Recently, with the Federal Reserve resolutely and aggressively raising interest rates 
5bp, the European Central Bank "songs loudly", the world's major central banks have entered a tightening stage, and major global assets have been violently impacted.
Against this background, Wall Street News specially invited Yuan Jun, founder and chief investment officer of Shengyuan Global Investment Management Company, to bring about the motivations for the decisions of the central banks of the United States, Europe and Japan, the future development path and the impact on assets under the increasing global tightening. The impact of the market is explained in depth. The core views are as follows:
- We are at two important global macro-inflection points: First, the basic currency has changed from "maximum expansion" to "fastest contraction"; second, the imbalance of the international order has entered a new era of anti-globalization. stage.
- The "core concern" of global markets is inflation.
- It may be difficult for energy and agricultural product prices to fall back, and wages and inflation will follow suit. The price of crude oil is not entirely a monetary phenomenon, but is the result of a combination of monetary phenomena and the oligopoly .
- The results of the tightening policy are beginning to show, US stocks have entered a volatile bear market.
- China's equity assets 's macro situation is relatively good, but we still need to be wary of the impact of declining external demand.
Mr. Yuan Jun has worked at Goldman Sachs and Morgan Stanley for more than ten years, and has served as the macro trading director of Asia and Greater China. He has also served as an executive at Morgan Stanley, Bank of China, and Tianfeng Securities, and has extensive experience in transactions, research, and management of financial institutions. He has rich multi-asset investment experience in London, New York and Hong Kong, has experienced multiple market cycles, and has in-depth tracking and understanding of global macro and major asset classes.
The following is the essence of the investment workbook (WeChat ID: touzizuoyeben), shared with everyone:
1, 2022 - the year of the big turning point
Since the beginning of this year, the assets in overseas markets have fluctuated very violently. In the first half of the year, there has been a "double combination of stocks and bonds" "Killing" is a rare phenomenon in the past 20 years. Among them, fixed income assets have experienced the largest retracement in 30 years, far exceeding the 2015-2019 tightening cycle; the overall decline in the equity market is comparable to the bursting of the 2000-2001 Internet bubble, the 2008 subprime mortgage crisis and the 2018 global market shock period .
Even if the time is extended to 50 years, the phenomenon of "double kill of stocks and bonds" is still very rare. Overall, the current situation is comparable to the most aggressive period of Volcker's interest rate hikes in 1980-1981, the most aggressive period of Greenspan's interest rate hikes in 1994, and the subprime mortgage crisis in 2008-2009. In other words, the current economy is not in recession and there is no real crisis in the market, but the volatility of the stock and bond markets is already comparable to several crisis stages in the past 50 years. What is the reason for
? It is because of that we are now at two important global macro turning points .
First of all, it is the turning point from the largest expansion to the fastest contraction of base currency in human history.
In the past two years, central banks around the world have expanded their balance sheets by more than 10 trillion US dollars, the Federal Reserve has expanded their balance sheets by 5 trillion, and the European Central Bank has expanded their balance sheets by 4 trillion. In such an extremely rapid expansion process of base money, it will inevitably bring about comprehensive inflation, with a very broad rise in commodity prices, wages, and service prices.
This also represents the complete failure of MMT (Modern Monetary Theory) from theory to practice. Therefore, global central banks are now returning to traditional theories, hoping to regain control of inflation based on the Phillips Curve , Taylor's Law, etc. And this path is destined to come with some high prices. The highest price has occurred during the current rapid tightening process, and asset prices have been severely impacted.
The second turning point is the imbalance of the international order, and the world has entered a new stage of anti-globalization.
In fact, this stage was triggered by the Russia-Ukraine conflict, which has caused a very obvious process of supply chain autonomy and energy independence in Western countries, which has led to the restructuring of the global supply chain system.In this process of reconstruction, the golden age of globalization created in the past 40 years has entered a new stage following the Sino-US trade war set off by Trump in 2018, which has led to an impact on the efficiency of the global industrial system. Causing costs to rise.
From this perspective, you can imagine that, first, the contraction of base currency is actually an impact on the demand side, and the restructuring of the supply chain is exactly an impact on the supply side.
