[Economy] Counting 2014 Stock Market： A-share Counterattack

From the shaky Shanghai Composite Index at 2000 points in the first half of the year to the high of 3200 points at Liulianyang Station on the monthly line, the Shanghai Composite Index rose wantonly in an exclamation and sent out thousands of "big red envelopes"; From the daily turnover in Shanghai and Shenzhen stock markets of only 100 billion yuan to the turnover exceeding one trillion yuan, "having money is willful" has become a popular word in A-shares.

 

With the rising market index, the A-share market has also ushered in a long-lost popularity. The bull market scenes of "selling houses and stocks", "running into the market" and "queuing to open accounts" have reappeared. The weekly opening of A-share accounts has set a new record of nearly one million, and the balance of margin financing and securities lending has exceeded one trillion yuan in one fell swoop. The high popularity, abundant funds and the volume of transactions have also made the total market value of A shares surpass Japan in one fell swoop, followed by the United States.

    

After the strong hooves, what memories will the A-share market in 2014 leave for the market? What are the factors that make the A-share market wake up in the sinking? Can A-share market continue to write the glory of bull market in the coming year?

  

Realizing the conversion between bull and bear in the long-short opposition

    

Looking through the transaction records, on the first trading day of 2014, the Shanghai and Shenzhen stock markets suffered a "green door", which gave investors a head start and the Shanghai Composite Index stood at 2100 points. Since then, the stock market once fell below 2000 points under the negative stimulus of the resumption of new share issuance. On March 12, the Shanghai Composite Index broke through 1980 points in one fell swoop, breaking the new low of the year maintained on January 20.

    

Since then, A shares have been hovering at a low level like a lazy "big bear". The bearish voice in the market is rampant. Essence Securities, the largest "short commander", even released the title on March 31.The stock market is as green as blue in springAccording to the strategy report, Essence Securities judged that dark horse shares with a small market value has become an island where funds cannot be withdrawn, and there will be a stampede effect on the China stock market.

    

With the "bearish faction" of Essence Securities, the pessimism of A shares has become more and more intense.

    

Attack or retreat? At this time, Guotai Junan strategy team repeatedly read many reports, and thought that the risk-free interest rate in the market continued to decline, and A shares would usher in a 400-point Big bounce.    

   

For a while, bulls and bears were at odds.

    

The official media People’s Network took the lead in issuing a document to support the multi-faction.Directly hit back at Essence Securities and bluntly said, "But it is rare for Essence Securities to ignore the improvement of China’s economic fundamentals, ignore the high-level steady growth, adjust the structure, and promote transformation, and even ignore the qualitative changes that are taking place in the market and insist on bearish." And said fiercely that this is not about "politics."

    

Since then, the market has gradually warmed up, waiting for a turnaround. In particular, on May 9th, the State Council issued "Nine Articles of New China" to promote the healthy development of the capital market. This is the second programmatic document on capital market issued by the State Council in the form of red-headed documents since January 2004. The People’s Daily and Xinhua News Agency commented separately, and the bull market gradually gained momentum.

    

Subsequently, A-shares bottomed out in July, and rebounded from 2050 on July 22, continuously pulling up to 2100 points, 2200 points and 2300 points until it rose to around 2500 points on November 21. A shares successfully shifted gears between bulls and bears. During the period,It is even more rare for Xinhua News Agency to issue a series of articles, expressing its expectation of "invigorating the stock market" and "a quality bull market".

    

With the news that the central bank announced the interest rate cut on November 22nd, A shares started the "crazy" mode. In just 11 trading days, on December 8th, A shares stood at 3,000 points, with an average daily increase of 50 points.

 

"Shanghai-Hong Kong Stock Connect" activates large-cap blue chips.

    

The long and short reports of brokers certainly affect market sentiment, but in the final analysis, it depends on the fundamentals of the economy, market funds and policy support. From this round of bull market rise, the confidence brought by capital market reform is undoubtedly the biggest driving force.

    

It can be said that the new "National Nine Articles" outlined the blueprint of the capital market from the top design, and clarified the protection for small and medium investors, which is the policy foundation for the start of this bull market.

    

Judging from the current round of rising prices, the blue-chip market has played a "bull’s head" to pull A shares. Brokers, banks, insurance, nonferrous metals, infrastructure, etc. rose in turn. Except for the newly listed Guoxin Securities, the other 19 brokerage stocks rose by 100%. And this is inseparable from it.Shanghai – Hong Kong Stock ConnectThe help.

    

On November 17th, the Shanghai-Hong Kong Stock Connect of China Unicom’s Shanghai-Hong Kong stock markets was officially opened to traffic, marking a new era in the internationalization of China’s capital market. Although there is a quota limit in the initial stage of Shanghai-Hong Kong Stock Connect, considering the mutual recognition of mainland and Hong Kong fund companies in the future and the influence of A-shares being included in MSCI index, the amount of funds entering A-shares will exceed one trillion yuan, which will have a great impact on the whole China A-share market and lay the foundation for the long-term bull market of A-shares.

