So, next, will A share be affected by U.S. stock? Analysts believe that short-term disturbances may be unavoidable, but in the medium and long term, the overall situation of market stability has not changed. And a number of industry executives interviewed by brokerage companies in China said that from an index point of view, the market may not fall too much. Because in terms of market structure, some stocks that can support the index are undervalued and the dividend rate is quite high. As for the game chips, there may be a lot of selling when expectations are poor.
The Sino-US trade war began in the early morning of March 23, 2018, Beijing time. On the same day, President Trump signed a memorandum of understanding. Based on the 301 Investigation report released by the Office of the US Trade Representative to China, the relevant departments were instructed to impose large-scale tariffs on imports of about 60 billion US dollars from China, and to restrict Chinese enterprisesinvestment and mergers and acquisitions in the United States.
The news shocked the global market, with the Shanghai Composite Index down 3.39%, Shenzhen Composite Index down 4.02%, and GEM Index down 5.02%. Global markets are feeling the power of the trade war. The U.S. market is no exception. The Dow Jones index fell 1.77%, the Nasdaq composite index fell 2.43%, the S&P 500 index fell 2.1%; the Hang Seng index in Hong Kong fell 2.45%, the Nikkei 225 index fell 4.51%, the Korean composite index fell 3.18%, the Taiwan weighted index fell 1.66%, and the Australian ASX 200 index fell 2.1%. It fell 1.96%.
Over the past year and a half, Global trade disputes have escalated and frequently disturbed global markets. Investors around the world are also experiencing the process of from strangeness to familiarity, from fear to adaptation, but do not know what the future will be. During this period, the global stock market experienced twists and turns. Although the US stock market has reached an all-time high this year, it has fluctuated considerably during the period of intense trade disputes. Stock markets in China and other major economies have also been affected before. One of the most important reasons is the instability of expectations, which is also the most feared thing in the capital market.
The root of the uncertainty lies in President Trump. At this stage, Trumps greatest political need should be votes, and the source of his votes should be a good and stable economic prospects. But after the trade dispute he launched last year, the global economic outlook is becoming bleak. The recent PMI manufacturing data of the robust U.S. economy are also showing signs of recession, as is the inversion of maturity bonds. Even Federal Reserve Chairman Powell said that trade disputes are affecting economic development, which is a problem that the existing framework of the Federal Reserve can not solve.
So why does he have to start a heated trade dispute at the wrong time? Some observers pointed out that Trump managed a country from the perspective of a businessman, did not understand international trade, and did not fear the role of comparative advantage in economic development and international trade, so it would be the situation today.
Recently, some people even think that Trumps spirit is out of order. Lance Dodes, a psychologist who warned of Trumps mental problems, said that Trumps recent behavior showed that his cognitive ability was declining and his mental state was deteriorating... Trump cancelled his visit this week because Denmark refused to sell Greenland and called the prime minister sick. He said he was the son of Gods choice and turned to the article praising himself as the king of Israel. The New York Times also tweeted recently that Trump did not turn his face to the sun ironically in an interview with reporters and declared: I am the chosen person.
Whatever happens to Trump, the uncertainty of his actions and the arbitrariness of his decisions have already made the market miserable. In the case of U.S. stocks on Friday night, the Dow Jones index opened 0.5% lower that night, and investors may generally expect Chinas counterattack on tariffs to be normal behavior; then, the Fed chairmans speech hedged short sentiment and the market turned warm. But with Trumps irrational push, panic in the market began to spread, and U.S. stocks quickly fell, eventually evolved into a big fall. Finally, he speculated that the fall in U.S. stocks might be related to Congressman Seth Mortons withdrawal from the presidential race in 2020.
At this point, many investors may have to spit out an old blood, to this day, the global market has evolved into a guessing game. However, this is not the first time, obviously not the last time, so when is the end? This is a headache for the market.
The late economist Zhou Jintao once proposed that under the background of the current world economic integration and the internationalization of industrial division, the core countries of resources, manufacturing and currency (consumption) depend on each other and coexist. This interdependence and symbiosis is manifested as follows: the resources of resource-core countries are mainly used for export rather than self-consumption; the proportion of products manufactured by resource-core countries for export is so large that external demand becomes the key to restrain or promote economic growth; and the currency (consumption) core countries still occupy a dominant position in the world monetary system. However, it relies heavily on the products of the manufacturing core countries and has the characteristics of consumption but not production.
From the current global structure, OPEC member countries, Brazil, Australia and other countries belong to the core of resources. China is a typical manufacturing center country, and the United States is a typical currency (consumption) center country. The symbiotic mode formed by these three kinds of countries is the logic of world economic growth. Different types of countries divide their work according to their comparative advantages and achieve their own economic growth by coercive symbiotic mode. Once they break away from the symbiotic mode of world economic operation, the result will be worse.
This model is based on the credibility of the United States dollar. As long as the credibility of the United States dollar exists, manufacturers and resource countries will invest a large amount of their foreign exchange reserves in the United States, depress the long-term interest rate of the United States and maintain the inflation of asset prices in the United States, thus supporting the rapid growth of national consumption. With strong growth in American consumption, Chinese-made machines will continue to operate at full capacity, and resource countries will not worry about selling their resources.