Therefore, when both supply and demand are severely impacted, asset prices, future economic trends, and cyclical development will inevitably be reconstructed. This is also one of the main triggers for the decline of major global asset classes and the double destruction of stocks and bonds.
2. The focus of the global financial market
The current macro issues that the global market is mainly concerned about include several aspects. First, inflation; second, whether the sharp tightening caused by inflation will lead to recession; third, whether the Chinese economy can reverse the trend. The direction of the world, the process of growth and stability, and the game between China and the United States behind it.
The first question, inflation, can be divided into two aspects. First, as the Russia-Ukraine war becomes protracted, will there be structural tensions in the supply of oil and gas resources and agricultural products? Will this tension continue to cause energy and food prices to remain high? Second, will the supply of other global commodities and the supply chain gradually return to normal levels? The two will jointly determine whether the current inflation is structural or cyclical.
In such a situation of relatively high inflation, will the Fed's continuous tightening continue to exceed market expectations? Will this unexpected tightening push the U.S. economy into recession earlier? Will Europe, Japan and other countries also enter a recession or semi-recession situation along with the decline in global demand?
In this process, what is relatively out of sync with the global economy is the Chinese economy. China's economic development is actually ahead of the global economic cycle and has begun to enter a stage where it is necessary to stabilize growth rather than control inflation. This is completely opposite to other countries, especially developed countries. Among the series of problems of
, the core one is inflation.
3, inflation! Inflation! It’s still inflation! The central banks of the United States, Europe and Japan each show their special abilities.
The current focus of all central banks is still the issue of inflation.
In the United States, and CPI have once again hit a new high in 40 years. The last time it was above 8% was in 1982 or even earlier. Regarding Europe, , the current CPI level is also the highest since the establishment of and EU (the EU was established in 1993). An inflation level of more than 8% is very difficult for the European Central Bank and European countries to accept. In the context of fighting inflation as the primary goal, the "ghost" of European debt has reappeared over Europe. Japan, current CPI index has reached 2.5%, slightly exceeding the target of the Bank of Japan. At present, the Bank of Japan still maintains a certain degree of determination. However, as inflation intensifies, whether the Bank of Japan will also face turning challenges in the next few months is a direction that the current market is questioning or attacking.
For other markets, inflation is equally severe. Except for China, Japan, and Russia, central banks in other countries have basically tightened or are on the road to tightening.
Judging from market expectations, the central banks of developed countries are increasingly determined to raise interest rates and tighten. The United States currently expects to raise interest rates by close to 200 bp in the four meetings this year. The rhythm of is roughly 75bp, 50bp, 50bp, and 25bp. Compared with the previous FOMC and ECB decisions, the market exceeded the radical interest rate hike expectations of 225 bp. has alleviated this a lot. Therefore, in a very short period of time, concerns about stagflation and recession have eased market expectations for interest rate hikes by 40-50 basis points.
In the past week, the market's interest rate hike expectations for ECB have dropped to around 150bp , with a rhythm of roughly 50bp, 50bp, 25bp, and 25bp.
As for the end point of interest rate hikes, market expectations are that it will reach the end point in the middle of next year, or in the first quarter of next year, or even by the end of this year. So to a certain extent, the market's concerns about recession and contraction are more important. This is a major game point.
Specifically:
(1) United States: Stagflation or recession?
The most obvious symptom of the impact of interest rate hikes is the rapid rise in the financial conditions index (blue curve in the figure) of the United States, but it is still far behind the crisis times of 2008 and 2020. The same is true for other indicators such as credit spreads. In terms of real interest rates, amid the rapid rise in government bond interest rates, they have also returned to the central levels of 2014 and 2019. In fact, they cannot be considered too high.
The overall financial situation, credit spreads, and real interest rates are all below crisis levels, and have returned to the level of currency normalization. But the problem is that the rate of return is too fast. In the past 3-4 months, financial conditions, liquidity indexes, credit spreads and real interest rates have risen faster than at any time in the past 20 years. In other words, what everyone is worried about now about is not the absolute level of actual shrinkage, but the relative rate of . Next, the market is more worried about whether the economy is experiencing stagflation or rapidly sliding into recession.
