Market Panic: Why Did Expectations Fail?

Expectations have completely fallen through, and the A-share market has also sharply corrected, with panic emotions beginning to breed during the trading session.

From a thousand stocks hitting their upper limits to over 200 stocks hitting their upper limits, various strong stocks have successively opened their trading halts, weak stocks have started to turn down, and the stock index has fallen by 300 points in an hour.

Is this a reversal to pick up passengers, or is the bull market over?

Friends who understand the current macroeconomic predicament are clear about one thing: crazy monetary policy can only heat up the capital market, but whether the capital market can continue depends on: 1) whether the economy can recover; 2) whether subsequent reforms can keep up.

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The perfect plan is that monetary policy heats up expectations, economic growth fills confidence, deep reforms open up future space, each stage is connected, and it becomes another opportunity period lasting for N years.

On the contrary, if the economy cannot recover and reforms cannot keep up, then this bull market is a mad bull, the so-called game of hot potato, playing is all about speed.

This means that after a sharp rise, there must be a sharp fall.

And whether the economy can recover depends on fiscal stimulus policies. Therefore, everyone is looking forward to this press conference by the National Development and Reform Commission (NDRC), and the market also expects unprecedented fiscal stimulus policies to be introduced.

First, about the meeting time.

At first, there was news that the meeting was originally scheduled for October 5th.However, everyone felt that October 5th was still within the National Day holiday, and the market was not open, so holding this meeting to convey positive news would be a waste.

Then the timing was moved to October 8th, the first day after the holiday when the market opened, which made everyone feel that good steel should be used on the cutting edge, and good news should be used during market hours.

Looking at the content of the meeting, under the anticipation of many, the message conveyed by the National Development and Reform Commission (NDRC) was still that everything is stable and improving, and then they repeated the previous policies, all of which were grand, bright, and useless words.

What are people waiting for? Specific measures, specific numbers.

But as soon as this issue was raised at the meeting, they changed the subject.

Reuters asked: What is the policy target for the future, can it achieve 5%, and what is the increment?

Director Zheng said: My colleague will answer.

Colleague: The question you just asked has already been answered by Director Zheng earlier, I think Director Zheng said it well, and Director Zheng also mentioned...

This style confused many people, saying that the promised stimulus plan? Why is it just reheating old news again?Compare the content of the meetings held before the festival by one line, one association, and one bureau, and the difference is too great.

What is the content of one line, one association, and one bureau? First, there are specific data such as 300 billion, 500 billion, etc., and then there are colloquial expressions, such as if 500 billion is not enough, then another 500 billion will be added, as well as speaking off the cuff and chatting with reporters (Will the Stability Foundation be introduced?) The details are still under study.

This highly anticipated meeting basically has no substantive content.

Therefore, many people are wondering, what is the purpose of holding this meeting?!

Faced with the fiscal stimulus meeting that failed to meet expectations, there are currently two views in the market:

1. There is no fiscal stimulus plan at all.

People who hold this view chase rises and kill falls, and never linger in the battle.

In their eyes, stocks are just chips.

2. It is only cooling down the market now, and there must be a big move for fiscal stimulus behind it.

People who hold this view believe that the bull market is still there, and the pullback is just a car picking up passengers, which is a great opportunity to get on the train.We believe that fiscal stimulus will definitely not be absent, and there is indeed suspicion that this meeting was intended to cool down the market.

Let's analyze from the perspective of the news.

What was the first media to report on this wave of stimulus policies? Foreign media, such as Reuters or Bloomberg.

Starting from early August, foreign media began to report that China was going to implement an unprecedented stimulus plan, to reduce the interest rates on existing mortgages, or to relax purchase restrictions in first-tier cities, etc.

Although foreign trade can sometimes be unreliable, looking back, the measures they reported have basically been one-to-one corresponding.

This indicates that the higher-ups may be consciously engaging in "expectation management."

Regarding fiscal stimulus policies, as early as September 27th before the holiday, Reuters reported that China would issue $284 billion (2 trillion yuan) in sovereign bonds in an attempt to save the economy in distress.

It even revealed some specific measures, such as:

The first source pointed out that these funds would also be used to provide a monthly subsidy of 800 yuan (about $114) per child for all families with two or more children, but the first child of the family would not be eligible for this subsidy.

This source also stated that the Chinese government plans to raise 1 trillion yuan through another special sovereign bond issuance to help local governments deal with and resolve the debt problems they face.Please note that the two sources cited by Reuters are unwilling to be named as they are not authorized to speak to the media.

Reuters is genuinely seeking information, and if this news is true, it may represent policy intentions.

If foreign media are citing the views of a certain economist, such as the stimulus scale being not 5-10 trillion, but rather 2-3 trillion, etc.

These are the personal views of a certain economist and do not represent policy intentions. Pay attention to the difference between the views of economists and the "facts" of sources.

What does this mean? If everyone still believes in the above-mentioned expectation management and the accuracy of foreign media, then our policy toolkit definitely includes: large-scale fiscal stimulus policies.

Of course, as decision-makers, especially in the economic field, they must also make decisions in succession. If the economy stabilizes and strengthens, it is also possible that fiscal stimulus policies will be canceled.

Moreover, the negative impact of introducing large-scale fiscal stimulus policies at this time is also quite significant.

However, as long as the specific fiscal stimulus plan is not announced, there will always be this expectation, and the market will continue to speculate on this expectation.

What stage is it now? It is still the early stage of a bull market, and the market is just beginning to differentiate.

Once the market begins to weaken, or panic spreads, then we believe that fiscal stimulus policies will be introduced quickly!Large-scale fiscal stimulus policies will once again ignite market sentiment and pull the market up.

Believe in the power of the nation.

Finally, a reminder to everyone: never think that only when the economic fundamentals are good can there be a bull market; our market is different from others.

Our bull market has a prerequisite: leveraged funds.

As long as leveraged funds can enter the market, there will be a bull market, which has little to do with the economic fundamentals.

That is to say, our bull market has always been very fragile, and the characteristic of short bull markets and long bear markets also illustrates this point. This means that the rise actually lacks strong support; it depends on the level of leveraged fund regulation and changes in market sentiment.

There are many sharp declines in bull markets, and bull markets are also the times when ordinary people lose the most money. Therefore, it is necessary to strictly implement trading discipline, be vigilant against the transformation of pullbacks into stampedes, and avoid being stuck for three to five years.