Economic Observer Reporter Zheng Yizhen Hong Xiaotang "In just one month, the market has undergone earth-shaking changes." An international investment bank analyst sighed to the Economic Observer reporter.
fell nearly 10% in a single day, with a weekly decline of as high as 12.3%, and 8,000 points fell in the past 20 days... Under the double critical hit of the gloom of the new crown epidemic and the flash crash of crude oil prices, in March 2020, US stock bid farewell to the 11-year bull market after the 2008 financial crisis and fell into a dark moment. What attracted market participants to the public was that on March 9, the three major U.S. stock indexes fell by more than 7%, triggering a first-level circuit breaker. This is the second circuit breaker in the history of the US stock market. The last circuit breaker can be traced back to the distant October 27, 1997 - because the Asian financial crisis spread.
However, just 3 days later, on March 12, the three major U.S. stock indexes fell by nearly 10%, triggering circuit breaker again. It was circuit breakered twice within a week, unprecedented.
In addition to the US stock market entering a technical bear market (declined by more than 20%), the capital markets of European countries such as Britain, Germany, France, and Italy have also subsequently shown a "bull-to-bear"; the stock indexes of Japan, South Korea, and MSCI emerging markets in the Asia-Pacific region also fell by more than 20% from their peak, and are about to enter a technical bear market... On March 12, the stock markets of more than ten countries triggered circuit breakers one after another, and the global capital market was in full swing. Funds have flowed out of global stock markets and commodity markets, and even safe-haven assets such as gold and silver have suffered short-term sales. After
fluctuates and falls, will the market quickly adjust to the point, or will it become a landmark turning point in the operation of the global economy?
Everything is unknown.
htmlOn March 11, WHO (WHO) has defined the new coronavirus epidemic as a "pandemic", and the number of infection cases has continued to increase significantly in many countries around the world. It is unknown when it will reach the turning point. In the United States, bad news about the spread of the epidemic has been one after another, and there is even a doubt that the epidemic is underestimated.. Faced with the market tragedy, the monetary policies of the United States, Europe and Japan are very limited. During the subprime mortgage crisis, the policy interest rates of the United States and the euro zone were still 4% or above, and Japan's policy interest rates were also positive. After the United States cut interest rates by 50BP this time, the interest rates were 1%, and the policy interest rates of the European and Japanese have been zero or even negative for many years.
What’s worse is that behind this is a more turbulent world: Sino-US trade frictions, Brexit, Trump and OPEC oil war. This is also the biggest difference between this financial tsunami and 2008: the global group is unowned, coordination is difficult to show, and the response is weakened; instead of the deep mutual trust between people in the G2 episode, the United States is united within the leap of donkeys and elephants; G20/IMF also does its best.
I don't know if it is too, so Nobel Prize winner in Economics Robert Shiller (Robert Shiller) warned that the market crash is far from over, the panic caused by the coronavirus has not yet reached its peak, and stocks and the economy are currently extremely fragile.
"Now we are likely to fall into recession. The pandemic is already destroying business activities and triggering people to divest. In this environment, we won't see creative new investments thriving," Robert Schiller said.
"This time it's not a problem of money."
11 years ago, on March 9, 2009, the US stock market was at a bottom of 56% falling from the 2008 financial crisis; then it began to usher in the starting point of the longest bull market in history.
In late February 2020, due to the setback of the COVID-19 pandemic, the US Dow Jones Index hit a "7 consecutive declines", falling from above 28,400 points to around 25,400 points, a drop of 12.36%, ending the 11-year bull market.
is still in shock. After experiencing roller coaster turmoil in the first week of March, the Dow Jones Industrial Average was raided by the "black swan" of oil prices.
htmlBrent crude oil futures opened sharply in the early trading on Monday, December 9, and the decline once widened to more than 30%. This is the biggest drop in Berry Oil Futures since the 1991 Gulf War. Oil prices fell below $30 per barrel at one point - this price was even lower than a barrel of mineral water in the same system. The fuse of the flash crash of oil prices was that the collapse of OPEC and Russia on Friday the previous week on the collapse of the agreement on extending oil production cuts.Afterwards, Saudi Arabia, the world's largest crude oil exporter, launched a radical retaliation plan, announcing that it would raise oil production to far exceed 11 million barrels per day next month, offering Asian customers a significant discount of 4 to 6 dollars per barrel, while the United States and Europe cut about 7 dollars per barrel. The crude oil price war is about to break out.Under the impact of the epidemic, global economic growth has weakened and oil demand has weakened; and the collapse of this production cut agreement means that OPEC+ countries can freely decide crude oil production, and international oil prices have encountered a "double kill" from the supply and demand sides.