(2) Europe: The European debt crisis The "ghost" reappears
For Europe, what are the risks of such a tightening shock? It lies in the debt of neighboring European countries. The debt leverage of peripheral European countries has actually increased very rapidly in the past two years. When interest rate spreads in neighboring countries began to widen, it was inevitable that the market would begin to re-examine the European debt crisis of 2011-2012. In the process, the euro inevitably fell. At present, it has begun to advance towards the level of 20 years ago.
How serious is the debt leverage of peripheral European countries? The picture below is a summary of global sovereign debt in 2021 by The World Bank . On this map, the so-called European pig countries are at the forefront. Currently, the sovereign debt of Greece now exceeds 200%, and the debt ratios of countries such as Italy, Portugal, and Spain also remain high. The "crown jewel" and the highest-ranking sovereign country is Japan, which fully illustrates how high Japan's debt leverage is.
(3) Japan: Stocks and bonds are under pressure at the same time
For Japan, in the process of overall economic decline and shrinkage in the past 20-30 years, the Japanese government and central bank have actually implemented the MMT theory and used monetary policy to support long-term Expansion of fiscal policy. The Bank of Japan even directly entered the market to buy bonds and stocks. So far, the Bank of Japan has held 9% of the market value of the Japanese stock market through ETFs, accounting for more than 80% of the ETF share. In addition, nearly half of Japanese government bonds are held by the Bank of Japan.
So in other words, In the past rounds of quantitative easing, the Bank of Japan has held a considerable part of its own assets. This has also caused Japan's overall debt leverage to rise to 250% of GDP. Can such an unprecedented "super money printing machine" withstand the current pressure of global inflation and monetary policy tightening? In this context, Japanese stocks, bonds and foreign exchange are the focus of everyone's attention.
In the foreign exchange market, due to the widening interest rate gap between Japan and the United States and the rapid deterioration of Japan's current account, the level of the yen has fallen to a new low since the 1990s, or the exchange rate difference between the United States and Japan has reached a new highs. In the bond market, Japan's bond yield has now reached the upper limit of interest rate curve control stated by the Bank of Japan, that is, the 10-year maturity is around 0.25%. The Japanese stock market has also experienced a rapid decline in the past period of time.
For the Bank of Japan, the choice it faces is whether to relax control over interest rates so that interest rates can correctly reflect the impact of inflation and achieve the purpose of controlling inflation.
This is actually very difficult. Because for the Bank of Japan, already facing such a high debt leverage situation, every 1% increase in interest rates will result in an annual interest expense of 0.1%-0.2% of GDP, and this number is actually close to the fiscal budget 1%. The Bank of Japan's calculations show that the increase in interest rates will bring about 73% of interest expenditures to the fiscal budget in the next 7 years.
Such a situation will seriously affect the room for fiscal expenditure in various aspects such as people's livelihood subsidies. So this is a very difficult situation for the Bank of Japan and the government to face, and this is why the Bank of Japan must resolutely control interest rate increases.
4, Prices of energy and agricultural products may be difficult to fall back, and wages and inflation will follow suit.
Regarding inflation, energy and agricultural products are what the market is most concerned about.
Overall, the prices of oil, natural gas, and other energy sources have been high due to the Russia-Ukraine conflict, and the prices of wheat, and other agricultural products have also hit a new high since World War II. Europe and Asia (China, Japan, etc.) are both regions with serious oil and gas deficits, which has also worsened the current accounts of Asia and Europe. Since Russia and Ukraine account for a very high proportion of agricultural products in the world, it will be difficult for agricultural product prices to fall in the short term if the conflict between Russia and Ukraine becomes protracted.
