Rebirth of the Capital Legend

"Indeed, the main reason why the emerging industrial chain is struggling to stage a sustained rebound is, in addition to its poor fundamentals and lack of underlying logic, the issue of chip structure," Zhao Qiang continued. "There are simply too many trapped chips in this sector. Furthermore, the three main sectors in the market—large-scale infrastructure, new energy, and smartphones—are siphoning short-term buying liquidity. This has led to a flow of funds into the emerging industrial chain sector. Compared to before, the number of funds interested in investing in this sector has not only not increased, but has likely weakened significantly."

"Yeah!" Lao Qian in the group nodded and said, "For some weak main lines in the market, in fact, in the process of increasing volume, when the market still maintains a differentiated trend and the market is in a state of market rotation, it is not necessarily a good thing."

"That's not the case," Sun Chengyu responded. "In terms of the overall market trend, the increase in volume is definitely a good thing. Regardless of the purpose of these newly involved OTC funds and their investment direction, as long as these funds participate, then, in the continuous rotation of market trends, in the constant changes in the market, and in the continuous interpretation of the profit effect on the market, these funds will always pay attention to these weak main-line sectors. Moreover, once the popular main-line sectors in the market have reflected the stage expectations in their stage trend and the stock price falls into a stage of adjustment, these short-term speculative funds gathered in the main-line hot sectors will definitely try to switch between high and low and gamble on the low-level main-line sectors.

It can only be said that the current market trend has not yet reached this point.

The market's many low-priced, unpopular mainline sectors have not yet received any positive news to stimulate the formation of this high-low switching market."

"For these low-priced mainline sectors in the market to attract a large number of short-term investors to speculate again, they really need new positive news to stimulate them," Zhao Qiang said. "But given the current trend, without new positive news to cause a sudden change in expectations, it will be difficult to generate a profit-making effect on the market. Without a sufficient profit-making effect on the market, the investors who follow the trend and go long will always hesitate."

Lao Qian nodded and said, "In short, just wait for the wind to come. The current low-level mainline sectors in the market are definitely not suitable for intervention."

"Then we will definitely give priority to the popular main line sectors." Zhao Qiang said.

Old Qian paused, then continued, "However, the market's main weighted sectors are actually performing quite well today. The liquor and white goods sectors have both generated sufficient profit. It seems these two sectors have seen a lot of positive news in the short term, favorable mid- to long-term fundamental expectations, and explosive performance. Furthermore... in addition to the industry recovery brought about by the consumption recovery itself, these two sectors also seem to be strongly related to the boom in the real estate sector."

Sun Chengyu responded, "The liquor and white appliance sectors have always been strongly correlated with the cyclical performance of the real estate industry chain. Strictly speaking, the liquor and white appliance sectors are also one of the upstream and downstream sectors of the real estate industry chain. The booming real estate market will also increase demand for the liquor and white appliance industries. Based on past historical cycles, the development cycles of the liquor and white appliance industries have been synchronized with the real estate cycle to a certain extent."

"Yeah, I think so too," said Zhao Qiang.

Sun Chengyu paused and continued, "In fact, the two major sectors of liquor and white goods have continued to strengthen recently, and various capital groups have continued to increase their holdings and go long. In addition to the favorable fundamental expectations you just mentioned and the factors that are synchronized with the real estate industry chain cycle, there is another major factor. That is, these are the two major industry sectors that Huayi Capital, an institution headed by President Su, has clearly invested heavily in. Relatively speaking, among the current main market trends, the market trends of these two major sectors are the most certain."

"That's true," Old Qian nodded. "Hua Yi Capital, the institution headed by President Su, holds a combined holding of over 300 billion in the liquor and white goods sectors. Furthermore, it seems that in the past six months, Hua Yi Capital, headed by President Su, hasn't reduced its holdings in these two sectors."

