It is no secret that Goldman Sachs is bearish in the stock market in recent weeks, and the following remarks from Goldman Sachs chief equity strategist David Kostin prove this.
… In any way, the value of US stocks is concluded that their value is too high. The S&P 500 stock trades at 18.1 times the expected earnings, which is 98% of the record-high stock value in the United States since 1976. For the overall index, the overall P/E ratio is 17.2 times, which has increased by 63% in this cycle since September 2011 compared with the median expansion rate of 48% in the previous nine P/E ratio expansion cycles. Asset indicators such as enterprise value-to-return ratio, price-to-book ratio, also indicate that U.S. stocks are overvalued. With the upcoming tightening, the current bull market's market profit expansion period will soon become a past tense.
So Goldman Sachs does not expect the stock market to rise at this moment under the same conditions, and it is more logical to expect the stock market to fall. Goldman Sachs also wants its customers to believe this.
This is why on the afternoon of June 10, Goldman Sachs issued a statement at its headquarters, which listed three major markets that need to be paid attention to, namely, the three major market bubbles, and how Goldman Sachs avoids these bubbles, and what they would do if this really happens.
In today's report, we carefully examined several versions of "hypothesis analysis" and focused on ideas that have not yet reached consensus. Here is what we are discussing:
1.) How to monetize (cash out) in the face of potential declines in biotech stocks.
2.) If the Fed takes (rate hike) measures faster than expected, which stock will perform better?
3.) What if China's reform fails to achieve its goal?
In other words, Goldman Sachs is hedging the biotech bubble, the collapse of China's stock market and the impact of interest rates. Here are the measures Goldman Sachs will take to address these three issues.
First of all, biotech
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Many investors interviewed by us are worried that the biotech industry will decline. Although the biotech industry stocks performed well, the negative free cash flow of small and medium-cap stocks, and the increasing number of initial public offerings, are likely to cause people's concerns. But there are still many reasons to remain optimistic (strong new product cycles, I/O development and gene therapy, mergers and acquisitions), but these aspects also face potential resistance. S&P Biotech (SPSIBITR) has risen 85% in the past year and surpassed SPXTR 250% in the past five years. In 2014, 71 companies in the biotech industry made an initial public offering, up 90% from 2013 due to the accelerated outflow of venture capital. Affected by high market sentiment, the median stock market rose to 11.6 times the market rate, although 90% of the Nasdaq Biotech Index (NBI) covers companies is not profitable.
These concerns may cause turmoil in recent months:
is facing a wide-scale market sell-off or interest rate shock, and capital available may disappear quickly. Large-scale selling and interest rate shocks can put pressure on biotech.
Pipeline crisis has caused some small and medium-sized biotech companies to experience recent fluctuations, such as AERI (IPO in October 2013), CLDN (IPO in January 2014) and EBIO (IPO in February 2014).
Investors also believe that the lifting of restricted shares is the reason for the weakness of some stocks such as FGEN and ATRA in recent months.
How to hedge: Buy XBI Dec Fund. XBI (S&P Biotech ETF) is excellent in hedging sell-offs. The XBI 3m volatility is 29%, which is close to the lowest compared to last year, indicating that investors are already satisfied with the risk. We prefer Dec XBI options because it contains more small and medium-cap biotech stocks, and the December options coincide with an important fall meeting where recent trading data will be released. Buyers are at risk of losing premium payments.
The following is about the interest rate part
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The time and method of the Federal Reserve taking action on interest rates have become a hot topic. Although economic indicators have improved recently, the price performance of federal funds futures is stagnant due to the expectation that the Federal Reserve may raise interest rates in the fourth quarter.Federal Reserve officials commented that they will continue to emphasize that interest rate hikes should be based on data. Federal Reserve Vice Chairman Janet Yellen said in late May that if the U.S. economy improves, interest rates may be raised this year. The performance of the futures market also suggests that interest rates will rise slowly, with a 25 basis points rise three times in 2016. In contrast, in the 12 months after the last three Fed decisions to raise interest rates, interest rates rose by an average of 200 basis points (200 basis points in 2004, 175 basis points in 1999. 250 basis points in 1993) How to hedge: buy GSRHRATE, which includes 12 financial institutions,
discount brokers, and regional banks and trust banks rose by 20%, normalizing federal funds (300 basis points). Federal funds rose by 300 basis points due to rising net interest margins and exemptions from money market expenses. Our financial analysts estimate that most of the shares of GSRHRATE investments will rise, which may be sensitive to expectations of any interest rate rise, as EPS data has the potential to be revised upward. GSRHRATE may have a closer relationship with Treasury yields (including 2-year, 5-year and 10-year Treasury bonds) than XLF (Financial Institutions Index) and SKX (Bank Index) last year.
Finally, it is about China
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Market reform is an important pillar of China's rejuvenation. The CSI 300 index has more than doubled last year (more than 149%). The Hang Seng State-owned Enterprise Index (HSCEI) in Hong Kong rose 33%. The A-share market growth continued to surpass H-share markets in 2015, with CSI300 rising 50%, while HSCEI rising 16%. The core of China's bull market lies in its potential to increase foreign capital inflows and strengthen liquidity (including the Shanghai-Hong Kong Stock Connect), which are needed by benchmark index providers such as FTSE and MSCI in the UK. Both institutions said that the issue of market access needs to be solved before including A-shares in benChrnaikS. The bull market has caused China's debt growth (referring to margin financing and securities lending), and the slowdown in China's economic growth has caused concerns about the Chinese stock market.
Investors use options as a channel to enter. Calls for stock market rises (helds) continue to rise, higher than those of downside (which slows the rise), and short options in the option Space field are scarce. The Hang Seng State Enterprise Index (HSCEI) and HSI are now the only major global stock indexes with negative slopes in the world. The implicit fluctuations also show an astonishing downward trend, indicating that long-term options are trading at a discount relative to short-term options.
Want to bet on the rise while reducing losses: Buy 4% HSCEI 105/125%, with an expiration date of December 30, 2015 (expected payment of 5:1). Expiration in December can allow investors to make profits from the downward trend of the maturity structure, and from the expected Shenzhen-Hong Kong Stock Connect this year.
hedges the rise of China's stock market: using the reverse slope. For investors who seize the upward trend or bet on the downward trend, we recommend buying 90% 12 vs. 3.9% HSCEI due on the 30th day.
And for this real question: Goldman Sachs is really taking hedge bets, or as usual, just looking for counterparties willing to gain exposure to their own hands. Because if Goldman is happy to get the other side of these deals, then S&P will not be far from 2,400 points. (Compiled/Double Knife)