In terms of energy, the crude oil market can be said to be a core driving force for all inflation, so everyone is very concerned about whether crude oil prices will fall back in the short to medium term. However, the current tight balance between supply and demand is not conducive to a fall in oil prices. Because the current supply and demand situation of crude oil is actually an oligopoly supply, and the price is constantly adjusted by the demand side. There are three main sources on the supply side: first, Russian , which is sanctioned by Europe and the United States. is second, OPEC national . These countries in the Middle East actually no longer follow the baton of the United States. Under constant pressure from the United States for OPEC to increase production, at least so far, OPEC has still adhered to its original trend of gradually increasing supply. Third, large energy companies and oil companies , but in the past eight years, these companies have no plans to increase Capex production.
Although the governments of European and American countries have continued to put pressure, a mining plan of oil companies will take at least 3-5 years, and it needs to match the demand in the next 15-20 years to achieve reasonable profits from the mining project. For Europe and the United States, they basically only hope that energy companies can guarantee supply for the next 2-3 years, but not the demand for the next 15-20 years. For Europe, the goal is to achieve a basic supply of oil and gas in the next 2-3 years, and in the longer term, new energy, wind, and solar can be used to replace old energy. Energy companies are aware of the plans of European and American countries to "break bridges and tear down boards", so they have no motivation to make a plan for the next 15-20 years. So you can see that large oil companies do not have any plans for Capex so far, and even if they do, they will not be able to increase supply in the next 2-3 years. Therefore, the supply side of is a very tight and inelastic situation .
Another major supplier is shale oil . The extraction of shale oil only takes 3-6 months, but why has the supply of shale oil not been released quickly so far? The reason is the shortage of raw materials and labor in the United States.
Some people have also noticed that the current crude oil inventory is at the historical median level. Inventories fell in the past period from 2015 to 2018, and the crude oil price at that time was only around US$60/barrel. This also reflects that the current crude oil is not determined by inventory or supply, but is entirely adjusted by the extent that the demand side can bear. So why can the demand side still withstand such high crude oil prices? To put it bluntly, it is because of the money printed in the past two years that everyone's pockets can still afford such a price. Therefore, the price of crude oil is not entirely a monetary phenomenon, but the result of a combination of monetary phenomena and oligopoly.
For the central bank, although they cannot improve the supply of crude oil or change the situation of the supply chain, tightening policies will still have a significant suppressive effect on the demand side, and this is why it is necessary to continue to raise interest rates rapidly. In fact, seeing the tight balance between supply and demand of crude oil, everyone can fully understand why inflation is so difficult to solve. Under such a situation, for the United States, the inflation of crude oil has brought structural inflationary pressure on all aspects of other economic fields in the country.
5, The supply and demand relationship characteristics of the product market and the job market
(1) The balance sheet of US residents is rare and healthy
Inflation has obvious suppression of demand. The employment and demand we talked about earlier are the two aspects that drive inflation to continue to rise. But the demand side has begun to be suppressed, which is clearly reflected in the data. But another aspect that is more obvious is the rapid decline in consumer willingness for and .
In the past, whenever there was such a dramatic deterioration in consumer confidence and financial conditions, the Federal Reserve had already cut interest rates or was about to cut interest rates, but now the Fed has just begun to raise interest rates.
The reason is that the Federal Reserve is very confident in the balance sheet of the US residential sector. The balance sheet of American residents is now in a state of unprecedented health. Compared with the first quarter of 2020 when the epidemic broke out, U.S. residents have reduced credit consumption, increased savings, higher disposable income growth, and lower debt service ratios. At the same time, U.S. residents accumulated huge savings during the epidemic due to the Federal Reserve's rapid money printing.
Many people will ask, everyone has seen a very high consumption level and a very high housing price level. Will the situation in 2008 happen, after all, the number of mortgages is declining rapidly. But there are fundamental differences between the situation now and that of 2008.
The situation in 2008 is similar to the chart in the lower right corner. The total debt of the US residential sector is much higher than the total cash. This reached its maximum peak in 2008. But now U.S. residents have more total cash than total debt, for the first time since the 1980s. This also gives the Fed confidence. In other words, even if home prices fall and even if U.S. residents rely on credit cards for spending, total cash is enough to cover these debts. Therefore, the Fed is not worried that a rapid increase in interest rates will cause the collapse of residents' debt leverage, because the current debt leverage is at a rare low level in history.
