Four Big Headlines: China Financial Media Defends Market

China's financial media put out "four big headlines" overnight in response to the market decline.

iFeng: 四大证券报头版：A股不具备大跌基础 多一份冷静

China Securities Journal stated that A-shares do not have the basis for a sustained fall, and that China's economic development will be better than market expectations in terms of resilience and quality. The coordination of financial supervision is stronger, the policy toolbox is adequate, and it is fully capable of resolving market risks.

"Securities Daily" said that China's economic fundamentals do not support the sharp decline in the stock market. From the perspective of China’s economic fundamentals, especially the huge potential of the domestic market and the driving force of industrial upgrading, the stable growth of the economy, the stable operation of the capital market and the continuous improvement of its attractiveness are major trends, and will not be reversed due to current trade factors. .

"Securities Times" said that yesterday's market trend has clearly separated from the fundamentals, worries over the market. On the one hand, the unstable state of the surrounding stock market makes it impossible for A-shares to stand alone. On the other hand, the news that listed companies frequently burst equity pledges deepened market worries. But in fact, these worrying factors are more "self-intimidating." Investors should stay calm and rational.

The short-term concern is outside of China. The rising U.S. dollar, increasing EM pain and potential escalation of the trade spat with the United States. Internally, if everything was fine, there wouldn't be strict capital controls.

Securities Times: Be calm in the face of market fluctuations

It is natural for the market to rise or fall, and the A-share volatility also has its own operating pattern. However, yesterday's market trend has clearly deviated from the fundamentals, and worries have overshadowed the market. On the one hand, the unstable state of the surrounding stock market makes it impossible for A-shares to stand alone. The linkage between the domestic capital market and the overseas market has become more and more close. The influence of the external market on the A shares has become more pronounced. The general decline in the global market has also caused A shares to become involved. Under this background, the market has been facing trade frictions between China and the United States. The concern is amplified. On the other hand, the news that listed companies frequently burst equity pledges deepened market worries. The superposition of multiple factors has caused irrational factors to be released and led to a sharp drop in the market.

In fact, these fears are more "self-intimidating." The U.S. claims that after the US$50 billion taxation list, it will formulate a 200 billion U.S. dollar taxation list, which is more of a means of exerting pressure and threats on the extreme. The U.S. has not established a specific taxation list, nor has it stated clearly that the taxation The timetable, more than 200 billion yuan, is more of a call for blackmail. In the case of equity pledges, the proportion of listed companies being liquidated is very small, and most of the affected companies mostly relieve pressure by postponing pledges and releasing pledges.

When fears are amplified, it is easy to make irrational sales. Investors should stay calm and rational.

First of all, China’s economic fundamentals are good, the resilience of economic growth has increased, the total supply and demand have become more balanced, and the growth momentum has been accelerated. This year, the renminbi is one of the few currencies that appreciates against the US dollar and is the most dynamic and promising economy in the world. Domestic demand stimulates China's economy and the degree of dependence on trade is lower than the world average. The ability of China's economy to respond to external shocks continues to increase. The Governor of the Central Bank, Yi Gang, stated that China is a large market with a population of more than 1.3 billion. The economic endogenous potential is huge, and there are sufficient conditions and space to deal with all kinds of trade frictions.

Second, the capital is relatively abundant. The central bank has frequently released liquidity in recent days, and liquidity will remain reasonable and stable under the management of precision deposits. A number of forward-looking measures have fulfilled policy reserves, and various monetary policy tools have also laid the foundation for smooth liquidity.

Thirdly, at the market level, when some investors are struggling with anxiety, some of the prophetic funds have begun to actively deploy, especially in the context of Shanghai, Shenzhen-Hong Kong Stock Connect and MSCI under A shares, foreign investors’ enthusiasm for the Chinese market. With rising temperatures, the net inflow of capital in the "land stock pass" in May alone reached 50.851 billion yuan.

In addition, the latest quarterly report of listed companies showed that of the more than 3,500 listed companies in the Shanghai and Shenzhen stock markets, 60% more than one year's quarterly results have increased year-on-year, 30% more than the same period last year, and capital markets have continued to play an important role in supporting high-quality economic development. Important support role. Investors can only magnify the worrying factors that affect the long-term development of the market, and will not be magnified by the short-term adverse effects. At present, there is a certain divergence between the stable situation of the Chinese economy and the pessimistic expectation of a weak investor confidence. Adjustments will give China's capital market an upside opportunity. (Reporter Cheng Dan)

Growth only seems to be accelerating in real estate and the renminbi appreciated versus the dollar because the yuan suddenly stopped tracking with the euro in March, right around the time President Trump started turning up the heat on trade. Below are two currency ETFs, one for the euro (FXE) and one for the yuan (CYB). If the yuan had stayed tightly correlated, USDCNY would be above 6.60 as of today.

China Securities Journal: No basis for sustained decline in A-shares

Statistics from the National Bureau of Statistics show that from the point of view of production, the industry has grown steadily. From January to May, the industrial added value of industries above designated size grew by 6.9% year-on-year, and the growth rate was unchanged from January to April. From the perspective of consumption, since the beginning of this year, the total retail sales of consumer goods have increased by 9.5% from January to May, and the trend has continued to grow faster.

From the point of view of investment, although the overall investment growth has declined, the investment structure has been optimized. The growth rate of investment in manufacturing has accelerated, and private investment has continued to maintain rapid growth. The manufacturing PMI has remained within the boom period for a long period of time. In particular, the manufacturing PMI for May was 51.9%, up 0.5% from the previous month.

