China’s capital markets have been turbulent this year. First came the volatile correction in global capital markets, including China’s stock markets, and then Guo Shuqing, chairman of the banking and insurance regulator, who said frankly that he was worried about a bubble in the US stock market. Then the two sessions revealed that the policy level will start to promote the registration system, the normal delisting mechanism. How will the combination of these factors affect China’s stock market? How will the stock market trend after?
In view of these market concerns, a few days ago “atomic think tank” dialogue with Fudan University Pan Hai International Finance Institute finance professor, executive dean Qian Jun.
Qian Jun believes that the main reason for the recovery of the U.S. stock market from the economic fundamentals last year is the financial side. This year, the U.S. stock market is unlikely to burst the bubble in the form of four circuit breakers within three weeks and a great deal of leakage like last year, and the Chinese stock market will not undergo drastic fluctuations. Registration system must be promoted, but does not mean that this year the motherboard will be pushed registration system; The core of a virtuous cycle in the stock market is the improvement of the mechanism for importing more broadly and exporting more strictly, including delisting.
Here is the interview:
A stock market correction is not necessarily a bad thing
Atom Think Tank: Recently, global capital markets have experienced a round of big volatility. What do you think is the reason for this adjustment?
Qian Jun: There may be at least two reasons. First, the relatively direct trigger is the United States. The United States is the largest economy, and it pumped a lot of water last year — if you look at the Federal Reserve’s balance sheet, between March and June of last year, it expanded by about $3 trillion. The flood of liquidity was the main reason for last year’s rapid stock market rally.
Right now, the overall picture in the U.S. is both positive and negative, largely because of uncertainty. The recent $1.9 trillion fiscal stimulus, for example, has seen a relatively strong recovery. And now there are three vaccines, and we expect vaccination to be accelerated starting in the second quarter, and probably by the summer, we’ll have the epidemic basically under control in the U.S. That, coupled with the stimulus, could lead to a fairly strong economic recovery in the second quarter, which is good for stocks. But Treasury yields are rising — mainly because people are starting to worry that if the economy overheats, inflation will set in, and then the Fed may be too quick to withdraw its easy policy.
If the US withdraws its loose policy, Europe may follow. In terms of equities, the US 10-year Treasury bond is the most important safe haven asset in the world and the most liquid. If its yield rises, it pushes the risk-free yield across the US and global capital markets higher, pushing stock prices lower.
So, the first reason is mainly the uncertainty about the future direction of the overall monetary and fiscal policy in the United States. The second has to do with inflation expectations, which has also led to a rise in interest rates on US Treasuries, which has the direct effect of raising overall interest rates, which in turn has led to a correction in stock prices. This is the first factor, and it is related to macro policies.
The second aspect is more important – the correction of a mature and healthy stock market itself. Not all stock markets are volatile, and corrections are normal. Because the stock market is relatively fast in the recent period, the fastest is the technology large-cap stocks, such as Tesla, but the New York Stock Exchange, traditional industries, actually not much. This time, the stock market is too fast, the adjustment is relatively large.
It is as true in America as it is in China. China’s Growth Enterprise Board refers to some traditional industries with the Shanghai Stock Exchange is still far from the situation. Liquor as the core of daily consumption, health care, information technology, the whole year last year against the trend of the rise, or the core assets in the epidemic, the stock price is fast, the recent adjustment is also relatively large. In other industries and finance, the adjustment is relatively slow.
Stocks in European countries like Germany, France and Italy also rose last year, but not as fast as in the United States, especially technology stocks. As a result, some have adjusted relatively small recently, while others have continued to steadily set new highs.
There are always some driving factors for the stock market to rise. If there are some problems with the current important driving factors, it will not necessarily be a bad thing in the medium and long term, or even in the second half of this year.
The main problem is that the United States, with its large size, has spillovers in its capital market and monetary policy. Investors from all over the world go to the capital market of the United States, and once it is adjusted, it will have a relatively large impact on the global capital flow and capital sentiment.
At least those two factors.
For investors, one thing to watch is not only the stock market itself, but also the credit markets, including Treasury bonds. Because credit markets determine the cost of borrowing for businesses and countries across the economy — and that’s important. In addition to the monetary aggregate, it is also important to look at overall market liquidity and the cost of borrowing money, which will be important for the future direction.