(2) The job market is still tight, and it is difficult for wages to fall significantly.
The job market in the United States is still very tight. As you can see from the chart, the U.S. unemployment rate (green line) is at its lowest level in history. But U.S. job openings (blue line) are at levels not seen since World War II. Although NPF non-farm employment has fallen from its highest level, in the long run, this recovery level is also much higher than the neutral range in the past 20 years. In other words, the job market demand is very strong. Although the supply has recovered, it cannot keep up with the demand. Therefore, in the context of tight employment, it is difficult for wages to fall significantly.
(3) The Federal Reserve is in a dilemma
So overall, the Federal Reserve is in the most difficult dilemma in the past 30 years: inflation is the highest in the past 30 years, and employment is the most tense position in the past 30 years. If we compare the Fed's two major goals of maintaining employment and controlling inflation, the ordinate of 0% in the figure below means that both employment and inflation are within the Fed's comfort zone. A level well below 0% means that the unemployment rate is rising rapidly and inflation is falling rapidly. This requires easing policy from the Federal Reserve, which is also the situation faced in 2008 and 2020.
It can be seen that the red line faced by the Federal Reserve has returned to the level of the 1970s and 1980s. In other words, the pressure on the Fed is also unprecedented in the past 40 years, so the Fed must tighten urgently. The market's concern is whether it will cause a hard landing or a recession. Historically, the Fed hopes to achieve a soft landing. In 1980 when Volcker quickly raised interest rates and when 1994 Greenspan quickly raised interest rates, the United States successfully achieved a soft landing.
But is there any comparison between now and then? the answer is negative. This is because interest rate hikes have just begun, but in the past, interest rates often reached their peak at the tail end of interest rate hikes, so today there is already a lag. is now facing a new challenge, which is the tightening of global liquidity. liquidity crunch. This is a challenge that neither Volcker nor Greenspan has faced.
You can see that the red line in the above figure is the change in global liquidity.The last tightening cycle started in 2015. The Fed went through the process from tapering to raising interest rates and then shrinking its balance sheet. The process of raising interest rates and shrinking its balance sheet actually took five years. During this process, the changes in global liquidity were not dramatic. But this time, the rapid easing in the past two years has led to a rapid expansion of liquidity. As of last year, it began to enter a sharp tightening turning point. At the end of this year and early next year, the liquidity crunch will begin.
In this picture, you can see that the red line has experienced a very sharp inflection point. And that yellow line is the inverse of the U.S. 10-year Treasury bond rate. It can be seen that these two indicators follow each other step by step. Therefore, it is difficult to say how much U.S. bond interest rates will rise before liquidity finally shrinks. In addition, controlling inflation is both feasible (residents have good balance sheets) and urgent. There is also a strong political impetus, coming from the pressure faced by the Democratic government in the mid-term elections.
As far as the mid-term elections are concerned, we can see that this is a territory of electoral forces. Most of the United States currently favors the Republican Party . The base of the Democratic Party is concentrated in big cities on the east and west coasts. These voters are basically urban civilians, and they are also a group of people who are most sensitive to inflation. They are very sensitive to rents, oil prices, and food. Therefore, every faction in the Democratic Party regards controlling the general account as an important means of canvassing votes. Therefore, the Fed has strong political motivation to control inflation. It is even different from the past. In the past, the Fed drove the market through expectations of interest rate hikes, but now it directly raises interest rates to guide the market.
6, The results of the tightening policy transmission are beginning to show
Now the market is rapidly moving closer to the Federal Reserve's guidance on interest rate hikes. From 25bp each time, to 50bp each time, and now 75bp each time. In addition to interest rate hikes and expectations of interest rate hikes, there are also plans to shrink the balance sheet. Now the plan is relatively clear, and it has been decided to shrink the balance sheet by US$47.5 billion per month from June to August. Then starting from September, the balance sheet will be reduced by 95 billion every month. What is the concept of the scale of
? In the last round of balance sheet reduction cycle, the balance sheet was reduced by nearly 700 billion at the beginning of the two years. This time, the balance sheet reduction was close to 600 billion in half a year, which is already close to the scale of the previous round of two-year balance sheet reduction. In the Fed's plan, it will shrink by 3 to 3.5 trillion in the next two and a half years. has expanded by 5 trillion in total. It is almost unimaginable to shrink 70%, and it is also unbearable by the market.
