Sit and Watch the Wind and Clouds Rise

Weekly Thoughts

This week, the Shanghai Composite Index walked out of a sickle shape. Most of those who ran into the market were buried, and the existing funds also gave back most of the profits in July. It is difficult to predict the future trend, and it is better to be cautious in everything.

Once let go, it becomes chaotic, and once managed, it dies. This is the basic characteristic of the socialist financial market with Chinese characteristics. Many retail investors attributed the sharp drop this week to the China Banking and Insurance Regulatory Commission’s takeover of six institutions including Tianan Property Insurance, which triggered stricter supervision and large-scale flight of institutions. The seller believes that there are four reasons for the market slump. First, the economic data for the first half of the year released on Thursday was good, with the growth rate in the second quarter reaching 3.2%, which was significantly better than the previous market consensus, triggering concerns about marginal policy tightening; second, there were many disturbances in Sino-US relations; third, the significant adjustment of liquor stocks; fourth, the listing of SMIC triggered a “blood-sucking” effect.

Personally, I think the four points of analysis by securities firms are all phenomena, not reasons. The analysis of retail investors makes some sense. First, from the perspective of information asymmetry, institutions with tricks get news ahead of the market and flee early. Second, institutions have a large amount of funds, and short-term flight leads to stampedes. In addition, the market has always been concerned about the movement of foreign capital, and the driving effect of the net outflow of foreign capital may have also exacerbated the market stampede.

The most important point is that we are a policy market, and there must be a bull market in this round. The market rose too fast and too high in the early stage. The spread of the sudden wealth mentality caused hidden worries about social funds shifting from real to virtual, which is too detached from the actual economic situation and future prospects, and is also inconsistent with the policy principle of “financial services for the real entity”. Recently, regulators have issued measures from different levels, including cracking down on fund allocation, all of which have sent signals to curb irrational speculation in the market. Last week, the “national team”, including the People’s Insurance Company of China, the Social Security Fund, Huijin Company, and even the National Integrated Circuit Industry Investment Fund, also took action to reduce their holdings significantly.

Technically, if the market can start to rebound from oversold next week and close a week with a medium positive K-line, then the market may welcome a “bull turning back”; once it continues to close a medium negative weekly line, it will take some time for popularity to regather, and the “bull turning back” will turn into a “bull eating grass” - the Shanghai Composite Index will continue to hover around 3000 points. Whether this round of sharp rise and fall is a golden pit or a prelude to a bear market, the trend of A-shares next week will be very critical.

Those who have already cut their flesh should not blindly open positions next week, and those who are trapped can reduce their holdings on rallies.

Weekly Events

The China Banking and Insurance Regulatory Commission announced on the 17th that it decided to take over six institutions including Tianan Property Insurance, Huaxia Life Insurance, Tianan Life Insurance, Yi’an Property Insurance, New Times Trust, and Xinhua Trust from July 17, 2020, for a period of one year. If the takeover work does not achieve the expected results, the takeover period shall be extended in accordance with the law. According to Reuters, the announcement published on the official website of the China Banking and Insurance Regulatory Commission stated that the takeover does not change the external creditor-debtor relationship of the six institutions, their operations are not interrupted, and they can carry out business normally. After the takeover, you can still purchase financial products normally on sale by the six institutions including Tianan Property Insurance. A spokesperson for the China Banking and Insurance Regulatory Commission stated that this takeover stemmed from the fact that these institutions triggered the takeover conditions of the corresponding laws. Among them, four insurance institutions, Tianan Property Insurance, Huaxia Life Insurance, Tianan Life Insurance, and Yi’an Property Insurance, violated the provisions of the “Insurance Law”; two trust institutions, New Times Trust and Xinhua Trust, violated laws and regulations. The China Banking and Insurance Regulatory Commission also stated that the operation of the insurance industry and the trust industry is generally stable, and risks are completely controllable. The takeover of four insurance and two trust companies will not affect the overall situation of the stable operation of the industry.

Weekly Market

Period: 2020713-20200719

Social Security Fund reduction of holdings

Global stock markets rose generally. China, which was the first to walk out of the shadow of the epidemic and did not have a large-scale secondary rebound, became a favored target for global funds. Shanghai Stock Connect saw large-scale inflows this week. The Shanghai and Shenzhen indices hit new lows, and the bull market is ready to come out.

Hot Industry Concept Board

From the perspective of Wind Level 4 industries, hotels, resorts and luxury cruises, investment banking and brokerage, and system software were among the top gainers, while photography, household appliances, and apparel retail were among the top losers. This week, duty-free shops, connected boards, and stock trading software were among the top gainers, while low-priced stocks, propylene index, and Toutiao Today were among the top losers.

Market (%)	Index	This Week	1 Week Ago	2 Weeks Ago	3 Weeks Ago
Shanghai Composite	3214.13	-5	7.31	5.82	1.49
Shenzhen Component	13114.94	-4.07	9.96	5.25	3.44
ChiNext Index	2662.4	-4.18	12.83	3.36	5.23
Hang Seng Index	25089.17	-2.48	1.4	2.39	0.35
HSCEI	988.2	2.82	3.22	3.48	-1.14
Red Chip Index	4040.67	-4.76	4.37	5	-0.45
Dow Jones	26671.95	2.29	0.96	0.32	-3.31
Nasdaq	10503.19	-1.08	4.01	1.9	-1.9
S&P 500	3224.73	1.25	1.76	1.5	-2.86

Shanghai-Shenzhen-Hong Kong Stock Connect

Market (CNY, Billion)	This Week	Previous Week	2 Weeks Ago	3 Weeks Ago
Shanghai Connect	-51.01	137.32	177.38	47.21
Shenzhen Connect	-140.15	144.76	111.24	0.69
Hong Kong Connect	154.41	292.06	130.36	7.1

Positions

Type	Code	Name	This Period Dynamic
Stock	SZ002241	Goertek	Open Position
Stock	SZ000889	Zhongjia Bochuang	Clear
Stock	ONTX	ONTX	Close
Fund	F210008	Golden Eagle Strategy Allocation Mixed	Clear
Fund	F001351	Nuoan CSI 500 Index Enhanced	Clear
Fund	F001553	Tianhong CSI Securities Insurance C	Clear
Fund	F270010	Guangfa CSI 300 Index	Clear