“From the point of view of employment, the unemployment rate in the urban survey nationwide in May was 4.8%, a year-on-year drop of 0.1%. From a price point of view, the CPI for May rose 1.8% year-on-year, maintaining a modest upward trend. In May, the PPI rose by 4.1%. Although the increase has increased by 0.7 percentage points from the previous month, it has remained generally at a relatively reasonable level. Therefore, the price is stable and employment is improving.” Mao Shengyong, a spokesperson for the National Bureau of Statistics, said.

From the perspective of economic fundamentals, Liu Feng, chief economist and research director of China Galaxy Securities, stated that China's current industrial production is still stable, domestic demand has further boosted the room, moderate inflationary pressure is limited, and consumption is generally stable. By focusing on expanding domestic demand, it can effectively hedge changes in external demand. In the second half of the year, from the perspective of stabilizing domestic demand and guarding against systemic risks, monetary investment is expected to loosen marginally on a stable and neutral basis, creating a suitable monetary and financial environment for stable growth, risk prevention, and deleveraging.

“China's economic growth will be better than market expectations in terms of resilience and quality.” Xing Ziqiang, chief economist at Morgan Stanley in China, said recently that, for example, rising consumption and continued recovery of private investment further offset state-owned enterprises and infrastructure investment. Slow down the impact on the Chinese economy. China's consumption growth is still expected to continue its strong momentum. In particular, the current hot employment market in China will increase the wages of employees from the second half of this year to next year, which will provide support for continued consumption growth.

Yan Yan, chairman of China Chengxin International and deputy director of the Institute of Economic Research at Renmin University of China, judged that the Chinese economy has entered a new phase and economic growth resilience still exists. From a short-term perspective, China’s economic growth has been maintained at 6.8% for the past three quarters, and the trend of stabilization in the short-term is more obvious. “If we take a longer view, the Chinese economy has started to pick up momentum in the past seven years. Therefore, based on the short-term and medium-term judgments, we believe that the Chinese economy is already in a trend of stabilization and recovery.”

"The economic fundamentals do not support the continuous collapse of the Chinese stock market." Tian Lihui, head of the Nankai University Financial Development Research Institute, said that the economic figures were good in May, and the national economy maintained steady momentum and momentum, and the economic growth toughness continued to increase. Steady growth in the macroeconomic situation is a solid foundation for the stable operation of the capital market.

Valuation is low and liquidity is no worries

Analysts believe that A-share valuations are at historically low levels, and low valuations create a high margin of safety. At present, the opportunity is greater than the risk. After the market has been repeatedly ground, it will still return to the dominant track.

“As a whole, the A-share market is still in a healthy state of development. From a profit point of view, after the supply-side reforms in 2017 to de-capacity process, the vitality of the real economy has been restored to a certain extent. From a quarterly report, the financial stocks are excluded. After that, the average profit growth rate of listed companies reached 23.53% and was relatively healthy. According to Chen Wei, director of the Sichuan Finance and Securities Research Institute, from the point of view of valuation, no matter whether it is all A shares, or the major indexes such as Shanghai 50 and ChiNext, etc. The level of valuation is roughly equal to or even lower than the level of early 2016, indicating that the current share price has been better digested by the profit recovery and the absolute level of valuation is not high.

Economics don't matter in the short-term and not even so much in the long-term. Stocks are not the economy, the market is driven by psychology. Stocks lead the market, not vice versa.

Securities Daily: China's economic fundamentals do not support a sharp drop in the stock market

From the perspective of China's economic development trends, especially endogenous and domestic market trends, it is safe to maintain the momentum of sustainable economic growth and high quality development. In the past 11 quarters, China's economic growth rate has stabilized between 6.7% and 6.9%, demonstrating strong resilience and stability. According to the latest data from the National Development and Reform Commission, electricity consumption in the entire society rose by 11.4% year-on-year in May, a 6.4 percentage point increase over the same period last year. According to data from China National Railway Corporation, the national railway cargo shipments increased by 6.9% year-on-year in the first five months of this year. According to data from the People's Bank of China, the medium-term and long-term loans of non-financial companies and organizations increased by 403.1 billion yuan in May, indicating that financial support for the real economy is relatively stable.

According to the latest quarterly report of listed companies, of the more than 3,500 listed companies in the Shanghai and Shenzhen stock markets, 60% more than one year's quarterly results have increased year-on-year, and more than 30% of their performance has dropped year-on-year. The growth rate of net profit for multi-industry telecommunication services, life science tools and services, construction materials, household non-durable consumer products, semiconductor products and equipment all exceeded 100%. As an important platform for supporting high-quality economic development, the capital market will continue to play an important supporting role.

Similar arguments were made in March 2000 and January 2008. They were also made in October 1987. Whether they're right or wrong depends on psychology more than the fundamentals.

The final big headline was the Yi Gang interview I posted earlier today.

While the Mainland media are all supporting stocks, Hong Kong media isn't.

SCMP: What rebound? China’s huge number of oversold stocks signals equity market woes aren’t over

Technical traders typically use the 14-day relative strength index to weigh the momentum of stocks. A reading above 70 indicates stocks are overbought and one below 30 signals being oversold.

Historical data that showed the battered stocks needed to make up at least 70 per cent on the Shanghai Composite before the gauge could even begin to reverse a downward spiral. During the 2015 market crash, 78 per cent of the stocks saw their relative strength index breached 30, and the proportion reached 70 per cent in the 2008 global financial crisis, according to Bloomberg data.

“The market hasn’t capitulated and it has yet to find a bottom,” said Wu Kan, a fund manager at Shanshan Finance in Shanghai. “Fundamentally speaking, we need to see the easing of the trade war and deleveraging, the two main factors that have weighed on the market, before we can talk about the bottoming out.”

...“The sell-off isn’t over as there’s still a small group of stocks that are holding up strength, such as Kweichow Moutai,” said Wei Wei, a trader at Huaxi Securities in Shanghai. “Only after these stocks are beaten down, will the real market bottom arrive.”