Therefore, the effect of tightening has now been clearly demonstrated in financial assets. The U.S. financial conditions index has reached a relatively tight position, close to the levels of 2015 and 2018. In fact, we are not very nervous. After all, the balance sheet reduction has just begun and the interest rate hike is only in the middle. But what everyone is more alarmed about is the rate of change of the Financial Conditions Index (FCI), which has reached a rate that was only seen in previous crises. In the past, the only ones that could be compared were 1887 years, 2008 years, and 2018 years, so this time everyone is worried. Mainly the rate of change.
After the panic in April and May, the market made a slight correction in late May, but it was all adjusting to an excessively fast pace. The overall direction and tone have not changed, and the global economy has begun to experience stagflation or recession. It can be seen from both PPI and PMI that the PMI and the reciprocal of PPI are falling simultaneously; for Europe, the PMI of the pharmaceutical industry and corporate profits are also falling rapidly. It is expected that in the next one or two quarters, Europe will enter a recession.
As for the current position of major asset classes, we can benchmark it from 2017 to 2018, which was the last tightening cycle. It can be seen that: oil prices, U.S. dollar index , and U.S. bond interest rates have all broken through the last neutral range. Only the S&P 500 (one of the three largest bubbles in the world) is still strong, but the bubble has also shrunk, and overall it has returned to 2017. yearly neutral range.
The foreign exchange market is relatively sensitive. It can be seen that there are three stages: 2021 to January 2022 - the fundamentals of the US dollar are not good and the current account deteriorates; starting in February this year, the outbreak of the Russia-Ukraine war led to the depreciation of the currencies of many countries, and the US dollar rose relatively; Then starting in May, global liquidity began to tighten and credit spreads widened.
7, The U.S. stock market has entered a volatile bear market.
The current situation of the U.S. stock market is: It has entered a bear market from the two-wheel-driven bull market in the past. This year is a big turning point year, and the bull market in the US stock market in the past two years has come to an end. The two major driving forces in the past: massive liquidity and earnings growth caused Davis's double-click, creating an unprecedented bull market in the U.S. stock market. As liquidity tightens this year, as shown in the red line in the figure above, the trend of , S&P and the liquidity trend are very consistent. Around September and October last year, technology stocks ushered in an inflection point, and in January this year, the entire S&P ushered in an inflection point.
There is another indicator, which is the leveraged funds in the United States - the leveraged funds of all stock holders in the United States calculated by the regulatory bureau. The trends of the yellow color block (leveraged funds) and the blue line (S&P trend) have always been quite consistent. And leveraged funds have entered negative growth in the past few months of this year. This indicates that in the United States, retail investors and institutions are increasingly lacking leverage funds for to buy at the bottom. Instead, investors in need to sell stocks to cover their positions in . For the global stock market, this is a sign of the shift from inflow to outflow of U.S. stocks. This turning point already occurred last year, and turning into a net outflow this year will make the market worry about a recession in the United States.
After World War II, the United States experienced 12 recessions. During these 12 recessions, the stock market fell an average of 24% and lasted an average of 15 months. I cited bear market indicators from Goldman Sachs research to make my predictions. This indicator includes PE, real estate, dividend yield and other indicators. This indicator shows that the United States is already at a high risk of recession and bear market. But the key question now is, is this recession structural, cyclical, or incidental? These types of recessions have different meanings. Structural recessions last for a long time, up to three years; cyclical ones last only one or two years; and incident ones last only a few months.
This recession is obviously not an incident. Judging from past experience, a structural recession has the following conditions: ①continuously rising interest rates, ②the rise of speculative stocks, and ③imbalanced economic structure. The first two have already been reflected, but the imbalance of the current economic structure (such as the extreme imbalance of residents' balance sheets during the subprime mortgage crisis) is not present. Therefore, this recession is cyclical rather than structural.
