Jiang Chao: Why Is Stock Market Going To Be High?

Eyed US stocks continue to record high, and the Hang Seng index next door has also recovered this year's land lost and success turned red. In the end, what opportunities do we have in our own A shares?

In our view, many things are worth considering recently.

First of all, why do US stocks get higher?

We know that there are two main sources of stock market earnings, one is profit improvement, and the other two is valuation improvement.

We found that in the first half of this year, the profit of the S & P 500 index was sliding, which means that the rise of US stocks came mainly from the promotion of valuation, which has increased to 18 times from the end of last year to 20 times.

From the increase in the US stock market, the biggest increase this year is telecommunications services and utilities. The increase is about 20%.. Why does the valuation of US stocks increase? Why do public utility stocks go up?

If we look at the US bond market, we can actually find the answer, because the risk-free interest rate represented by us long-term treasury bonds has dropped sharply.

At the beginning of the year, the interest rate of the 10 year treasury bonds in the United States was 2.3%, and only 1.6% now. The 20 year treasury bond interest rate was 2.6% at the beginning of the year, and now it is only 1.9%..

Let's think about it. Bonds are actually the opportunity cost of buying stocks. If the bond interest rate becomes lower, the dividend rate of stocks can actually be lower.

For example, for a stock with a previous dividend yield of 3%, it is now willing to accept 2.5%. If the dividends remain unchanged, the corresponding stock price can actually rise by 20%.

The profits and dividends of utility stocks are relatively stable, similar to bonds, so it is reasonable to show that they are rising with bonds.

In the rebound of the Hong Kong stock market, China Mobile's performance is also particularly eye-catching, and this is also a typical telecom service stock. Its profit is relatively stable, and it also benefits from the decline in long-term interest rates.

Let's look at our bond market and stock market again.

For example, at the beginning of June, the interest rate of the 20 year treasury bonds was still around 4%, which is only 3.5% now, down by almost 50bp..

So in fact, the same story happened in China, which is a sharp drop in the long-term risk-free interest rate.

Then, according to the same logic, can our stock like bonds be lower and the share price can be higher?

At present, a slightly better corporate debt, the interest rate is less than 4%, even if the term of 30 years of state financial bonds, the interest rate is less than 4%, which means that for insurance and other configuration of security assets, it is very difficult to find in the bond market more than 4% of the security assets. Does this mean that for those stocks whose earnings and profits are stable, if the dividend yield is above 4%, it is also a scarce high-quality asset?

In the market mix, want to lose money and even think.

We must pay attention to the changes of the market.

In the first half of this year, prices rose, and everyone was busy looking for stories of rising prices. At that time, companies with assets and rising prices were good assets.

But we say "inflation is very short and deflation is long" this time, because the continuous price increase in the past is demand pull, because the economy is good, everyone has money, so the price can rise every day.

But the backdrop of this price rise is a bad economy, and there is no demand for support. For example, it is found that the earnings of companies selling women's underwear in Hong Kong stocks have increased negatively. It shows that the owner of a financial right has begun to shrink. So there is little increase in demand in all walks of life, and the price rises depend on the supply contraction, for example, iron and steel enterprises have stopped production to produce capacity, coal mine forced work stoppage and so on.

But at this time, the rise is often a one-off rise, because more supplies are coming out, and things are too expensive for everyone to buy, and then they will not rise. For example, steel prices rose in June, and steel output in June hit a record high of 1 billion tons, and then steel prices fell again.

That is to say, although there has been a short-term inflation this year, if the steel price, oil price, coal price and pig price have all gone up this year, there will be basically nothing to raise prices next year. Inflation will be gone, but deflation is coming back. If there is no inflation pressure for a long time, the interest rate of long-term treasury bonds will definitely decrease.

This is also the main reason why we have been very optimistic about the bond market since July, because the long-term inflation expectations are gone, so we began to say in 14 years that "zero interest rate is a long-term trend".

If we can identify long-term risks free

The beginning of the decline is, first of all, the re emergence of investment opportunities in the bond market, which also means that the high dividend assets of the class bonds are of great value.

Speaking of which, how to treat it?

There are a lot of people who are keen to guess the rise and fall of the index. It seems that guessing is the stock god. If you guess wrong, continue to guess again until you guess.

But in fact, guess the change of stock index is an art, because there are too many factors that affect stock pricing. The changes in corporate earnings, interest rates and risk preferences will have an impact on stock prices, especially in the downside of the economy. On the one hand, the downward pressure on corporate earnings is adverse to the stock market. On the other hand, interest rate downlinks can enhance the valuation of the stock market, so the stock market is likely to rise or fall.

Therefore, instead of guessing a wrong thing, we have to grasp some opportunities of certainty.

For example, in the first half of the year, inflation can be used to look for opportunities to raise prices. Indeed, there are many industries, such as liquor, dairy products, pigs and poultry, including gold and some industrial metals.

At the present time, if we judge that the price rises to the end, inflation begins to deflate, and interest rates begin to fall again. In fact, we should firmly grasp the opportunities for the High Dividend Stocks of the class bonds.

From the domestic point of view, we can not see such high dividend assets in the past. We believe that the so-called blue chip white horse stock market is too big, too slow and inelastic.

But if you look at the overseas market, the number of big companies has increased over the past few years.

Because in the backdrop of economic downturn, big companies tend to live better.

But the domestic capital market has many protection for small companies, so everyone is keen to hype up various subjects.

But do not you think that the investment environment of the capital market is changing? For example, Xintai Electric has been directly delisted because of fraud. It has been 11 down limits. For example, for the defects of the trading board, the temporary stop system has been introduced, including the regulation of the large shareholders in the past.

If it is not easy to speculate in the future, will there be a return of value investment? After all, only valuable things are worth investing.

Regardless of bull market or bear market, it is good to make money.