Chapter 171 Risks are rising

Amidst a cloud of dark clouds, the market suddenly took a turn for the better.

On December 1, China and the United States reached a truce agreement on the trade war at the G20 summit.

On January 4, the People's Bank of China announced that it would lower the reserve requirement ratio by 0.5 percentage points on January 15 and January 25 respectively; at the same time, expectations of a Federal Reserve interest rate cut are growing stronger.

At this moment, both the Sino-US trade war and domestic and foreign liquidity are becoming further relaxed.

In this gap, the market developed rapidly.

Thursday, January 4, 2018.

The Shanghai Composite Index exploded in volume, forming a 2.05% big positive line, which went directly from the lowest point of 2440 points to 2514 points. After that, it adjusted around 2550 points for a month.

February 1, 2019, Friday, is the last trading day of the Year of the Dog.

The Shanghai Composite Index directly drew a 1.3% positive line, breaking through 2,600 points, ending the continuous decline in the Year of the Dog. Many investors went home with disappointment and even despair, and spent an unforgettable year.

No one would have thought that the market conditions after the New Year would be so unexpected.

Monday, February 11, 2019, is the first trading day of the Year of the Pig.

The Shanghai Composite Index directly pulled a 1.36% positive line, broke through 2650 points, and closed at 2653 points. Then after a small positive line, there was another 1.84% big positive line, which directly broke through 2700 points!

After a slight adjustment for two days, on February 22, another large bullish candlestick with huge volume directly broke through 2,800 points!

On February 25th, a 5.6% surge in volume saw the Shanghai Composite Index break through 2900 points. On that day, the Shanghai Composite Index traded 465.9 billion yuan, 1.76 times the previous day's volume.

Since then, the Shanghai Composite Index has been fluctuating upward, and even hit a new high of 3288 points this year on April 8!

In just over two months, the market has soared 704 points, or 27%! If calculated from its lowest point of 2,440 points, that's a surge of 848 points, or 34%!

At the same time, Ping An of China's performance exploded, with its net profit reaching 45.517 billion yuan in the first quarter of 2019, a 77% increase compared to the previous year! Correspondingly, its stock price also exploded, soaring from 55 yuan to 88 yuan in April, a 60% increase!

Kweichow Moutai's Q1 2019 revenue reported 21.644 billion yuan, a 23.92% year-on-year increase, and profits reached 11.221 billion yuan, a 31.91% year-on-year increase! Its stock price also exploded, soaring from over 500 yuan to 908 yuan in April! In just three months, the increase reached 80%!

Unbelievable.

Other blue-chip stocks also rebounded sharply.

Especially real estate stocks have rebounded a lot. Vanke has rebounded step by step from the low of around 20 yuan in 2018 to the high of 33 yuan in April, an increase of 65%. China Evergrande has risen from the low of around 17 yuan in 2018 to 29 yuan, an increase of 70%!

Even China Merchants Bank has increased from 20 yuan to 32 yuan, a 60% increase!

The overall rise in the stock market caught people off guard.

The atmosphere in major stock forums suddenly changed, from pessimism and disappointment a few months ago to optimism and jubilation.

Whether it is the various stock gods and big Vs or countless retail investors, they are all staring at their accounts excitedly and posting happily.

"It's going up, it's going up! I've finally made it through!"

"Luckily I didn't sell at a loss! I told you, blue-chip stocks are our Guo Jia's hope and future, worth holding onto for a lifetime! How could they fall so easily?"

"Great news! The market is rising across the board! Go ahead, go ahead, brothers! The bull market is coming! Breaking through 4,000 points! Target 5,000 points!"

Stock investors are so simple and pure. They only need a few big positive lines to comfort their hearts that have been hurt for a year.

In the trading room, Li Feng looked at the jubilant scene and directly cleared all the Kweichow Moutai in the two accounts with one click. The transaction price was 900 yuan, and his account suddenly had an additional 720,000 yuan.

Just after putting down his phone, he felt a little worried again, picked up his phone, and sold half of his China Ping An shares. The transaction price was 81 yuan, and there was an additional 1.053 million yuan in his account.

Beside him, Zhao Xinyue watched him sell off Kweichow Moutai and then Ping An Insurance, somewhat puzzled, and asked, "Why are you selling Kweichow Moutai? Is its performance bad? Or are you scared? Do you want to sell at a high price?"

Li Feng put down his phone and calmly explained, "Good stocks, and good prices!"

"When Kweichow Moutai's price-to-earnings ratio was 10 times in 2014, it was an absolutely undervalued good stock. When it was around 20 times in 2016 and 2017, it was considered reasonably low. But now it's over 30 times, which is too expensive. For me, it's no longer a good investment target."

“It’s not that it’s bad, but the price is too high now.”

"What about Ping An of China? Why did you sell it? Its current price-to-earnings ratio is only about 14 times, and its first-quarter performance soared by 77%! A price-to-earnings ratio of 14 times is not too high, right?" Zhao Xinyue continued to ask.

"Xinyue, you have to know that stock trading is all about expectations. We can't just look at the present, we also have to look at the company's future." Li Feng said very seriously.

"Ping An's current price-to-earnings ratio of 14 isn't high, but its future is already highly uncertain, with two potentially significant risks."

"The first major hidden danger is that although the 750-day moving average of the 10-year Treasury bond is still rising, the expected yield of the leading 10-year Treasury bond is already declining... Therefore, once our Guojia officially enters the interest rate cut cycle, its performance is likely to decline significantly."

"The second huge hidden danger is that Ping An of China has also invested in a large number of real estate companies' equity. It is known as China's largest invisible landlord and is the second largest shareholder of real estate companies such as Country Garden, China Fortune Land Development, and Sunac China. In addition, it also holds equity in at least ten real estate companies..."

"Real estate policies have been tightening, and Ping An of China holds so many real estate shares, which is like a mine that can explode at any time. So, to be safe, it is better to reduce some of the positions."

"Look, even though it's currently undervalued and its earnings are explosive, the two expected bombs, no matter which one explodes, will be unbearable pain for it. So, to be safe, I have to reduce my holdings."

After saying that, Li Feng drank a glass of water and continued to analyze:

"The market has already reached 3,200 points. Further upward movement will require more funds. To surpass the high of 3,587 points in January 2018, more liquidity is needed. However, it is clear that the current domestic fiscal and monetary policies will not support it."

"Also, risks are rising. Preventing financial risks requires not only preventing the stock market from falling too much, but also preventing it from rising too much. Against the backdrop of the Sino-US dispute, the authorities will certainly not allow the stock market to continue to rise sharply and form a stock market bubble."

"Not to mention, the Science and Technology Innovation Board will require a lot of capital in the second half of the year, so maintaining the index at around 3,000 points is the best option, neither too high nor too low."

Having said that, Li Feng paused, hesitated for a moment, and then continued:

"Another point: stock market fluctuations are very objective and cannot be manipulated. This is where capital speaks. What you say, what I think, what I think, is meaningless. It all depends on what the biggest market makers think and do. Xinyue, you should remember July 7, 2015, right? On that day, Ping An of China's trading volume reached 68 billion yuan, with a turnover rate of 15%!"

"You have to believe that, with the lessons learned from that year, the higher-ups won't allow another mad cow disease like that to happen again, even though I'd like to."

"If we want to follow, we must follow the biggest dealer, analyze the overall trend, follow its trend, and never go against it. After all, we are playing in someone else's field."

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