China'S Stock Market Is Booming And Buying Growth Companies Is Still The Most Reasonable Choice.

Over the past three years, China's stock market has experienced another round of ups and downs. The turning point appeared in June of 2015.

Recalling the major events during this period, as people often say, "history repeats itself, but it will not be repeated": economic growth does not repeat the ups and downs between 2006 and 2009, and prices did not change rapidly from inflation to deflation to inflation during 1996 to 1999.

The only thing to note is that the appreciation and depreciation of the renminbi against the US dollar and the general market from a rapid increase to a more rapid deleveraging.

The repeated collapse of the Shanghai and Shenzhen two cities made investors find that the bull market was fragile.

The bright prospects that have been pursued by the extension of the extension have been reassessed as suspicious.

Even the unprecedented rescue operation of the national team is also controversial.

In 2016, market sentiment shifted from panic to prudence.

At the beginning of the year

After that, more than half of the stocks on the Shanghai stock exchange rebounded upward.

About 1/4 stocks rose more than 20% after experiencing a sharp decline in the beginning of the year, but not much more than 20%.

The Shenzhen Stock Exchange's stock performance is slightly worse because of its small cap stocks.

Also in 2016, there were two noteworthy trends.

First, the original low-key insurance funds have become the focus of market attention.

The two is the quantified investment which was not accepted by the market.

The two usually underestimate the value of the large intermediate stock as the main investment target.

Blue chip stocks are also relatively prominent.

Small cap stocks began to lag behind since the end of the three quarter.

The market attributed this to more large scale reduction and a large number of small IPO issuance, but relatively high valuation is still a major reason why investors are deterred from small cap stocks.

Looking ahead in the next two years, the macro environment will be quite advantageous for equity assets: bottom up economic growth, moderate inflation, relatively stable monetary environment and so on.

From the micro level, the policy of mixed ownership reform, supply side capacity and tax burden reduction will be beneficial to ROE of Listed Companies in the long run.

Insurance funds

Entering the market also has a positive effect on the market.

Although the RMB still has the devaluation pressure, the value of the exchange rate devaluation affects the relative investment value of the equity assets, but it is not as obvious and direct as the fixed income assets.

This can be verified by the rapid devaluation of the RMB against the US dollar in the fourth quarter of 2016 and the relative stability of the stock market.

Compared with the developed countries in the world, China's economy is still in a relatively fast growing period, and there is still much room for improvement in productivity.

Therefore, in the long run, buying growth companies, especially those with high quality and reasonable valuation, will still be the most reasonable choice.

It is predicted that after the two quarter of 2017, the companies with the characteristics mentioned above will gradually return to the public view and become the hot spot of the market again.

First of all, the future IPO will be marketed.

The pricing of the primary market is also facing the same problem with the two tier market.

More importantly, shell resources and concept stocks will no longer be scarce.

For the valuation system of the growth stocks themselves, they are faced with the fact that from the "stir up stories" to the real ones.

The pformation of its business value.

The differentiation of small cap stocks will be inevitable.

On the one hand, the decline of scarcity leads to a decline in liquidity of stocks; on the other hand, small companies are usually small companies.

As we all know, usually small companies can stand out as a small probability event, because at present, the market competition in various industries is generally white hot.

That is to say, unless the competitive advantage is not only obvious and can be maintained and managed well at the same time and good luck, although the valuation of small stock can be high, the small business itself has limited commercial value, just like a small restaurant on the street.

The active selection of small cap growth stocks will be important and difficult.

In the index sense, small stocks are not better than big ones in the long run, though their volatility is much higher.

The problems faced by large and medium-sized stocks are different.

Over the past five or six years, with the CSI 300 index as an example, the average ROE of constituent stocks remained at about 15%, but the stock index rose by 5% on average, less than 1/3 of the former.

Once the market worries over the long-term governance problems of large companies and over high debt, the return of stock prices to fundamentals is also a probability event.

As long as these companies compete in their respective fields, such as pricing barriers, there is no problem. Even if the growth rate of the macro economy still may not meet the market expectations, the growth of these companies themselves can still be expected.

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