Rebirth of the Capital Legend

"The foreign market is really strong. It's either hitting new highs or on its way to new highs." Seeing the US trading market continue to open high and rise, setting new historical highs, and looking at the domestic market trends, Zhao Qiang, who was currently among the main speculators of the Yuhang Group, couldn't help but sigh, "But it's okay. Although the influence of the external market trends on the domestic market continues to show a marginal diminishing effect, it's better to have a positive external trend than to have no impact at all."

Hearing Zhao Qiang's sigh, Lao Qian, who hadn't rested yet, responded, "Indeed, the US stock market's trend is truly irrational. Regardless of good news or bad news, it's always going up. But if you think about it carefully, even if the US stock market continues to hit new highs, the valuations of the core components of its index are not expensive. They are still relatively cheap. Furthermore, as the world's largest stock trading market, the US stock market gathers high-quality assets from around the world. Its investment cost-effectiveness is outstanding, and it also attracts global investment funds. Liquidity is very abundant. Therefore, the current long-term bull market is actually in the process of clearing up."

"I'm not saying the long bull run in the US stock market is irrational," Zhao Qiang said. "It's just that the slope of this continued upward trend is a bit exaggerated. It really is a 45-degree angle, constantly rising. How great it would be if A-shares could follow this trend. Sigh... But it's just wishful thinking. After all, the US stock market has a global pool of active capital flowing in, while for us, let alone attracting external investment funds, even the internal macro liquidity is extremely difficult to attract any funds. How can we even think about a bull market?"

"The timing for the market to turn from bearish to bullish has definitely not arrived yet. Moreover, with the offline property market and real estate market continuing to attract active macro-investor groups, it is indeed very difficult to temporarily attract more off-market capital groups to intervene." Lao Qian said, "I think... we can only wait until the hot money-making effect of the offline property market and real estate market has relatively subsided a bit, the heat has subsided a little, and housing prices have begun to stabilize. The entire property market's money-making effect is no longer so hot. At the same time, in the A-share market, the huge amount of trapped shares accumulated after three consecutive stock market crashes has been almost digested through the continuous fluctuations of time and space. Maybe the market will usher in the opportunity for a bear-bull transition. Now... I feel that the market will most likely continue to fluctuate sideways or range-bound."

"Your analysis makes sense," Zhao Qiang said. "I also feel that it's difficult for the market to escape its current range-bound fluctuations. The main reason is that the foreseeable incremental funds and potential selling power in the market are currently disproportionate. Regardless of favorable news or policies, as long as this fundamental factor remains unchanged, a trend reversal is unlikely. At most, it will be a rotation of the strong main lines in the market. Actually... I don't have any extravagant expectations that the current A-share market will usher in a bull-bear transition. I just happened to compare the two trading markets on a whim and felt a little sad."

Old Qian nodded slightly and said, "I understand. Seeing the trends of the US stock market and then the A-share market, I believe many investors will sigh in their hearts. However, the ecosystems of the two markets are inherently different, so they are naturally incomparable. Relatively speaking...it is actually the correlation between the Hong Kong stock market and the A-share market that makes the comparison worthwhile."

"The Hong Kong stock market generally has lower valuations than A-shares," Zhao Qiang said after hearing Lao Qian mention the market's current state. "As a frontier for foreign institutions investing in my country's capital market, it's somewhat surprising that valuations are generally so low. There are actually many high-quality stocks in the Hong Kong stock market that are still very worthwhile. It's a pity... it seems the stock price is struggling to perform well."

Lao Qian said, "In fact, a major factor in the valuation of every stock market and every financial trading market is the amount of capital involved, that is, market liquidity. Although Hong Kong stocks have a large number of foreign institutions participating, the daily trading volume of this market is even more dismal than that of A-shares. With such dismal trading volume, it would be strange if the valuation could be high. In our A-shares, even the smallest stock still has a daily trading volume of several million. But in the Hong Kong stock market, many stocks have a daily trading volume of only hundreds of thousands or even tens of thousands. In the case of liquidity asymmetry, discussing valuation differences is actually meaningless."

