The Economic and Trade Pattern under the Involution Effect

Thoughts of the Week

The English word for involution is involution. In medicine, it means atrophy or degeneration. In AHD, its explanation is:
- A decrease in size of an organ, as of the uterus following childbirth.
- A progressive decline or degeneration of normal physiological functioning occurring as a result of the aging process.
Involution effect: I have heard about the involution effect a lot recently. Conceptually, the term involution originated from American anthropologist Clifford Geertz’s “Agricultural Involution: The Processes of Ecological Change in Indonesia”. According to Geertz’s definition, “involution” refers to a phenomenon in which a social or cultural pattern stagnates or fails to transform into another advanced pattern after reaching a definite form at a certain stage of development.
Some knowledge learned recently, strung together: Currently, there are three major free trade areas in the world:
- North American Free Trade Area (NAFTA): Established by the United States, Canada, and Mexico on August 12, 1992.
- European Union (EU): Established by Germany, France, Italy, the Netherlands, Belgium, and Luxembourg on November 1, 1993, and now has 27 member states.
- Regional Comprehensive Economic Partnership (RCEP): Initiated by the ten ASEAN countries, and jointly participated by China, Japan, South Korea, Australia, and New Zealand, five countries that have free trade agreements with ASEAN, established on November 15, 2020.
Currently, RCEP covers nearly half of the world’s population and nearly one-third of the trade volume. It is the free trade area with the largest population, the most diverse member structure, and the most dynamic development in the world. At the same time, RCEP is also the first free trade agreement led by Asia itself, and Asian affairs have begun to be decided by Asians themselves.

Asian countries generally have a long history. In the 19th century, most of them became colonies or semi-colonies of European countries. In the 1950s, they became independent one after another. Since then, Japan, South Korea, Taiwan, Singapore, China, and Southeast Asian countries have successively entered the era of economic take-off. Asian countries generally have strong national independence. Although countries such as the United States and the United Kingdom have done their best to suppress Asian countries during their economic take-off, attempting to lock them at the lowest end of the world industrial pattern, companies in the automobile and electronics industries in Japan, South Korea, and China have not only not succumbed, but have continuously entered the core links of the industry, competing for pricing power and sharing the most generous profits. There are four reasons for this. First, it benefits from the unified political model of Asian countries, which can concentrate efforts on doing big things. For example, during the Miracle on the Han River period, Park Chung-hee controlled all chaebols to develop foreign trade, and exports eventually accounted for 50% of South Korea’s GDP. Another example is China, the competition between local governments, especially county-level governments, is the most wonderful part of China’s economy. Second, it benefits from the demographic dividend and engineer dividend. Third, it benefits from the national character under the influence of Confucian culture. Although Japanese youth are depressed, Korean corporate livestock, and Chinese workers shout every day to leave, few can escape involution (haha, I actually used the new word I learned, 😁). Everyone still lives a 996 life under the call of blessing. It is said that the average annual workload of Korean corporate livestock is 30,000 hours. Fourth, regional competition is greater than division of labor, and the winner takes all in the end: Japan’s Toyota, South Korea’s Samsung, and China’s Alibaba are all the results of cruel competition.

Events of the Week

At 5:42 on December 6, Beijing time, the Chang’e-5 ascender successfully docked with the orbiter and returner combination. Chang’e-5 has completed the most challenging steps. Subsequently, the Chang’e-5 orbiter and returner combination will separate from the ascender and choose an opportunity to return to Earth. As the closing battle of China’s lunar exploration project, so far so good.

Market of the Week

Period: 2020-11-30——2020-12-06

As mentioned last week, when the valuation of pro-cycle weighted stocks is repaired, if the entire market maintains an upward pattern, Shanghai and Shenzhen will rise together. If the market remains volatile, it is difficult to grasp who is strong and who is weak. We must carefully select industries and individual stocks, and not pay too much attention to the rotation of the two markets. This week, the pro-cycle stalled, and vaccines, blood products, and aquatic products led the gains, while pro-cycle concepts such as carbon black, chemical raw materials, and automobiles led the declines. We still have to carefully select individual stocks to avoid the seesaw effect of industry rotation, use stillness to control movement, exchange time for space, and maintain stable returns.

Market (%)	Index	This Week	1 Week Ago	2 Weeks Ago	3 Weeks Ago
Shanghai Composite	3444.58	1.06	0.91	2.04	-0.06
Shenzhen Component	14026.66	2.450	-1.17	0.71	-0.61
ChiNext Index	2730.84	4.7	-1.8	-1.47	-0.96
Hang Seng Index	26835.92	-0.22	1.68	1.13	1.73
HSCEI	1006.87	-1.71	2.49	-0.43	2.31
Hang Seng China-Affiliated	3752.6	-3.35	0.69	-1.21	3.15
Dow Jones	30218.26	1.03	1.45	-0.73	4.08
Nasdaq	12464.23	2.12	2.53	0.22	-0.55
S&P 500	3699.12	1.67	1.58	-0.77	2.16

Market (CNY, Billions)	This Week	Last Week	2 Weeks Ago	3 Weeks Ago
Shanghai Connect	164.48	115.09	84.4	73.75
Shenzhen Connect	80.92	7.51	-29.29	18.38
Hong Kong Connect	193.43	126.21	95.98	133.05

Positions

Type	Code	Name	Current Dynamics
Stock	SZ000889	Zhongjia Bochuang	New
Stock	SZ300766	Daily Interactive	Clear
Stock	LU	Lufax	Flat
Fund	F260104	Invesco Great Wall Domestic Demand Growth Mixed	Increase
Fund	F000566	Huatai-PineBridge Innovation Upgrade	Clear
Fund	F320022	Lion Fund Research Selected Stock	Clear
Fund	F001692	Southern National Policy Power Stock	Clear
Fund	F163415	Xingquan Commercial Front-end Fee	Clear
Fund	F001668	E Fund Global Internet Mixed	Increase
Fund	F519688	BOCOM Selected Mixed	Clear
Fund	F163406	Xingquan Herun Classified	Increase
Fund	F008238	Zhongtai CSI 300 Enhanced A	New
Fund	F166301	Huashang Trend Flexible	New
Fund	F004997	GF High-end Manufacturing	New