A-Share Bear Market Enters Second Stage

Zhang Yidong, an analyst at Industrial Securities says A-share inclusion in MSCI indexes this year is unknown. The government is working very hard to resolve problems raise by MSCI, but there are larger issues such as the exchange rate policy raises concern.

He also says A-shares are in the second stage of the bear market:

Reporter: You mentioned earlier the authorities for a positioning economy, long-term is L-shaped, our stock market is a long-term shape of what can be represented? Is L-shaped or W-shaped oscillating? Which you prefer?

Zhang Yidong: In the third quarter of 2011 I said the form is a sprial shell because it is actually convergent oscillation a bottom, which is the bottom of the oscillation is bottoming process, where's the bottom, in fact, do not know, but at this stage, spiral shell tend to be far away from the bottom, but do not know the ultimate end, the ultimate bottom are often known only afterwards.

But I want to talk about what is it? The second phase of the bear market is called the spiral shell, because I always divide the bear market into three phases, the first is space for time, falling quickly, it is strongly space quickly. The second phase, many people began to think in the end, and slowly more and more people in the end, it was the bargain-hunting, that has dropped a lot, it did not give up, there are some bull market thinking, that has a lot of fall a few dollars, a section on bargain-hunting, this stage is actually leans hidden decline, but there will continue to rebound in the sideways oscillation, this time its volatility will converge.

China A-shares is like this, you see it normal year, one of its volatility, annual volatility will be more than 30%, but another one, we are talking about the second phase of the bear market, such as 2003, 2004, even in the first half of 2005, the volatility slowly converge, converge to less than 30%, it may be 25-30%.

But even so, in fact 25%, 30%, as China's market is emerging and transitional, in fact, can still make a living, that the second stage of a bear market is to have drop and a rebound, but elongated, the spiral shell is only suitable for two types of people.

He says it is for traders and long-term buyers looking to accumulate low. He sees Hong Kong in the third stage of a bear market and a more attractive long-term value:

According to this perspective, frankly, I think the bear market like Hong Kong, the third stage, while the A shares may be more the second phase of the bear market, the second stage of a bear market. Hong Kong eventually turn cattle what point in time do not know, but now it fits my definition, there is little good news, because Hong Kong capital funds in Europe and America to do the leading, the fundamentals of China's economy, China's economy to foreigners and there are concerns, in this case, it is really very cheap, even our mainland to Hong Kong also has a variety of complaints, it will feel political factors or other factors, but this time I think that Hong Kong is just a bear market with a third stage, or even a a better long-term investment value.

He sees credit risk as not priced into A-shares:

Zhang Yidong: the entire credit risk, and now we are worried about credit risk, but credit risk it is not exposed, at least the capital market, A-share market does not fully reflect the problem , credit risk, do not fear it, because it is a growing price, you have to really market clearing, eliminating zombies enterprises and promote the reform of the supply side, there must be pain.

This is reflected in the throes of backward production capacity of these industries, eight industries, a total of 2 trillion stock of bonds, these credit debt, credit debt of 2 trillion, it is far from risk now exposed, that is, when the time it breach of contract, or when it is no longer possible when it comes to take on new debt to make up the old debt, at that time still a large pressure in the second half may be of interest.

iFeng: 张忆东：A股仍处熊市第二阶段 现在行情只适合两种人