"That's indeed the case," Zhao Qiang nodded in response. "There are quite a few penny stocks in the Hong Kong stock market, and liquidity is generally concentrated in large-cap stocks with high capitalization. Small-cap stocks and many purely concept stocks are basically ignored. Even if there are occasional unusual movements, they are mostly caused by market makers who continue to control the market."

Lao Qian said, "The A-share and Hong Kong stock markets have different regulatory rules and standards. In the Hong Kong stock market, there is a high probability of making a mistake if you are not familiar with the stocks of companies. Moreover, there are obvious differences in the trading rules of the two places. In the A-share market, even if you make a mistake, you can at least keep some of your principal with the protection of the price limit system. However, the Hong Kong stock market is a two-way trading market without the so-called price limit system. Once you make a mistake, the individual stock is very likely to fall by more than 90% in just one or two minutes, resulting in a complete loss. So generally speaking... there is no safety margin. Regardless of the superficial performance or the quality of the company, the risk of investment and speculation is very high. In this regard, I think the A-share market is actually very mild. The price limit system, at least to a certain extent, protects the vast majority of investors in the market."

"Haha..." Zhao Qiang laughed loudly and said, "Old Qian, you're right. The price limit system of A-shares does protect the vast majority of investors in disguise. It's ridiculous that many retail investors still think that the price limit restricts their performance and limits their ability to make money. They haven't considered that if there were no price limit system, individual stocks could rise or fall at will in a day. I'm afraid many people would lose their principal within a day or two."

"So we have to say that the early introduction of the price limit system by the regulatory authorities was truly far-sighted," Lao Qian said. "However, this system is not entirely without benefits for us market speculators. It is precisely because of the price limit system that the so-called leading strategy and price limit strategy have emerged, and it has also given rise to many short-term speculation schools and cultivated many well-known market speculators.

Moreover, the daily price limits can easily amplify emotions.

The continued limit-up will attract more follow-up capital groups amid everyone's continued high attention.

If there is no daily limit system, the good news of many stocks will not be fully fermented in the market and get emotional feedback, and will only be reflected in the stock price. Naturally, there will be no room and height for speculation.

Of course, the same goes for the limit down.

The limit down will amplify the general panic among the market's group of investors who follow the trend.

This allows the chips to be cleared out instantly upon opening, giving the stock sufficient momentum for a subsequent rebound.

Regardless, the price limit system is still quite important for the short-term speculation ecology of the market, and this ecology will continue to evolve in the future.

"Indeed, many short-term bull stocks in the market have successfully carved out space under the daily price limit system, leveraging market sentiment," Zhao Qiang said. "For example, the previous Huawen Online and the current Beijiang Communications Construction stocks. The more they rise, the stronger the follow-up effect and the greater the profit effect."

Old Qian nodded and said, "We still need the main theme to work together. Beijiang Jiaojian stock has completely broken out. The market discussion surrounding it is now approaching the peak popularity of Dongfang Yuhong. Based on today's trading data, if nothing unexpected happens, it will most likely open at or near the daily limit tomorrow." "Hmm, I agree," Zhao Qiang said. "Whether it opens at or near the daily limit, the stock's momentum and potential have been fully realized. Although it's already had five consecutive daily limit increases, we can't be bearish at this point. I feel it can at least go up two more limits. However, I don't have much of a position in this stock, and even if I did, I wouldn't make much money from a daily limit increase."

"The circulating market cap of this stock is too small, which is actually a disadvantage." Overhearing the two people's ongoing discussion in the group, Sun Chengyu chimed in, saying, "If the circulating market cap of Beijiang Communications Construction were slightly larger, its trend and ultimate potential for speculation might be even higher."