There is no doubt that Zhou Jintaos framework for world economic development is convincing. Trumps trade dispute policy, however, seems to seek to break this pattern. Hes going to go around the world and grab the wool of the global economy. So the paradox is that if he wants to break this pattern, it means that the development of other economies around the world will be negatively impacted, that foreign exchange reserves of manufacturing and resource-intensive countries will be reduced, and that the price of dollar assets may be suppressed. In this case, it is clear that the United States will not be able to stand alone. Take American stocks for example, with a market value of about $40 trillion, and GDP of just over $20 trillion in 2018. That is to say, if U.S. stocks fall by 25%, it is equivalent to half of GDP. This level of lethality is still considerable. Whats more, theres consumption.
Economically, consumption has a ratchet effect, that is to say, consumption level is easy to increase with the increase of income, but not easy to reduce consumption with the decrease of income. Recent recessions have been rife, but retail sales in the United States, known as the Terror Index, have been doing well, apparently as well. Prior to that, if the United States, accustomed to high consumption levels, wants to maintain its consumption level after getting rid of the symbiotic model, it means that it will spend more money, residentsincome and savings will inevitably decline, while in the case of other foreign exchange reserves declining, savings will be the strength on which the United States depends for its development.
Many industry professionals told reporters that Trumps behavior was not well understood. In view of the current economic situation of major economies in various countries, it is obviously a good choice to maintain the present symbiotic model. Even trade disputes can be used to do some loosely anticipated management of the situation, rather than leading the situation to a difficult situation.
8.15 Can the Market Reappear
After the stubborn performance of the 8.15 Chinese stock market, investors are now concerned about whether the 8.15 market can be reproduced. On the evening of August 14, the Dow lost 800 points, but on the 15th, the A-share market turned red strongly. So, are there any surprises next Monday? From the interviews with senior executives by Chinese journalists from securities firms, we can see that the mood is still relatively stable after the U.S. stock market crash.
The executives also said that since May, there have been constant disturbances about trade disputes. But many stocks begin to turn up after a day or two of decline. The key issue here is the trade-off between valuation and performance growth. For example, some bank stocks may not grow too fast, but their valuation is low enough. Agricultural Bank has a 5% dividend rate, and China Construction Bank has a 6% dividend rate for H shares. These stocks may fluctuate in the short term under the influence of exchange rate, but the performance-price ratio is really attractive. There will be funds rushing in when they fall.
In addition, some hot money and institutional investors told reporters that the trade disputes between Friday and the weekend were a bad luck, but no panic was felt. Mainly depends on the performance of the varieties and the industry prosperity. In the short term, the occurrence of a trap does not lead to a crash. In fact, many organizations still believe in the head variety in the market, unless they can see a significant decline in performance.
At present, the market is in a high mood in September. It is the end of August now. It is not rational to abandon the chips in hand at this critical time. And trade disputes have reached this point, and the possibility of further deterioration in the short term is diminishing. Organizational personages told Chinese journalists of securities firms.
What are the advantages of A shares?
Since the short-term rise and fall of the stock market mainly depends on poor expectations, what the market expected before is that things are going better, but eventually worse. Therefore, in the short run, it would not be surprising if the market adjusts. But Chinese assets do have some advantages over American stocks.
First of all, from the current situation, A shares have a small increase, the stock index is at a low level, while the U.S. stock market is at a historic high. Relatively speaking, A shares have technological advantages.
Secondly, from the valuation point of view, the core blue chips of the A-share supporting stock index are much lower than those of the U.S. stock market. According to the wind data, the price-earnings ratio of the Shanghai Stock Index is only 12 times, while that of the Dow Jones is more than 18 times.
Thirdly, from the perspective of returns, because of the stricter supervision of the domestic real estate market, the level of returns is declining, and the management intends to increase direct financing. In the allocation of large assets, there is a trend of capital flowing to the stock market, especially some excellent stocks.
Fourth, in the short term, due to the formal expansion of MSCI after August 27, at this critical time, if the market falls, there should be passive allocation of related assets by foreign investors at low prices, in order to avoid the sudden increase of cost in the last late market.
Fifth, the A-share market is not short of outlets in the near future. Firstly, on Friday, the SFC issued a document related to the split listing. From the content of the document, it is conducive to the expansion of the head enterprise market. For example, Sinopec can split Sinopec Sales Company, Ping An can split Lu Jinsuo, Baiyunshan can split Wang Laoji, etc. Secondly, the GEM registration system has been established. In the Shenzhen Socialist Pioneer Demonstration Zone, it is mentioned that the reform of GEM may be accelerated. With the introduction of the measures of merger and reorganization of GEM, investment business will be more abundant and exit channels will undoubtedly increase, which will benefit securities firms and venture capital sectors, which are also the pillars of the market. Thirdly, the Sino-Japanese-Korean Free Trade Agreement is also speeding up. Fourthly, there is still room for the follow-up of Shenzhen Pioneer Demonstration Zone.
Source: Liu Song_NBJ9949, China Responsible Editor of Securities Dealers