As the mother of commodities, the plummeting crude oil price will have a huge impact on commodities and even the entire global market. Safe-haven funds continue to flow into assets such as U.S. Treasury bonds and gold, and major global assets may be repriced.
As expected, on March 9, the three major U.S. stock indexes fell across the board when they opened, and encountered "Black Monday". A few minutes after opening, the S&P 500 index fell 7%, triggering a first-level circuit breaker and suspending trading for 15 minutes. This is also the second circuit breaker in the history of the US stock market. The three major U.S. stock indexes closed with a drop of more than 7%.
Panic Index VIX rose more than 70% on the day, jumping above 60 during the day - this situation only happened during the peak of the 2008 financial crisis.
European stock markets and Asia-Pacific stock markets also generally plummeted. A shares were also affected, with the market falling 3%. The global market is facing a panic selling.
Hedge Fund Manager Guo Yafu, who has 25 years of experience in trading on the front line of Wall Street , said in an interview with reporters, "I have never been so nervous. The US stock index plummeted by more than 1,000 points a day. It has never happened before. This time it is not a problem of money, but a problem of death (the new coronavirus epidemic). "
"It's time to take action, the US government." Anna Stupnytska, head of global investment strategy at Fidelity International, called for after the stock market circuit breaker on March 9 that monetary policy can only alleviate investors' pessimism, but we need more supporting fiscal measures to fight against unprecedented shocks.
Resident consumption is one of the most important driving forces for the growth of the US economy and even the global economy. Therefore, the market is closely watching whether the government will introduce measures to reduce the burden on households and stimulate consumption.
Finally, U.S. President Trump announced emergency economic rescue measures on March 11: including a travel ban on Europe (except the UK), which will provide an additional $200 billion in liquidity to stabilize the market, provide financial assistance to workers who are sick, quarantined or caring for others due to COVID-19, and ask Congress to add $50 billion to the Small Business Administration. It also proposed a payroll tax reduction until the end of this year, but the proposal has not been approved by Congress.
" Trump 's response measures clearly show that the United States is not ready to deal with the full outbreak of the virus epidemic, and that Trump may not know anything except the stock market. The market sees the situation clearly and respects it first." Hong Hao, head of research at BOCOM International, said.
After Trump's speech, the Asia-Pacific stock market opened across the board on Thursday, Thursday of the 12th. The U.S. stocks that opened later also plummeted. Just 5 minutes into the opening, the decline of the S&P 500 index expanded to 7%, triggering the circuit breaker mechanism for the second time in a week! On that day, the Dow Jones Industrial Average opened sharply by 1,400 points, and the S&P 500 closed at 2,480 points, down 30% from its high this year to date. Nasdaq futures fell to 7,600 points, down more than 5%. Although the Fed launched a repurchase operation during the session and took action to "rescue the market", the Dow Jones Industrial Average rose by more than 1,000 points, the three major U.S. stock indexes closed at a drop of more than 9% on the same day.
market traders sigh that from the perspective of volatility, it is now 2008. The market trend of
quickly broke investment bank expectations. Deutsche Bank 's previous research report believes that it is expected that the decline of US stocks will be between 15% and 20%, and it will take two months to bottom. The bottom area of the S&P 500 is between 2700 and 2875. It will rebound strongly after that, maintaining the S&P's prediction of 3250 points by the end of the year.
"The market reflects the situation: a global growth rate of 2%, which is a bit miserable, but it may be even worse." After the U.S. stock market continued to plummet, the latest report from UBS Investment Banking Research Department stated that due to the impact of the global pandemic on the global market, the forecast for 25 countries and all major categories of assets will be adjusted.It is expected that the global growth rate will drop to 2.3% (formerly 2.9%) in 2020, with eight countries falling into recession, and the US economy will shrink in the second quarter. Even so, as long as the number of confirmed cases is still increasing, several types of risky assets have not yet bottomed out.
Chief economist of Yangtze Securities Wugo said that based on the contagious characteristics of the new coronavirus, the international transmission of this round of epidemic may enter a period of acceleration. Coupled with the recent impact of international oil prices, the risks of global economic downturn and uncertainty in financial markets have increased significantly. Under globalization, the industrial chains are intertwined, and the impact of this epidemic will be more complex than before. There are many signs that the impact of this epidemic on the global economy may be comparable to that of the subprime mortgage crisis. Global PMI has hit a new low in nearly 10 years, and the Federal Reserve's extraordinary emergency rate cut also indicates the potential intensity of the epidemic. The impacts suffered by various industries in my country this time may be generally stronger than those of the subprime mortgage period.
