Experts Interpret The 4 Major Driving Forces Of A Share Bull Market

Zhou Xiaochuan has warned China's economic growth over the recent decline, saying the central bank has great policy leeway to defend its 3% inflation target.

In the view of Monty Guild, there are 4 main driving forces for A share bull market.

The first and most important driving force is that the Chinese government hopes to see the stock market rise and let investors withdraw from the over speculative market such as real estate and financial products. To this end, the Chinese government has introduced a series of policies to encourage mainland investors to participate in the stock market, and the opening of Shanghai Hong Kong Tong has made it easier for foreign investors to buy Chinese stocks. Guild believes that A shares will soon be included in the MSCI series index.

Next is China. Investment A big move for savings. Because of real estate, bonds and financial products The rate of return is down, and the Chinese regard the stock market as the best place to invest and save. The stock market is hot, which has caused people's wealth to increase, so that people's willingness to invest is further enhanced, forming a virtuous circle. The new record of A shares is the best proof.

Third is A shares Low valuation. Whether it is compared to the historical valuation of A shares or other major markets in the world, A shares are cheap. Guild pointed out that the Shanghai Composite Index has a dynamic P / E ratio of only 13.8 times, much lower than that of the US stock market (now the Dow is 16 times, and the NASDAQ is 19 times).

Fourth, the Central Bank of China will introduce more easing measures. There is a popular saying in Wall Street: "do not oppose the Federal Reserve (central bank)". Analysts expect that the Central Bank of China will further cut interest rates and reduce interest rates this year after the two rate cut in November and February this year.

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A number of risk factors may lead to a delay in the next deposit reserve rate cut.

In March, the consumer price index (CPI) remained unchanged at 1.4%, reflecting the seasonal impact of the Chinese Lunar New Year holiday (food and service prices fell). In addition, producer price index (PPI) deflation dropped to -4.6% slightly. Zhu Haibin, chief economist of J.P. Morgan, said that in general, there will be further monetary easing in the next few months (50 basis points in April and 25 basis points in June).

Zhu Haibin said that the reduction of the deposit reserve ratio in April can be interpreted as a measure of steady growth, which can be attributed to the following reasons: first, seasonal financial payment will temporarily recover liquidity from the banking system; two, the IPO will be frozen in the next few weeks, and the three is that the government announced the introduction of the deposit insurance scheme in May 1st, which may have a slight negative impact on bank profits. The negative impact of the deposit reserve ratio reduction can be mitigate.

Zhu Haibin also said that the most important factor is the dynamics of capital flows. The capital outflow in the first two months of this year is huge: after the adjustment of trade surplus and inflow of foreign direct investment, the change of foreign exchange positions in banks made the capital outflow of $91 billion 600 million in January and $76 billion 200 million in February (mainly caused by the increase in foreign exchange deposits of enterprises and family departments). As the renminbi fell against the US dollar in March, the depreciation of the renminbi was expected to weaken rapidly. We may see that the capital outflow in March has dropped sharply, which will alleviate the urgency of the deposit reserve ratio reduction in the short term.

Two, the strong rise of the stock market (the Shanghai Composite Index rose 20% in the past 4 weeks) may also make the central bank more cautious in terms of quantitative easing.

Three, the central bank can adopt directional measures such as standing lending facilities, short-term liquidity adjustment tools and medium term lending facilities to manage market liquidity.

In addition, the policy interest rate is expected to be cut again in June, when CPI inflation will drop to around 1%, and real interest rates will rise. It is not expected that there will be any rate cut in the second half of this year, as inflation is likely to rise, and the growth momentum in the second and third quarters may improve. The possibility of raising interest rates in the 9 month will make emerging market central banks more cautious in further lowering interest rates.

In March, China's CPI stayed at 1.4% year-on-year, and PPI deflation dropped to -4.6%. Based on this, further monetary easing is expected. It is expected that interest rates will be cut again in June, when CPI inflation will drop to around 1%. However, a number of risk factors may lead to a delay in the next deposit reserve rate reduction.