Issue:
How do you view the recent series of policies, including those on the issuance of foreign exchange and treasury bonds, and inspect the central bank, and how long will the stimulus effect of these policies on the stock market last?
Dong Baozhen:
The release of this series of policies presents several notable features.
First of all, these policies were clearly formulated in response to the current realities, especially the low level of confidence in the stock market after it fell below 3,000 points. In fact, if these policies had been introduced earlier, they might have prevented the stock market from falling below 3,000 points.
This 3,000-point mark represents the market's psychological defense, and holding it is crucial for social stability and the restoration of investor confidence. Therefore, it is only natural that the government should introduce policies aimed at boosting market confidence.
Second, this series of policies also includes some new macro policies. Since 2020, monetary policy has been accommodative, including measures such as large-scale water release and interest rate reductions. However, a single monetary policy has not achieved the desired effect across the board. This reflects the urgent need for fiscal policy from another perspective. The introduction of fiscal policy is also the result of the objective situation.
Suffice it to say that if these policies are not adopted, there may be a situation where the market exceeds expectations.
There is an adage in the capital market: "In reality, there are no absolute market events, only market panic itself." "Therefore, the government needs to adopt a series of policies to curb market panic. As long as the fear of the market can be suppressed, China will still have one of the highest economic growth rates in the world, and it will still be among the highest.
Policy measures are urgently needed to ensure market stability.
Issue:
Despite Huijin's overweights, there was no significant stimulus for bank stocks. At the moment, there seems to be some concern in the market about bank stocks, mainly about debtisation, what do you think?
Dong Baozhen:
This phenomenon of bank stocks seems to have less to do with fundamental factors and more to do with money flows. In technical terms, this involves a change of funds.
It is worth noting that in the past period, some stocks that were heavily weighted in the early stage or were widely bullish have seen significant declines, such as the Moutai Index and the Ning Portfolio, which have fallen quite sharply and seem to have accelerated their downward trend.
Despite the sharp declines in these stocks, they are still valued at more than 30 times, compared to around 10 times the price-to-earnings ratio of the CSI 300 index.
This rapid decline is actually a process in which the market seeks to remove the bubble and pursue the law of value.
The turn of funds is not free, they are trapped in the old hot sectors, heavy stocks, and the current low valuation of bank stocks is an objective fact, but the funds have not turned around.
With the adjustment of funds, we can observe two actions of Huijin. First, it increased its stake in the big four banks and then bought ETFs during the trading day. According to our statistics, the trading volume of ETFs surged on the day, mainly involving the SSE 50 ETF and the CSI 300 ETF, both of which are undervalued areas, while other sectors have relatively low trading volume.
As an official fund, Huijin's investment direction is clearly towards the undervalued sector. Huijin has a leading role in the market, in fact, encouraging the market to gradually move to low-valuation areas. Once money starts flowing into low-valued areas, the market will become healthier.
Because an unhealthy market usually manifests itself in unreasonable valuations. Therefore, the inflow of money into the undervalued area is the most reasonable direction. Huijin has strengthened the market's focus on undervalued areas through the demonstration effect.
In general, this phenomenon has little to do with fundamental factors.
Issue:
There have been many concept stocks in the market this year, and this phenomenon has dominated the entire market. Some even refer to them as "baseless stocks", which refers to stocks that are not held by mainstream funds, but are favored by some retail investors. How do you interpret this market trend?
Dong Baozhen:
When it comes to market conditions, there is an old saying: "There is no general in Shu, and Liao becomes a pioneer", which may be used to describe the current market situation. While there is a certain amount of hype in the market, this hype usually fails to become a mainstream trend. However, it is impressive that there appear to be a number of small- or micro-cap stocks that have become mainstream this year, reflecting the fact that the original mainstream sectors of the market, such as consumer medicine and batteries in 2018, have been affected in the process of de-bubble. New areas of low valuation, which should have become mainstream, lacked financial backing, and as a result, there was a situation where dominant sectors could not be formed.
The speculation of small-cap stocks is actually a fringe hot spot, and the speculation of floating capital is often regarded as speculation without fundamental support. However, this hype has become a bright spot in the market, highlighting the current lack of leading capital and dominant sectors in the market.
It will take some time to reverse this trend, 2024 is already approaching, time is a precious resource, and a longer downturn will affect market expectations and the real economy. As a result, the market needs to change more quickly and in the short term, but to do so, the market needs more bullish power.
In order to alleviate the market woes, more over-the-counter funding is needed, including Huijin, as well as the active participation of some insurance institutions and large financial institutions with state-owned backgrounds. These institutions can participate in buying undervalued stocks because these stocks typically have low price-to-book ratios, relatively low risk, and have a positive impact on both the market and investors.