Real worries
The US stock market fell so much this time, and it was rare in history. Except for the negative news, how did all this happen? Wang Huangxin, founder of
, said that the vast majority of market makers in the U.S. stock market have been computerized. In the past few days, buyers and sellers have been seriously imbalanced (including the risk-controlled selling orders of brokerage companies). The natural reaction of electronic marketers is that the price spread widens, which has led to the accelerated market decline. The circuit breaker mechanism triggered on March 9 calmed down the transaction and had positive effects.
On the other hand, in recent years, the proportion of "a basket" financial products such as ETFs and futures index futures in market transactions has become increasingly large. JackBogle, the father of index funds, once pointed out that traditional index mutual funds and ETFs account for 37.8% of stock and bond fund assets together, far higher than 9.1% 20 years ago and 21.2% 10 years ago.
"The characteristics of these products are that when market makers hedge, the entire basket of stocks will move in the same direction, which aggravates the market's correlation, and increasing the correlation will further strengthen investors' panic. The correlation of the top 100 stocks in the S&P 500 index has often been in the range from 30%-40%, and has suddenly jumped to more than 80% in recent days. This high correlation is rare in recent years. This high correlation and high fluctuations have been almost synchronized in history, and will last for about two or three weeks. Large stock market fluctuations will last for nearly a month before they return to normal." Wang Huangxin said.
However, in the view of Guo Yafu, hedge fund manager of Tianjiao Fund, "It is the epidemic that caused this sharp drop, not the reasons of previous economic recession, financial crisis, etc., and it is not solved by the Fed's large-scale capital investment. It is unknown how long the epidemic will last and what way it will end. This uncertainty has always plagued the market. Fiscal and monetary stimulus policies cannot solve the epidemic problem, it only increases confidence." "The key is to see whether the epidemic can be controlled, especially the United States; otherwise, it will bring great impact to the world economy and trigger oil wars, trade wars, currency wars, etc. It is difficult to effectively control it by relying on financial easing alone." A senior financial insider said, "In the case of double loss of supply and demand in the real economy, various financial assets will lose their attractiveness, prices will plummet, and in the end cash will be king!"
But no one can judge how long this virus will rage.
1918's Spanish flu infected 500 million people worldwide in two years, accounting for about one-third of the world's population, and tens of millions of deaths.
Oak Capital founder Howard Max once believed that the new coronavirus would not develop like that.
According to the research report of JPMorgan Chase , the epidemic in China is currently in the recovery stage, with few new infections and a large number of cured cases, and full resumption of work and production is expected; South Korea, Italy, Iran, , Iran, is at its peak, and it is unknown when it will peak. A large number of new infections and cured cases, but the growth rate of infections is declining; the United States, Japan, Spain and Germany are in an accelerated period, the growth rate of infections is increasing, with a large number of new cases and a small number of cured cases.
What people are worried about is that the epidemic in the United States is seriously underestimated and there is a risk of a major outbreak; and in addition to restricting transportation with Europe, the Trump administration has not introduced effective measures in medical insurance, economic support, isolation and treatment to prevent the further spread of the epidemic and support the economy.
"70% of American bank accounts have less than a thousand dollars in deposits; 80% of Americans survive entirely on monthly wages, and their hands are stopped. When the US Congress was shutting down, Trump suggested that government employees go to , McDonald's to do odd jobs to subsidize their household expenses; one-third of American adults do not have emergency backup funds. If the economy is shut down and people cannot go to work, these situations will cause serious social problems in the United States." Hong Hao, head of research at Bank of Communications International, said.
Goldman Sachs wrote in its latest research report that the economies of developed countries will be hit hard in the next few months, the economic growth of the United States has stagnated, and the European region has experienced recession. The supply chain disruption caused by China's shutdown will affect American manufacturing companies that rely on Chinese parts; measures such as quarantine and lockdown to control the epidemic will impact residents' consumption and commercial activities, and the situation in the financial market is also deteriorating.
Nobel Prize winner in economics and economist Robert Shiller (Robert Shiller) warned that the market collapse is far from over, the panic caused by the coronavirus has not yet reached its peak, and stocks and the economy are currently extremely fragile. "Now we are likely to fall into recession. The pandemic is already destroying business activities and triggering divestment. In this environment, we will not see creative new investments thriving."
