At the beginning of 2021, almost the absolute majority of A-shares held the view that A-shares would continue to be good. However, at the beginning of the Year of the Ox, A-shares took the lead in the adjustment of the peripheral market, and all the gains in the year were reversed. Investors’ unoptimistic mood on the future market rose, and the hot situation of fund issuance also subsided.
Many investors are asking, “Will there ever be a bull market?” This reflects some investors’ confusion about the rapid change of short-term market conditions.
In fact, from the point of view of the historical market of A shares, the Shanghai index rose for two consecutive years after the third year to continue to close out the situation of the K-line in Changyang almost does not exist, which is different from the historical law of the US stock market.
We believe that this is related to multiple factors such as the development stage of the capital market, participants’ investment ability and risk control awareness, and the incentive and restraint mechanism of the stock market for listed companies. These differences are being gradually improved through the reform process of the domestic capital market.
However, in the short and medium term, A-share investors still have to face the characteristics of the domestic stock market.
In the history of A shares, the bull market of Shanghai Stock Index continued after two consecutive years of rise. For example, in the bull market from 1996 to 2000, even though the stock market of Shanghai Stock Index showed A consolidation trend in 1998, the A-share Shanghai Stock Index still had A positive trend in 1999 and 2000. In the same period, the Shenzhen Component Index rose too much in 1996 and 1997, and did not record a new high performance for many years thereafter.
Thus it can be seen that if the A-share index is not too big for two consecutive years, the third year of deep adjustment space or limited, and investors in the third year of the preferred strategy is in the index back to the second year of the positive line entity stage looking for opportunities to buy bargains.
Of course, not only from the historical development of A shares, or from the current market facing the internal and external environment, A shares in the medium and long term prospects for development is optimistic, the bull market is still developing, the following continue to look good after the reason.
Figure 1: Annual K-line data of Shanghai Composite Index Source: Wind
Household savings to the stock market has not changed the trend
Due to the market rise in the past two years, especially the high-valuation growth varieties have gained more popularity, the A-share market has attracted more and more attention of social wealth, and residents’ savings continue to enter the stock market through the purchase of funds.
Although the situation of fund issuance has changed due to the recent adjustment of the market, we believe that the trend of the transfer of household savings to the stock market has not changed.
First of all, the trend of social wealth flowing into the real estate market has been curbed. The regulatory policies and land supply measures in many places have reversed the real estate market from a period of sharp rise to a stable cycle of absorbing rigid demand. Secondly, the trend of a large number of household savings flocking to fixed-income financial products is also changing, because a large number of high-yield fixed-income products will inevitably raise the financing cost of enterprises, which is contrary to the direction of the financial industry to reduce the financing cost for the real economy.
The introduction of household savings into the stock market through rational investment channels will not only promote the development of the capital market and support the real economy, but also foster a culture of rational investment and force the better development of the real economy. It can be predicted that there will be more favorable policies in the future to promote the development trend of rational inflow of residents’ savings into the stock market.
A – share blue – chip underweight phenomenon remains
Despite the A-share market’s rally over the past two years, valuations for blue-chip A-shares are not high. The A-share blue-chip sector is valued at A much lower level than even the mature financial market index weights. The low valuation of blue chips is related to the shift in investor market preferences.
Due to the impact of the epidemic, the performance of blue chip stocks suffered, stock market funds prefer high valuation of growth varieties. As the epidemic is brought under control and performance improves, the persisting undervaluation of blue-chip stocks is expected to improve.
China’s economy has maintained rapid growth
With the continuous expansion of A-share market, A-share market will more and more fully reflect the results of China’s economic growth. In 2020, affected by the epidemic, China was the only major economy in the world to achieve positive growth, with an annual GDP growth rate of 2.3%.
According to the government work report of the two sessions, the economic growth target for 2021 is at least 6 percent. It can be predicted that this growth level will also be relatively fast in the world’s major economies in 2021, which is conducive to the steady and sound A-share market.
Global economic recovery is expected to pick up, commodity prices rebounded
With the continuous marketing of vaccines, the probability of controlling the global epidemic has increased, the expectation of economic recovery has picked up, the price of gold futures has dropped from the high level, the price of bulk commodities has recovered rapidly, and the inflation expectation has risen.
For the growth of upstream product demand, reflecting the social demand is picking up by the trough, therefore, the cyclical varieties of A shares recently also appeared A better rise performance. A – share market hot reincarnation, investment style switching is in progress, the market is not fully controlled by bears.
Epidemic control, scientific and technological development achievements have been more applied
The epidemic has changed people’s living habits, and many scientific and technological innovations and products have been recognized and accepted by people.
While some of the tech growth companies’ share prices were inflated during the previous rally, some of the industry’s leading growth trends may continue as innovation continues. That means there will be limited room for bears to continue hammering leading tech companies.
Continued progress was made in capital market reform
“We will steadily push forward the reform of the registration system, improve the normal delisting mechanism, strengthen the construction of the bond market, give better play to the role of the multi-tiered capital market, and expand financing channels for market entities,” the government work report to the two sessions said of the development of the domestic capital market.
It can be predicted that in 2021, the domestic capital market reform will continue to advance, the survival of the fittest market environment gradually improved, the A-share market development policy is still worth looking forward to, investors’ confidence in the market is expected to be supported by the policy benefits.