Sun Chengyu went on to say, "Expectations have not yet been fulfilled, and subsequent fundamental changes are still ongoing. Naturally, it is not the time to reduce holdings and take profits. However, after the valuation repair in the past six months, the two major sectors of liquor and white goods are no longer very cost-effective. It can only be said that there is not much undervaluation, but the valuation has returned to a reasonable range. If good news continues to be released, or if subsequent performance continues to exceed expectations, then the stock price will most likely continue to rise in line with the previous trend. If subsequent expectations cannot be further fulfilled, and the expectation of explosive performance does not exceed the expectations of the majority of institutional investors, it is estimated that this valuation will be difficult to increase, and the stock price performance will most likely only maintain a strong and volatile pattern."

"That's how I see it, too," Zhao Qiang said. "In general, after six months of sustained growth, it's difficult for the liquor and white goods sectors to generate a significant gap in expectations at this point in time. After all, there are many institutional investors in the market, as well as many retail investors who are following the trend and going long on the core stocks of these two sectors. They tend to be optimistic about the future trends of these two sectors and the performance of their leading stocks.

In a situation where many investors are generally optimistic.

It meets expectations, or it falls short of expectations.

Only continued positive factors that exceed expectations and continued performance in subsequent results can further stimulate the enthusiasm of funds to concentrate on long positions and increase valuations.

Otherwise, there is a high probability that we will have to maintain the status quo.

In fact, compared with the two major industry sectors of liquor and white appliances.

I think the pharmaceutical and petrochemical sectors are more likely to experience a gap in expectations.”

"What do you mean?" Old Qian asked. "Although the pharmaceutical sector has always been a safe haven for investors, it hasn't been very strong recently. The petrochemical sector is even worse. The two oil giants have been falling from their historical highs since their listing for almost ten years, and there's no clear sign of a halt in the decline yet."

Zhao Qiang thought for a moment and said, "The pharmaceutical sector is already on a general upward trend, breaking out of the bottom. Furthermore, there are huge long-term expectations for this trend. With the fertility rate continuing to decline, my country is about to enter an aging society. In this gradually aging society, the actual demand for medicine is bound to continue to increase. Furthermore, due to the recent decline in overall risk aversion in the market, a large amount of risk-averse funds have flowed out of the pharmaceutical sector, causing the sector's recent performance to lag behind the index, meaning there is room for further growth.

Also, don’t you all think that the market will most likely enter a short-term adjustment phase?

When the market enters the adjustment stage.

The market's risk aversion is bound to increase further, right?
As the market's risk aversion sentiment further heats up, will the various fund groups within the market further gather towards the main-weight areas with higher risk aversion attributes?

Therefore, I believe the pharmaceutical sector should see some upward movement in the near future. Of course, at present, the certainty is not that high, and if you are interested in this sector, I think it is only suitable to take small positions and wait and see; it is not yet time to make a large investment.

As for the petrochemical industry...

Although the two oil giants are still relatively weak, I want to talk about the chemical sector.

In particular, the performance of Wanhua Chemical, the core leading stock in the chemical sector, seems to have indeed come out of the trough and entered an upward trend again.

Moreover, it seems that the institution "Huayi Capital" is headed by Mr. Su.

There are also signs of heavy investment in Wanhua Chemical stock, right?

Of course, the exact position and value of Huayi Capital's holdings in this stock will only be known after the subsequent third-quarter report."

"Wanhua Chemical's stock performance is indeed quite good," said Lao Qian. "But for now, it's just a market rumor that Huayi Capital, the institution headed by President Su, is the main investor in this concept stock. I guess the definite trend of this stock will have to wait until this rumor is confirmed before many big investors dare to invest heavily."

Zhao Qiang said, "I don't think so. Once this rumor is confirmed, I guess there won't be much of a difference in expectations for this stock."

"What about the power sector?" Sun Chengyu asked. "This sector often produces long-term bull stocks. Doesn't everyone look down on it?"