However, Kristina Hooper, chief global market strategist at Invesco, said that although the current cycle has been going on for a long time, the fundamentals of the credit market remain solid. The total U.S. credit growth has set the lowest record in all economic cycles in history, with banks sufficient capital, and U.S. companies have used the historically lowest interest rate environment to borrow and push back the credit maturity date. Therefore, unless there is a major policy mistake somewhere in the world, or economic activity is subject to an unforeseen external shock, the recession does not seem to have arrived. Stocks have always been low relative to bonds, and new investment opportunities appear every day. We believe that this event will eventually be considered a recession in a long-term bull market.
The turbulent world
What will happen in the future? After
suffered the "9/11 terrorist attack" in 2001 and the subprime mortgage crisis in 2008, the market continued to decline for 6-12 months, with a total decline of more than 50%.
However, during the subprime mortgage crisis, the policy interest rates in the United States and the euro zone were still 4% or above, and Japan's policy interest rates were also positive; now, after the United States cut interest rates by 50bp, the interest rates were 1%, and the policy interest rates in Europe and Japan have been zero or even negative for many years, and there is very limited room for monetary policy implementation.
Now, investors hope to start the so-called fifth round of "super quantitative easing" under the conditions of obtaining support from the Senate and the House of Representatives.
Tianjiao Fund hedge fund manager Guo Yafu introduced that the reason why it is called "super" is because this repurchase may include: buying stocks directly from the market, the Federal Reserve invests in large companies, and following in Japan's footsteps.
Currently, only the Federal Reserve is legally allowed to purchase US Treasury bonds, as well as mortgage securities issued by institutions such as Fannie Mae and Freddie Mae. Purchasing other securities requires Congressional approval.
The Federal Reserve rescued the market intraday on March 13, which means that quantitative easing has been launched and the scale of short-term bond reverse repurchase has now increased to US$175 billion. It is expected that the interest rate cut of 75BP at the interest rate meeting on March 18 is also a high probability event. Zhang Ming, chief economist at Ping An Securities, told reporters that the deeper reason for the market's plunge is that the deeper reason for the concerns about global growth in 2020, the narrow space for fiscal and monetary policy in developed countries, and the concerns about global economic and trade conflicts - the global economic growth rate may drop below 2.5% this year.
is more than that, the current capital market may need to be reexamined in a more turbulent global political and economic context.
In the view of Xing Ziqiang, chief economist at Morgan Stanley , the impact of this epidemic should not be stronger than the 2008 financial crisis, but this financial tsunami is the biggest difference from 2008, which is that the global group is unowned, the coordination is difficult to show, and the weakening of the response. In the G2 episode, people trusted deeply, and the United States was united within the United States; G20/IMF also did their best. The background of this time is - Sino-US trade frictions, Brexit, Trump and OPEC oil war.
China and the United States are difficult to decouple
As the global stock market and bulk market plummet, funds are seeking safe havens. Safe-haven gold once rose above $1,700 per ounce, but fell continuously in the past five trading days.
A shares have a unique scenery, but the volatility is also intensifying.
As foreign stock markets plummeted, A-shares once rose against the trend and stood above 3,000 points, while the ChiNext Index rose 17%, with semiconductors, communication equipment and software leading the growth rate, and the daily trading volume of the two markets repeatedly exceeded one trillion yuan. The balance of margin financing and securities lending continues to rise, and has exceeded 1.1 trillion yuan in 12 trading days.
In the eyes of many market participants interviewed by reporters, the cycles between US stocks and A-shares are different. US stocks are at a bull market high, while A-shares were 3,000 points 10 years ago, but now they are still hovering around the bottom area around 3,000 points. The potential and valuation of A-shares are better, and the epidemic has been effectively controlled, and sufficient liquidity has been released in the market, so there is no need to worry about the short-term, medium- and long-term. But the market's risk preference is rapidly decreasing. With the weak global economic growth, the capital market may be frequently attacked by black swans. "When the meteorite fell on the day, it was still considered fundamentals and landing tracks. Running first is the kingly way." A securities analyst sighed.
"It is not ruled out that A-shares have emerged from independent markets to a certain extent, because my country's market capital structure, risk preference, and policy space are essentially different from overseas markets. First of all, in terms of capital structure, a large number of foreign capital continue to pour in, newly established wealth management subsidiaries and other institutions, pensions, etc. have allocation demand; secondly, in terms of risk preference, the impact of the domestic epidemic has gradually been implemented. Compared with foreign countries, A-shares still have comparative advantages in emotional risk aversion; in terms of policy space, the central bank still has a certain room for interest rate cuts and reserve requirement ratio cuts, which is capable of maintaining market stability, and it is unlikely that liquidity risks will occur." A public fund manager in Shanghai said.
But can A-shares really decouple from the US stock market? According to an interview with the Economic Observer reporter, it is probably too optimistic to say that A-shares are a safe haven for global assets, and the risk preferences of the entire market are declining.