But I must remind everyone that this judgment only applies to the United States. Because serious economic imbalances have emerged in neighboring European countries and Japan around the world. Japan is now facing two important problems: ① The current account of imports and exports has deteriorated; ② National debt leverage and excessive state involvement in the stock and bond markets. Therefore, this crisis is mainly in Japan and Europe.
Why has the market become increasingly worried about a U.S. recession over the past week? has its roots in European stock markets and interest rates. European asset classes dominate U.S. stocks and interest rates. In addition, there are technical reasons for U.S. stocks to increase stock market volatility. Because the U.S. stock market is a highly derivative market, investors will use futures and options to hedge uncertainty. Therefore, investors continue to buy options, causing the market maker's gamma to decline. As a result, market makers will pursue negative feedback to chase the rise and kill the fall, resulting in greater fluctuations in US stocks, and investors need to continue to buy options.
As a result, the trading depth of S&P futures is now at a historically low level. The gamma positions of market makers are also at historically low levels, causing the volatility of the entire stock market to be at historically high levels, forming a volatile bear market.
From the perspective of the long-term fundamental driving force of U.S. stocks, the leading effect of U.S. stocks is relatively strong. Over the past five years, the top four companies by market capitalization have accounted for half of the S&P's market capitalization growth. These companies are also high-cash, high-growth, and high-buyback companies, and their profit margins are significantly higher than the S&P 500 average. , even equivalent to the GDP of a medium-sized country, enjoying the biggest dividend of globalization.
Now, the U.S. stock market is facing two major dilemmas: the tightening of liquidity kills valuations, and the development of anti-globalization. causes these companies to face a Davis double kill. This can be seen from the earnings decline in the first quarter financial report.Therefore, under the leadership of the leader, the valuation profits of U.S. stocks were doubled.
8, Overseas investors look at China's equity assets
We have talked a lot about the analysis of US stocks, and now we look at China's equity assets from the perspective of overseas investors. In fact, the attitude of overseas investors towards Chinese assets has basically not changed. Therefore, based on the above factors, currently overseas investors have four views on China’s equity assets, and the four approaches are as follows:
The first type is event-driven: focusing on some short-term trading practices; the second type is cautiously optimistic: gradually Start entering the market, which is also the trend adopted by many domestic and foreign Greater China funds; the third category is relatively pessimistic, believing that traditional growth industries still lack long-term support; the last category is a wait-and-see attitude, and the domestic and international environment is not clear enough. Time will not enter the market for the time being.
Finally, let’s make a brief summary. We are now facing the big turning point year : an important turning point of liquidity tightening by global central banks and an turning point of anti-globalization. This year, the cycles in China and overseas are different. China's economic cycle has gone through stagflation , inflation and even downward trend. What we are facing now is how to resist insufficient domestic demand and overseas shocks. Therefore, China's current policies tend to maintain growth and economy and adopt loose monetary policy.
For the United States and other major countries around the world, the situation now faces is exactly the opposite. Their own economies have strong momentum and strong demand, but inflation is very high. Therefore, the policy has changed from doing whatever it takes to protect the economy in the past two years to now doing whatever it takes to control inflation, so both monetary and fiscal policies will be tightened.
Therefore, the policy focus is different, and the macro situation of China’s equity assets is relatively good. The US and overseas markets are relatively poor. The determination of the United States to control inflation is very clear from the government to the central bank. Our country now has a better monetary and fiscal environment and a market stabilization mechanism.
However, we must be vigilant that overseas foreign demand may begin to enter a substantial decline. The United States, Europe and Japan may enter recession, and China's foreign demand will still face greater pressure. And when the pressure will be transmitted, changes in economic expectations may bring about a sharp turning point, so we must guard against it.
We are here today. We hope that domestic assets can perform better in an environment of severe overseas fluctuations, and that investors from Wall Street Insights can also prevent risks and achieve a balance between returns and risks. Thank you again for the invitation from Wall Street Insights, thank you all.
live replay: Yuan Jun interprets the chain reaction of increased global tightening: How should the central banks of the United States, Europe and Japan respond?
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