Chapter 186 2024, Take the Right Path, Act with Conspiracy
Li Feng shook his head, stopping her, and said, "To understand this issue, we must establish the entire investment framework from a macro perspective and from the overall trend. Only then can we have a clear outline and target our efforts."
"First, let's look at domestic and international fiscal and monetary policies for 2024. Starting with the United States, after four consecutive interest rate hikes in 2023, it has entered the interest rate cut channel. The current market debate is the timing of the rate cut: will it be in mid-2024 or in the third quarter of 2024... In short, a rate cut is inevitable..."
"Looking at domestic fiscal and monetary policies, they have also entered a new round of easing, as evidenced by the interest rate and reserve requirement ratio cuts expected in 2023. Furthermore, at the Central Economic Work Conference at the end of 2023, the policy of 'establishing first, then breaking down' was proposed. Furthermore, there has been a significant shift in policies towards the real estate industry, from 'housing for living, not for speculation' and 'guaranteed delivery of properties' in 2022 to 'actively and prudently resolving real estate risks'... Furthermore, it was proposed to 'introduce more policies conducive to stabilizing expectations, growth, and employment'..."
"Overall, fiscal and monetary policies will tend to be loose both domestically and internationally next year... It can be said that this is another resonance of fiscal and monetary policies at home and abroad since 2020..."
"The stock market is a manifestation of currency. The overall environment for the stock market in 2024 should be optimistic."
After a pause, Li Feng continued:
"Secondly, let's take a closer look at domestic policies. As early as last July's ZZJ meeting, the goal of 'activating the capital market and boosting investor confidence' was proposed. Since then, a series of favorable policies have been released, including over 20 market rescue measures. Typical examples include halving stamp duty, lowering securities transaction fees, increasing Huijin's holdings in the Big Four banks, and increasing Huijin's holdings in the Shanghai-Shenzhen ETF... and so on..."
"In an era of great contention, we must guard against and mitigate risks in key areas. For the stock market, this means guarding against both excessive price increases, which could create bubbles, and excessive price drops, which could lead to liquidity crises..."
Hearing this, Zhao Xinyue was skeptical and said, "Will the rescue plan work? On August 28th of last year, they lowered the stamp duty on securities transactions, tightened IPO regulations, and reduced margin requirements for margin trading, yet the Shanghai Composite Index opened high and ended low..."
"If you don't believe me, just look at the K-line trend. It opened high at 3219 points, but ended up closing at 3098 points with a huge negative line. Then, the more we tried to rescue the market, the more it fell. It first fell below 3000 points, then below 2900 points, and now it's even below 2800 points..."
"This market is like a pot with a leaky bottom, full of holes. No matter how you patch it up, it will be fixed."
Li Feng shook his head and said, "When we analyze the market, we must be objective and rational. We can't just stare at the index and follow market sentiment."
"First, in terms of the macroeconomic outlook, due to the shift in domestic and international fiscal and monetary policies, as well as the low stock index, the Shanghai Composite Index will definitely rise in 2024. Don't be fooled by the current extreme pessimism in the market; it's important to remember that the market is born out of desperation."
"Secondly, as the largest market maker, we must understand exactly what it intends to do. Recall the purpose of the bailout during the 2015 stock market crash, when the index was around 4,000 points. The goal was to alleviate the market's liquidity crisis and prevent systemic financial risks. Nearly a decade later, at this point, the frequent introduction of favorable policies is no longer just about maintaining the liquidity crisis..."
"Third, I've said repeatedly that even if you don't invest in bank stocks, you must keep an eye on them. As the core of the market, the position of the banking sector directly determines the position of the index. Look at the current banking sector. Among the Big Four banks, China Construction Bank's stock price is 6.48 yuan, with a price-earnings ratio of 4.88 yuan and a dividend yield of 6%; Industrial and Commercial Bank of China's stock price is 4.89 yuan, with a price-earnings ratio of 4.8 and a dividend yield of 6.21%. The best joint-stock bank, China Merchants Bank, is now priced in half compared to its historical high, now at 29.73 yuan, with a price-earnings ratio of 5.17 and a dividend yield of 5.85%..."
"Such a low price-to-earnings ratio and such a high dividend yield are already relatively scarce in a market environment with such low deposit rates...For this reason, many of the Big Four banks saw their stock prices rise by more than ten points last year, or even by dozens of points..."
"In addition, the real estate sector, insurance sector, and real estate industry chain sector... have all seen their risks largely released after plummeting over the past three years. Now, only the liquor sector and some consumer stocks are still struggling..."
"Overall, the market has little room to fall, and the upward space is slowly opening up..."
"Are we buying bank stocks now? I remember you bought bank stocks in 2012. At that time, bank stocks were called 'rotten and stinky' by the market..." Zhao Xinyue's eyes rolled, and she thought of the events of more than ten years ago.
"Bank stocks aren't a particularly good investment right now. Back then, when I invested in bank stocks, their asset quality was much better than it is now. Furthermore, we were in a period of rising interest rates, so the market was very high. But now, not only is asset quality being dragged down by the real estate industry, but we're also in a period of falling interest rates... A falling interest rate cycle is bearish for bank stocks," Li Feng analyzed. "If you're a conservative investor, you should invest in bank convertible bonds near their par value, just like I did when I bought Bank of China convertible bonds in 2014."
"The logic behind this investment is based on bottom-line thinking"
"First, convertible bonds are a special type of debt, and banks won't go bankrupt. Even if the stock price falls further, the convertible bonds will be redeemed according to the agreed terms upon maturity. This way, the after-tax return on principal and interest can reach over 2%. Currently, the one-year deposit rate is only 1.5%, and the three-year deposit rate is only 2.75%."
"Secondly, bank convertible bonds, such as Industrial Bank's, are worth tens of billions of yuan once issued. As I've analyzed before, banks are unlikely to repay the money they've raised through their own capital. They'll do everything they can to drive up the stock price, thereby forcing a redemption and raising funds. Therefore, if we buy bank convertible bonds, there's a high probability that we'll hold them until the day of forced redemption and conversion. This is a bullish bond with a guaranteed return of at least 30% over the next few years, with no upper limit..."
"Investment, is it that simple?" Zhao Xinyue couldn't believe it.
"It's that simple," Li Feng concluded. "This is a game of conservative strategy..."
"When we invest, every time we make a bet, we must follow the right path and act in an open and honest manner in order to achieve long-term success."
"However, with this kind of long-term investment method, how many people can endure the loneliness and maintain prosperity?"
"I remember that I invested in Bank of China convertible bonds and held them for about a year."
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