South China An investment manager of a private equity institution has been gradually reducing his position in the past month, and now he is less than half a position. "Even if you miss the opportunity, you won't regret it. Standing in an unprecedented historical period, from the development of the epidemic in China and the global economy, the current global epidemic situation is not optimistic, and with the obvious downward pressure on the foreign economy in Shanghai, it is still impossible to judge whether A-shares can truly get out of the independent market in the long run, and the uncertainty is getting greater and greater. We now hold some industry targets whose industry prosperity is still in the upward space and are not affected by the epidemic. Let's judge based on market changes." The investment manager of the private equity institution told reporters.
"From the perspective of global economic integration, A-shares are unlikely to be immune to their own lives." A fund manager of a fund company in Beijing said, "Although the domestic epidemic has been controlled to a certain extent, my country has a close relationship with global supply chains and trade exchanges. The decline in overseas demand will also have an impact on the fundamentals of some domestic companies. In addition, the suspension or delay in supply from overseas upstream will also have an impact on the production and operation of some companies."
However, he also admitted, "From the perspective of medium- and long-term volatility, even if A-shares have room for adjustment, there is not much room for adjustment, because the overall valuation center is in a historical position, and it should be careful about the pullback of individual high-valuation technology stocks. It is only recently that the uncertainty of the peripheral market has exacerbated the long-short differences in the capital market, which has led to high transactions and high volatility." How do
overseas risks be transmitted to A-shares? Wang Delun, chief analyst of Industrial Securities, explained that the US stock market represents the pricing of global risk assets. The increased volatility means that global uncertainty is intensifying, which is a risk in itself, and global risk appetite declines. One of the results is that foreign capital is accelerated outflow from A-shares.Foreign capital allocation to A-shares is divided into active funds and passive funds, and currently passive funds are mainly used.
Wang Delun said that for some passive funds, when the overseas market adjusts, its model calculates that overseas valuations are lower and cost-effective. There are also some foreign capitals in order to avoid risks, because in their eyes, US stocks are safer as their own assets. On the other hand, many Chinese stocks are related to leading American stocks, such as Apple concept stocks and Tesla concept stocks. The A-share industry chain companies will also be affected by the rise and fall of leading American technology companies.
, chief macro analyst of Guosheng Securities, Xiong Yuan, said that A-shares are currently disturbed by three factors - fundamentals, risk preferences and liquidity. In the short term, what can support the market is liquidity. "In fact, China's interest rates are constantly declining, and the market liquidity is very abundant. The central bank's liquidity supply remains neutral. There has been no open market operation for 15 consecutive trading days, neither capital supply nor capital recovery. This reflects that the entire market has sufficient liquidity. But this is a 'recession-style easing', because after the overall economy is almost shut down, the demand for credit will decrease." Hong Hao told reporters.
At present, the A-share market supported by liquidity will continue to enjoy the feast of liquidity. The State Council Executive Meeting on March 10 once again sent out a signal of targeted reserve requirement ratio cuts, requiring better play to the role of special re-lending and re-discounting policies, and support epidemic prevention and control to ensure supply and enterprise relief development.
Hong Hao believes that the speculation boom in the Chinese market is still there, and some "monster stocks" have more than doubled in the past month, but these companies often have very heavy debt burdens and high profit uncertainty. In addition, the turnover rate of the GEM has returned to the level in April 2015 last week, and there are certain risks. It is difficult to use a market close to overbought as a "safe haven" for overseas historic oversold markets.
Chief analyst of Huachuang Securities believes that approaching "safe-haven assets" does not mean that they are really "safe-haven assets". China neither has the wealth haven effect of Switzerland a century-old neutral country, nor does it have the capital opening basis for the Japanese yen to return to its country during panic in the world's main borrowing currency; "We still rely on the relatively high economic growth rate and high returns to assets to build attractiveness. It is not realistic to expect A-shares to rise sharply against the collapse of US stocks. At present, domestic economic data is still in a vacuum period and changes in overseas demand are still unclear. No one can evaluate the economic growth rate in the first quarter."
The impact of the epidemic on the stock market has been released almost one day, while the recovery cycle of US stocks is much longer than that of A-shares. Zhou Wenqun, fund manager of Fidelity International, told reporters that the overseas market response is much greater than that of A-shares, which is related to the fact that the situation has not been paid attention to before, which has led to the rapid deterioration of the situation recently. The market takes time to digest it. This is a normal process. As long as there is no systemic risk, the market will recover. "We judge that the epidemic is relatively short-term and will not have long-term impact."
