In the repeated pull between expectations and reality, the ** of A-shares this year is particularly anxious. In the closing month of the year, the Shanghai Composite Index unexpectedly returned to 2,900 points.
For most people, if the mentality can barely support in the previous two and a half years, but at the beginning of the year, after the market had high hopes for the "turning year", it took another year to find that it was still far from the "return to investment", and it was inevitable that they would fall into extreme pessimism and even lose confidence.
I want to tell you that the more you feel "confused about the road ahead", the more you should use rational analysis and return to the underlying logic of investment.
What is the current position of A-shares?Coming to the bottom area, how should investors respond and operate?Next, dig the base belt and you have a good look.
#
What is the current position of A-shares?
Extreme pessimistic expectations often give rise to extreme **, and many indicators of the current A-share market have touched historical extremes and come to the obvious bottom area.
"Extreme" valuations
After nearly three years of downturn, A-shares are really not expensive. As of 22 December, valuations of major broad-based indices have all fallen back to "cheap" levels.
From the perspective of the price-earnings ratio, the current PE quantile of GEM refers to 0%, which means that it has hit a record low;
From the perspective of price-to-book ratio, Wind All A, SSE 50, CSI 300 and Shanghai Composite Index are collectively in the low area since 2010.
Mean reversion is a basic common sense in investing, and when a trough comes, it often means the emergence of long-term opportunities. Taking the CSI 300 Index as an example, the current price-to-book ratio is only 117 times, while the average for the last decade is 152 times, the mean is 131x (dark blue dotted line below).
The price-to-book ratio of the CSI 300 Index over the past 10 years
*: wind, as of 2023-12-22).
Taking history as a guide, each time the price-to-book ratio broke down by 131 times, all correspond to the relative bottom of a large cycle, if you can overcome the fear of a bear market, think backwards at this stage** and hold for a long time, you can often reap a lot of rewards.
In fact, one of the main reasons for this bear market is the valuation contraction caused by the sharp decline in risk appetite, a process that has lasted for nearly three years, tying the longest consecutive valuation contraction set by A-shares in 2016-2018. After the spring of valuation contraction has been compressed to the extreme, future valuation expansion** should be the expectation of the moment.
"Extreme" price-performance ratio of stocks and bonds
From the perspective of the risk premium, which measures the relative cost performance of equity and bond investments:
The risk premium of the Shanghai Composite Index has recovered to 83 since 20104% all-time high;
The CSI 300 and CSI 500 indices have reached the level since 2010. Extremely high levels of 6%;
The risk premium level of the GEM index once broke through a record high.
Looking back on the history of the past decade, similar "higher configuration cost-effective" areas can be traced back to December 2012, January 2016, early 2019, the end of March 2020, and October 2022. Taking 2012, 2016 and 2019 as examples, the average A-share reversal from the bottom lasted for 2-3 years, during which the CSI 300 rose by 56%-166%. confirms that sentenceOpportunities come out of the blue, and markets tend to turn around in the most pessimistic moments
*: wind, Haitong ** Research Institute, the past rise and fall of the index is not indicative of future performance and does not represent investment advice. ）
"Extreme" quantities of energy
Recently, the market has been thin, and the daily trading volume of the two cities has hit the freezing point of about 700 billion yuan several times, and it has shrunk to 608.1 billion yuan today, and the transaction amount has hit the third place in the year. (Data**: Finance Associated Press).
Such extreme emotional downturns have occurred several times in the past, but reviewing the previous turnover shrinkage "nearly halved" moments, the probability of the market stabilizing in the future is larger, and the winning rate and odds are ideal, so there is a saying:Shrinkage period, layout period
Looking back at the 6 market bottoms experienced by A-shares since 2005, it is a high probability that the market will usher in the bottom after experiencing extreme shrinkage.
"Extreme" trading sentiment
In terms of trading congestion, trading sentiment in most sectors has fallen to historically low levels, i.e., congestion levels are low or moderately low. In particular, the first-class growth direction represented by new energy, semiconductors, and automobiles has fallen back to the historical extreme, indicating that the corresponding pessimism may have been fully fermented. (*IB**).
Theoretically, when the decline reaches a certain magnitude and the transaction congestion returns to desertion, it means that the market chips have been cleared, and optimistic people will enter the market again, and it will not be far away.
