In December 2023, the A** market experienced a tragic adjustment, and the Shanghai Composite Index fell from 5,930 points at the beginning of the year to 3,347 points, a decline of 436%, the biggest annual decline in a decade. At the same time, the overall valuation of A-shares has fallen to its lowest level in a decade, even below the level of the 2008 financial crisis. So, has the a** field fallen to the bottom?Will the spring of the bull market be far away?
According to Wind data, as of December 31, 2023, the Shanghai Composite Index has a dynamic P/E ratio of 1103 times, down from 13 on October 28, 200801 times, also down from 11 on January 20, 201425 times. The CSI 300 Index has a dynamic P/E ratio of 1081 times, down from 12 on October 28, 200883 times, also down from 11. on January 20, 201402 times. The CSI 500 Index has a dynamic P/E ratio of 1723 times, down from 19 on October 28, 200838 times, also down from 18 on January 20, 201405 times. From these data, it can be seen that the valuation of the A** field has fallen below the level of 1664 points, and also fell below the level before the start of the bull market in 2014.
So, does this mean that the A** market already has the valuation basis for a bull market?The answer is not simple. On the one hand, from the perspective of historical experience, the valuation bottom of the A** market often appears near the absolute low point of the market, and the formation of the valuation bottom usually takes a certain amount of time and process, and will not be achieved overnight. For example, on October 28, 2008, the Shanghai Composite Index fell to 1,664 points, its lowest point since the financial crisis, when the dynamic price-to-earnings ratio was 1301 times, but this is not the lowest point of valuation, but on January 23, 2009, when the Shanghai Composite Index fell to 1990 points, the dynamic P/E ratio fell to 98 times, forming a valuation bottom. Similarly, on January 20, 2014, the Shanghai Composite Index fell to 1,991 points, when the dynamic P/E ratio was 1125 times, but this is not the lowest point of valuation, but on June 27, 2014, when the Shanghai Composite Index fell to 2021 points, the dynamic P/E ratio fell to 89 times, forming a valuation bottom. Therefore, from the perspective of historical experience, the valuation bottom of the A** field is often lower than 10 times, and the formation of the valuation bottom needs to go through a period of bottoming process, rather than appearing all at once.
On the other hand, from the perspective of the domestic and foreign economic and market environment, the valuation level of the A** market may not necessarily reflect the true value of the market. First, the domestic economy is facing downward pressure, slowing growth, rising inflation, structural imbalances, debt risks, lagging reforms and other problems, which will affect the profitability and growth of listed companies, thereby affecting the valuation level of the market. Second, uncertain factors such as foreign geopolitics and friction will also have an impact and interference on the A** field, resulting in an increase in the risk premium of the market and a decline in the valuation level. Third, the system and mechanism of the market are not perfect, the participants and investment concepts of the market are not mature, the market volatility and sentiment are still unstable, the efficiency and transparency of the market are not high, and the supervision and legal system of the market are not perfect, which will lead to the valuation level of the market deviating from the true value of the market.
To sum up, although the valuation of the A** market has fallen to the lowest level in a decade, this does not necessarily mean that the market has fallen to the bottom, nor does it necessarily mean that the spring of the bull market is just around the corner. In order to judge the trend of the market, it is also necessary to comprehensively consider the fundamental, technical, capital, policy and other factors of the market, rather than simply relying on the valuation level. Of course, in the long run, the valuation level of the A** market has a certain margin of safety, and it is also a good layout opportunity for investors with patience and confidence. As long as we grasp the high-quality ** and sectors, adhere to the concept of value investment, I believe that the value of the market will eventually be reflected, and the spring of the bull market will come.