A-Share Plunge, Dollar Surge Triggers Global Stock Crisis
Many people might still be immersed in the world where the Federal Reserve cut interest rates by 50 basis points in September, and global stock markets soared. However, in reality, the US Dollar Index has quietly risen from 100 to 104, the offshore renminbi exchange rate has fallen from once breaking through 7 to now breaking through 7.12, and the yield on US ten-year Treasury bonds has risen above 4.2%, returning to the position before the rate cut.
I have previously explained the dollar cycle to everyone on several occasions: when the Federal Reserve raises interest rates, the interest rate difference between China and the US widens, and global liquidity will flow back to the US to gather US dollar assets, which will suppress emerging markets. If the fundamentals of emerging markets are resilient, it's not too bad, but if the fundamentals significantly deteriorate, it will take advantage of your illness to kill you, such as the most popular strategy in the past two years of being long on US stocks and short on renminbi assets. On the contrary, when the Federal Reserve enters the interest rate reduction cycle, the interest rate difference between China and the US narrows, and global liquidity will flow to emerging markets. If our fundamental expectations have significantly improved, it will be a double hit of暴涨, just like the crazy bull before the National Day holiday, with foreign hedge funds buying a lot.
However, we know that the development of things is often tortuous. Except for major crises like the 2008 financial crisis and the 2020 pandemic, the Federal Reserve's interest rate cuts will not be achieved overnight. Since October, due to the generally better-than-expected economic data such as employment and inflation announced by the US, the market's expectation for the Federal Reserve to cut interest rates in November has significantly cooled down. It was previously predicted to cut by 50BP, but now it may not cut interest rates, so the US Dollar Index and US ten-year Treasury bond yields have significantly strengthened.
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Regardless of whether the US economic data has been beautified, what is presented to investors is indeed the case, and the market will believe in the data rather than conspiracy theories.
Last night, US stocks and gold both plummeted, and today's Asia-Pacific stock markets generally fell, with the three major A-share indexes all falling by more than 1% during the trading day, and slightly strengthening at the end. The Hang Seng Technology Index in Hong Kong fell by nearly 3%.
For A-shares and Hong Kong stocks, there is another huge test, the US election is imminent, which is the most significant event in the global stock market this year. Currently, Trump's winning probability is slightly higher than Harris's. Trump represents a variable, and he can do anything. In the face of significant uncertainty, institutions and large funds will tend to reduce their positions and wait for the event to settle.
From a capital perspective, ETFs representing medium and long-term funds are continuously redeeming, and financing representing retail investor sentiment is continuing to increase positions. This divergence also indicates that incremental funds are not sustainable.
Last week, the net redemption rate of managed public funds reached 2.41%, showing that the more the fund increases, the more redemptions, and the net outflow of sample active funds tracking MSCI China was about 270 million US dollars, ending two consecutive weeks of net inflows.The transaction volume of the electronics industry accounts for nearly 20% of the entire A-shares market, indicating that the market's fervor for technology stocks has reached a certain level. Additionally, as people find 10cm not exciting enough and turn to 20cm, and then pursue 30cm, with newly listed stocks starting at several times their value, this implies that the market is not value-driven but purely speculative in nature. This week, the main board clearly struggled to rise, while the STAR 50 and the Beijing Stock Exchange 50 soared. Does this mean that stocks with 20cm and 30cm movements are better than those with 10cm? If not, it indicates that the market's speculative sentiment is overheated.
Looking briefly at the market performance, by the close, the Shanghai Composite Index fell by 0.68%, the ChiNext Index fell by 1.37%, the Hang Seng Index fell by 1.30%, and the Hang Seng Tech Index fell by 2.62%. The total transaction volume in the two markets significantly shrank to 1.56 trillion, which is crucial for a bull market. Without volume, it is impossible to support the rise of so many sectors. If the volume continues to shrink, market speculation will narrow, and some high-performing stocks may recede.
In the short term, the period before the U.S. election may enter a garbage time, and the National People's Congress at the end of the month could be a variable. However, since the U.S. election has not yet concluded, it is unlikely to see any major moves. Nevertheless, the market won't fall too far, with so much capital waiting outside.
I reiterate, do not be brainwashed by the concept of a "STAR Market bull." I believe there are only two logics in A-shares: The first is to reverse the vicious cycle of impaired balance sheets and low prices, leading to a revaluation of core assets. Consumption, healthcare, and new energy are all significant opportunities. The second is AI, which is independent of the domestic economy, primarily the NV chain, with domestic computing power chains as a secondary option. The rest, such as semiconductors and low-altitude industries, are insignificant. These have been present since the first half of the year, so why did the market still fall from May to September? It is simply because the pessimistic expectations have not been reversed, and the market is deeply entrenched in a bear market.
The global economic environment is now too complex. In the past, countries experienced recession and recovery together, but now they are significantly out of sync, making a resonant recovery unobservable in the short term. Fortunately, the U.S. is still holding up, and now it depends on whether AI can significantly increase total factor productivity to support global high debt. If the U.S. economy hard-lands or the AI bubble bursts before that, there is a possibility that the global economy could enter a depression.
Risk Warning:
The stock market is risky, and investment should be approached with caution. This article does not constitute investment advice, and readers need to think independently.