the reaction was not in place for a while, but it soon followed.

At the same time, the capital is very forgetful, once the market stabilizes, I believe that the capital will slowly come back and create the next rising wave. The story of China's money in recent years is very simple, that is, the government has lured out the people's ultra-high savings to fill the financial hole. From real estate to financial products, it is the same logic, when these two can not be played, the stock market was invented as a fund-raising tool, which is called "using live stock". This game can't be played until the common people decide not to play it.

The author thinks that this round. In the plunge, it is worth noting a few points: 1) the so-called leveraged bull comes and goes quickly; 2) "Financial innovation" has created many new risks, which neither investors nor regulators can see clearly: 3) stock reviews by the national media must not be taken seriously; 4) Beijing really wants to play the stock market game and play bigger. The A-share stock market is contrary to the author's growth forecast and analysts' profit forecast, and is full of the will of the government, which is the biggest market maker. To repeat what the author has said for a long time: to play the Chinese stock market is to follow the dealer to rob, be careful of being robbed by others, and when the dealer flashes, you will be stabbed. A shares can be played, but you must know how to advance and retreat, and at the same time have a strong heart.