Global Market Turmoil Is Still Relatively Sober And Calm.

The global market turmoil is continuing. We have always advised that we should not rush to "pick up a drop in the knife" and "be patient." A big premise is that there is no risk of a new round of systemic crisis in the current global market. Even though there are many risks and uncertainties, especially for emerging markets, it is still in the controllable range. So for the developed markets that are not in turmoil and whirlpool, this round of market volatility has not caused any impact on the fundamentals, and more is still caused by panic suppression and valuation contraction.

Beginning in early 2016, the global market turmoil, which started in the A share market crash and devaluation, has entered the third week, but there is still no sign of subsiding. The short rebound of the first two days of this week seems to have seen the dawn of some market stabilization and rebound. But with the surge of Hong Kong dollar and the continuing decline in oil prices, the situation is very fast. On Wednesday, there was a new wave of selling from Asia (such as Japan and Hongkong) to the euro area and to the US stock market. Obviously, the market has been in panic. We have hinted that the drop in panic and the impact on the global market are indistinguishable, and such a market environment will magnify the negative news that may not have been serious.

But even so, in the process of the beginning of the market decline, though intense, it may not immediately make people "despair"; on the contrary, in the eyes of relatively aggressive investors, this may be a good opportunity to "copy the bottom". In fact, over the past two weeks or so, there has been no shortage of "trapping" in the market. But if we are impressed, we have been relatively cautious about this. But in a panic environment, we must maintain a relative sober and calm mind.

Now that global volatility has entered the third week, the continued decline in the market and the emergence of new troubles (such as the recent sharp depreciation of Hong Kong dollar triggered the market for Hongkong). equity market The real estate market, as well as the obvious worry and fear of spreading risks at a greater level, not only consumed investors' ammunition, but also made the relatively optimistic and positive investors tend to be cautious and desperate. But at this point, we want to remind investors to maintain a relative sober and calm mind in a panic market environment.

Taking the US stock market as an example, even after the ~9% callback from the beginning of the year, the dynamic valuation of the S & P 500 index has gone back to 15 times the average of the long-term average from 16 times higher than that of the long term, instead of entering a very extreme case. From the historical experience, the interest rate would have suppressed the valuation band. In the 2004 interest rate cycle, the US stock market (S & P 500 index) also experienced the process of the valuation from 16 times to 15 times the reasonable central convergence.

On the big trend, we need Emotional rehabilitation Or the valuation supports or has the turning factor; this round compares with August last year, the policy response was more active then.

Judging from the big trend, we still maintain the previous judgement that, in the context of panic spreading, before any of the three cases of risk dissipation and panic recovery, or the market's reliable valuation support lines (market forces), or turning factors and policies (external market forces), we think it may be more patient.

In fact, we reviewed the global market turbulence in this round and last August compared to last year's comment on what position we are in comparison with last August's turmoil. We have analyzed that, although there are many similarities between the causes and the market environment, it is different from the August, and the corresponding policy was more rapid and positive. In the short span of a few days, the US side, including Dudley, delivered a dovish speech to the Fed's top officials. In China, the central bank held a briefing to stabilize the exchange rate forecast and double down in August 25th. Therefore, in this context, the market has experienced a brief decline, and it quickly became a local bottom.

So, what potential changes will there be in the future?

We also need to recall again the factors that finally contributed to the stabilization and rebound of the market in the course of the turmoil in August. 1) in the September 16~17 FOMC meeting after the market turmoil, the Fed added in its statement the wording of concerns overseas, that is, "the recent development of global economic and financial markets may inhibit economic activities to a certain extent, and further downward pressure on inflation in the short term". 2) the US non farm data released during the eleven holiday season in September were significantly lower than expected, leading to a sharp increase in interest rate hikes. 3) China's data have stabilized slightly (official PMI in September has improved slightly), and at the same time, it has launched the incentive policies for vehicle purchase tax and real estate personal housing loans. Of course, the RMB exchange rate tends to be stable.

Based on the last experience, Market turnaround The emergence of the renminbi, Hong Kong dollar stabilization and even more stable policies need to be coordinated. However, the upcoming January 26~27 FOMC meeting next week will be a possible turning point. For this meeting, the main concern of the market lies in the Fed's more guidance and hints about whether to increase interest rates in March. But if the Fed, like the FOMC conference after the turbulence in August, once again put its attention on the global market situation into the conference statement, it will undoubtedly be a clear dove signal and boost for market sentiment in the short term.