Lao Qian said, "This sector is really hard to understand. Although electricity is the cornerstone of industrial development, this cornerstone is regulated by the state, and the electricity price is fixed, so there's not much room for imagination. Of course, the Yangtze Power stock is indeed quite good as a fixed bond, but at this price, this stock doesn't have much value for money. The valuation has always been within a reasonable range, without any extreme valuations. Even for medium- to long-term investment strategies, it's difficult to invest heavily at this price and valuation."

"In fact, relatively speaking, in the energy cycle, I feel there are signs of an industry reversal," said Zhao Qiang.

Lao Qian asked, "Are you talking about the coal sector?"

Zhao Qiang nodded and said, "Yes, after the supply-side reform, I feel that the coal sector has benefited the most. I think the cyclical boom in this sector is just around the corner. Furthermore, the market's general expectations for this sector are still relatively low, and people are paying little attention to it. This means that once the fundamental reversal logic of this line is confirmed and performance shows a reversal trend, then the valuation recovery and stock price surge will be quite rapid."

"Coal prices are indeed stabilizing and recovering," Lao Qian said. "However, the coal sector has also seen significant growth recently, following the upward trend of major infrastructure projects. I feel that this sector is more closely linked to the steel sector, lacking initiative and attention from core major investors. Compared to some emerging industry chains and popular sectors with clearer future trends, the traditional energy sector of coal still lacks room for imagination."

Zhao Qiang said: "Although coal is a traditional energy source, there is no substitute for it, at least for now. Since there are no substitutes, this industry will not disappear, and its cyclical development is inevitable. I think this line will most likely be broken in the future."

"Let's wait until it gets out of the situation." Lao Qian said, "Relatively speaking, chasing the trend is more suitable for me. As for lurking, it's okay to lurk with a small position, but I don't think I have the patience to lurk with a large position of the main force."

"Haha, that's true..." Zhao Qiang laughed loudly and said.

Sun Chengyu pondered for a moment and continued, "From the perspective of the overall market development, the fundamentals of the entire market have actually improved significantly compared to six months ago. Many industry sectors that have seen a fundamental reversal, and the corresponding core leading stocks, have also reached a time point where their performance has exploded and their valuations have increased. So... overall, the market, led by these core leading stocks, is likely to continue its rebound. I also insist that at this point in time, the Shanghai Composite Index will not be suppressed below 3100 points. Breaking through 3100 points, continuing the previous rebound trend, and impacting higher points is likely to happen. So... I don't think we need to be too pessimistic about the subsequent market trends. It is still necessary to maintain a relatively optimistic attitude."

"Yes, Brother Sun is right." Zhao Qiang nodded and said, "I also feel that the Shanghai Composite Index's continued fluctuations below 3100 points are not a sign of weakness, but rather a sign of gathering strength, just like a person's fist, which is retracted to make a more advantageous punch. I think it is only a matter of time before the Shanghai Composite Index breaks through 3100 points. In the future, there is a high probability that it will gradually break through 3200 points and 3300 points, and even repair the huge chip gap caused by the third round of stock market crash."

Lao Qian said: "I believe that the index can break through 3200 points, or even 3300 points, but if you say that the index can repair the huge chip gap caused by the third round of stock market crash at the beginning of the year in the continuation of the subsequent market trend in the short to medium term, I find it hard to believe. After all, this huge chip gap is formed by the accumulation of trillions of trapped shares. If you want to break through, you have to release these trapped shares. To release these trapped shares, you need a huge amount of new off-market trading volume and a huge amount of new off-market buying funds to intervene.

But on the current off-market macro level...

Although the central bank said that we will not follow the Federal Reserve in interest rate policy, we have our own pace and expect to further release liquidity in the future.

But after all, the current market liquidity has not increased.

The saying goes, "volume precedes price." I still think it's better to wait until trading volume picks up, until the combined turnover of the Shanghai and Shenzhen stock exchanges once again exceeds one trillion yuan, before turning to sustained optimism. For now... maintaining a relatively optimistic yet cautious stance is still necessary. (End of Chapter)