"What do you mean?" Zhao Qiang asked with a little surprise when he saw the message Sun Chengyu sent in the group.

Sun Chengyu said: "The circulating market is too small, and many funds cannot participate. If you buy too much, no one will support you. If you buy too little, you won't make much money. It can be said that it is better than nothing. If this stock has the size of Oriental Yuhong, then many large-scale speculators in the market will be able to enter and exit at will and continue to speculate. There is no need to worry about the problem of being able to enter but not exit. Just like you said just now, I don't have much position in Beijiang Communications Construction. Even if this stock hits the daily limit, I won't make much money. In fact, many people are the same.

Is the reason you don't have many positions because you don't want to buy? Or is it because you can't buy?

I don’t think so?

Rather, the circulating volume of this stock is too small. Once over-buying occurs, it disrupts the market balance and prevents this stock from forming such a strong market synergy."

"I think Mr. Sun has a point." Old Qian paused after pondering for a moment, then said, "Indeed, the circulating market is too small, so the participating funds are very limited. At the same time, because the market is too small, the driving effect on the stocks related to the main line is also limited. Relatively speaking, the more funds involved, the stronger the driving effect on the main line. For example, the driving effect of Oriental Yuhong and Lixun Precision on the major infrastructure and smartphone industry chains respectively is far beyond the reach of Beijiang Communications Construction and Changying Precision."

"That's true," Zhao Qiang nodded in response. "Oriental Yuhong's stock has a significant impact on the growth of major infrastructure projects and even on the valuation trends of many growth stocks in this sector. Many similar stocks have been discovered by major institutional investors due to Oriental Yuhong's doubling in recent months, and they are now concentrated in their positions."

"So..." Sun Chengyu said, "That's why I said Beijiang Communications Construction's circulating stock is too small. Of course, in the current market, unless Oriental Yuhong's internal chip structure shows any significant loosening, I estimate it will be difficult for another core leader like Oriental Yuhong to emerge. Given the current limited market liquidity, there won't be many stocks that active investors can rally around to speculate on."

"Yeah, I agree," Lao Qian said. "I originally thought that after the major positive news last Friday, market liquidity would improve significantly, and a lot of off-market funds would continue to enter the market. However, I didn't expect the amount of funds attracted was so limited. Moreover, most of the funds that came in seemed to be short-term speculative funds. It's difficult for the funds to settle down or remain in the market after entering.

Without sufficient incremental funds entering the market from outside the market, it will be difficult for the overall chip structure in the market to truly loosen.

In other words, it is difficult to truly solve the historical trapped positions.

When the trading volume is insufficient and unable to resolve these historical trapped positions, I am afraid that the market adjustment cycle, space and time will be lengthened.

In other words, we may need to lower our expectations in subsequent market transactions.”

"My expectations were pretty low to begin with," Zhao Qiang said. "I've always been trading with only half my position. Even if a stock has a high probability of success, I never take on too much. I also feel that it's still very difficult for the market index to maintain a sustained upward trend. After last Friday's positive news, as market sentiment gradually declines, the major market indices are clearly becoming increasingly weak. It seems that they need to continue to retrace and consolidate the support at 3000 points before they can continue to rise. Otherwise... we'll have to push forward against the huge amount of historically trapped shares in the market, but... with market liquidity being very average and daily trading volume shrinking back to 5000 billion, this is basically impossible."

"Another pullback to 3000 points would be beneficial to further consolidate the support there," said Sun Chengyu. "The current market trends aren't very correlated with the index. As long as the market maintains this divergent trend and there are pockets of profit, these previously active short-term investors won't leave easily, which means there will still be plenty of speculative opportunities."

Old Qian chuckled and said, "Mr. Sun is right. As long as we can maintain a localized profit-making effect, a slight pullback in the index won't have a significant impact. However, when trading, we must clearly avoid those concept sectors and stocks with extremely heavy trapped positions and that don't receive recognition from major market players." (End of Chapter)