    

In particular, for foreign investors, the blue-chip market is the main target of their investment. With the intervention of mature overseas investors, the operating style of a-share market will also change. Since the opening of Shanghai-Hong Kong Stock Connect, although the trading volume is less than expected, the "catfish effect" of its investment style has already appeared, and this round of bull market blue chip as the "main force" has verified this point.　  

 

At the same time, on November 17 this year, the most stringent delisting system known as "history" was officially implemented, and it is clear that a mandatory delisting system for major illegal companies will be established. The new delisting system makes A-shares "black sheep" have nowhere to hide, which enhances investors’ confidence and has a great impact on the revaluation of the value system of the whole market.

    

In addition, it is worth noting that this round of A-share surge has withstood the pressure of restarting new shares. At present, the last batch of new share issuance has ended this year, and the number of IPO approvals issued by the CSRC has reached 78. Being able to achieve a big rise under the bloodletting effect of new share issuance is naturally inseparable from the support of abundant market funds.

    

From the release of water from the Standing Loan Facility (SLF), the targeted cuts to required reserve ratios twice, the announcement of interest rate cuts, and the adjustment of banking deposits in Circular No.387 last weekend, the central bank has also made "pretty efforts" to promote the rise of A shares this year. 

    

Adapt to the new normal of "elephant dancing"

    
The A-shares that realized the conversion of bulls and bears also made them get rid of the embarrassment of being at the bottom of the world for four consecutive years, and the salted fish turned over. As of the close of December 30, the annual increase of 49.69% of the Shanghai Composite Index led the world’s major stock indexes.

    

At the same time, A-shares also set a new record. On December 5th, the single-day transaction of A-shares broke through one trillion yuan for the first time, and then set a historical record of 1.26 trillion yuan in a single day. According to statistics, at present, the annual turnover of the two cities is expected to reach 75 trillion yuan, which will become the biggest turnover in the history of A shares.

    

In addition, with the rapid rise of the stock index, the total market value of A-shares has surpassed Japan and become the second largest stock market in the world. The data shows that as of December 29, 2014, the total market value of Shanghai stock market was 23,880.515 billion yuan, and the circulating market value was 21,535.87 billion yuan. The total market value of Shenzhen is 12,836.427 billion yuan, the circulating market value is 9,513.283 billion yuan, and the total market value of the two cities reaches an astonishing 36,716.942 billion yuan. 

    

For next year’s market, the 2015 report of 26 brokers counted by Oriental Fortune Network shows that 20 brokers are bullish, 5 are cautiously bearish, and only one Guohai Securities is bearish.

    

Everbright Securities believes that there will be no systemic risks in China’s economy next year, and it will benefit from the decline in crude oil prices and the weakening of RMB exchange rate. The continuity and pertinence of the government’s execution and policies will enhance the market’s confidence in reform. The continuous activity of existing funds will continue to drive incremental funds into the market, and the opportunity of financial reform will bring A shares into new prosperity.

    

In addition, after the issuance and examination system has been in operation for more than 20 years, the A-share issuance registration system will be implemented in the second half of 2015 at the earliest, and the threshold, pricing and quantity of new shares will be greatly changed, resulting in supporting reforms, such as delisting system and the construction of a multi-level capital market system represented by the transfer board, which is also expected to be further.

    

It is worth noting that many investors have "made an index and lost money" in this round of bull market, and they have lamented that "Man Cang stepped on the air and lost at the daily limit". From the trajectory of this bull market, banks, brokers, nonferrous metals, construction and other large-cap blue chips have become the main engines, driving the index all the way.

    

However, in the face of the long-lost bull market, small and medium-sized investors seem to be unprepared and continue their usual ideas and techniques. In particular, the four speculation trends of "new speculation", "small speculation", "short speculation" and "poor speculation" have not changed. In the past two years, compared with the blue-chip stocks that have been sluggish, small and medium-sized stocks such as the Growth Enterprise Market (GEM) have been highly sought after by small and medium-sized investors. Last year, the main board kept falling, but the GEM made great strides, which made many investors taste the sweetness. They thought that making stocks in the A-share market meant playing small or playing with concepts.

    

A basic fact is that the overall static P/E ratio of GEM with small and medium market value is as high as 70 times, while that of the main board is less than 20 times. If you blindly deviate from the fundamentals of listed companies, talk about concepts, and speculate blindly, you will always suffer.

 

In 2015, in order to keep up with and surpass the broader market, A-share investors who are in a bull market should actively participate in the blue-chip market, stop looking at today’s market with a bear market thinking, and adapt to the new normal of "elephant dancing".

 

(Note: This article only represents the author’s personal views. Editor of this article: Chen Shuyi editor email shguancha@sina.com)