#
What should investors be prepared for?
How does it work?
Extreme pessimistic expectations often give rise to extreme **, and many indicators of the current A-share market have touched historical extremes and come to the obvious bottom area.
First, know where we are at the moment.
Deeper analysis, although it is difficult to accurately predict whether the new cycle has arrived at the moment, it is certain that the current external environment seems to be risky, but the extreme market performance shows that the economy, policy, and market sentiment are all at the bottomOn the other hand, the market has overpriced these pessimistic expectations, and it is more likely that there will be a gap in both economic and policy terms.
We are accustomed to "linear extrapolation" of market trends, being more optimistic when we are optimistic and more pessimistic when we are pessimistic, which is human nature. But everything can't escape the word "cycle", ** will also show an obvious bull and bear cycle cycle, always ebb and flow, although the tide rises and falls, how deep the tide is difficult to predict, and the times are different. Mr. Market has its own long-term operation of the law, if it rises more, it will fall, and if it falls in place, it will inevitably rise, which is an unbreakable law.
We can clearly understand that we are now in a "cold winter", although we don't know which day is the coldest, but winter is over, and spring will definitely come. At present, many assets have been ** for three consecutive years, becoming low-priced chips, and the probability of another "bear" for another year seems to be much lower than the possibility of bullishness.
Second, re-examine holdings and investments.
Even if it is already at the bottom, the bottom is not a point, but a range. We must be more rational psychological preparation, do a good job of strategic layout, psychologically do a good job of defense, ignore interference factors, work hard, operate life, and maintain confidence in the market.
For investors who are experiencing floating losses, it may be difficult to become the optimal solution if they rush to liquidate their positions at this position. Especially the "spare money" and "long money" that you can afford to wait for, you might as well look at it while walking. Because what really determines whether you should sell or not is whether the asset is currently reasonable or not. If you choose to give up in the bottom range of the big level, it is very likely that you have stayed up all night, but you collapsed before dawn and missed the sunrise at dawn.
If the current market volatility has seriously affected our mentality, we can also appropriately reduce the proportion of equity**, **fixed income + or pure debt**, after all, the essence of our investment is also for a better life, and we should not put the cart before the horse.
Of course, the conversion is not immediately all converted into another **, it may be **faced**, and the sale is just right**, it is easy to "be beaten at both ends", you can first convert a part of the high, and then slowly figure it out.
Third, establish appropriate psychological expectations and psychological defenses.
For investors who want to increase their positions, the current position is indeed "vaguely correct", but they can't be stud and rushed, so as to avoid the impact of "** to the halfway point of the mountain" mentality, and even Warren Buffett, the god of stocks, believes that he can't buy an absolute low. You can take the method of batching or regular investment to layout, reduce the risk of errors, and also accumulate chips for the future.
Also, use leverage sparingly**. The fluctuations in the bottom range are often amplified, and once unreasonable financing and leverage are enabled, complex changes in mentality and emotions can easily affect the operation, but it is easier to magnify the damage and cause real risks, that is, "permanent loss of principal", making yourself fall into the predicament of "gamblers".
The famous economist John Maynard Keynes famously said, "The market will continue to be irrational for longer than you can hold on." Although the market is always capricious, there is a bottom, there is a **, and there is a valley and there is a peak. Don't come here at the peak, don't turn around at the trough, stay present, and exchange time for space, which is perhaps the most simple way to invest.
Risk Warning. The views expressed in this material are for informational purposes only and are not intended as any legal documents, and all information or opinions expressed in the materials do not constitute final operational advice on investment, legal, accounting or taxation, and we do not make any warranties for the final operational advice regarding the content of the materials. Under no circumstances shall the Company be liable to any person for any loss arising from the use of any content in this material. The above content does not constitute a recommendation. Past performance and its net worth are not indicative of its future performance, and the performance of other performance managed by the Manager does not constitute a guarantee of the performance of this performance. The Manager does not guarantee profitability and does not guarantee a minimum return. Investors should fully understand the difference between regular fixed investment and lump sum deposit and withdrawal. Regular investment is a simple and easy way to guide investors to make long-term investments and average investment costs. However, regular investment does not avoid the inherent risks of investment, does not guarantee that investors will obtain returns, and is not an equivalent financial management method to replace savings. The market is risky, and you should be cautious when entering the market.