Rebirth of the Capital Legend

“That makes sense.” Old Zhang nodded slightly and continued, “Although the liquidity, trading volume, number of active investors, and investor confidence in the A-share market have shrunk considerably compared to last year’s bull market, it is still the world’s second largest trading market after the US stock market. Moreover, with the slowdown in IPOs, there are not many new shares being issued, so the liquidity diluted is limited.”

I feel that if the market can stabilize at this level of trading volume, and there are more and more opportunities for expected reversals in various industries, then the sustained rotation of main themes in the market should be able to continue.

However, regarding the large-scale infrastructure project...

Domestic institutional investors are still not very proactive. Many major institutional funds in the market are still relying on the performance of stocks related to the real estate industry chain in the Hong Kong stock market to guide their trading on this core theme. In general, although the A-share market still has a liquidity premium and an advantage in trading volume compared to the Hong Kong stock market, it is still not as bold as many foreign institutions that focus on the Hong Kong stock market in terms of their forecasts of industry development prospects.

As for the new energy industry chain...

Currently, the impact of policy stimulus is still the most significant factor; the industry's fundamentals have not yet fully reversed, and it has not yet reached the stage where performance begins to materialize.

But the consumer sector...

I feel that many major domestic institutional funds seem to have the most consistent expectations and consensus on this line and its future prospects.

Overall, it seems to be within the main consumer sector.

The core industry leaders in sectors such as liquor, white goods, food, and retail have the most stable locked-in shares. However, because there are many shares accumulated in this sector, the volatility is not high, so the attention and participation of many speculative funds and retail investors in the market are not very high.

Looking at the stock performance of these industry leaders, they are indeed very stable.

I think that although the market is moving in a rotational pattern, the overall investment style, especially in terms of large and small caps, is still more likely to attract capital attention and perform better in leading stocks in industries with higher industry status and a certain moat.

Although many small-cap stocks with specific concepts are currently being heavily speculated on by investors.

However, if you extend the timeframe slightly, it's still difficult for these stocks to stay at high levels. Basically, after a wave of speculation, they all fall back to their original point.

Just like the concept of 'online education' not long ago.

As the leading stock in this core concept area, hasn't 'Huawen Online' been briefly hyped by various funds, only to have it completely plummet back to its original level?

"In terms of market style, it is indeed still dominated by large-cap stocks." Chen Ge interjected when he heard the heated discussion among the group about the market trend. "However, small and mid-cap stocks are not without opportunities. In fact... I think the core speculation logic in the market right now is growth stocks."

Hearing what Brother Chen said, Lao Wu nodded and replied, "I think Brother Chen is right. Regardless of whether it's a large or small market, in the current market, stocks with stable trends, good stock accumulation, and continuous attention from major funds are basically supported by strong and relatively certain future expectations, which is the so-called 'growth' attribute."

"This should indicate that the overall investment atmosphere in the market is improving, right?" Xu Qiao said. "It feels like more and more funds in the market are starting to abandon purely conceptual speculation."

Old Wu responded, "You could say that. I think the future market ecosystem will inevitably shift towards a growth- and performance-oriented direction. The old style of pure concept speculation, which only speculates on expectations and stories, is probably gone forever. The mindset of many investors who were trapped and just held on, waiting for the bull market to come years later to break even and make money, is unlikely to reappear in the future."

“Yes, I feel the same way,” Old Zhang said. “Even if there is a bull market in the future, I guess not all stocks in the market will rise.”

"So, A-shares are becoming more like Hong Kong stocks?" Xu Qiao said. "Previously, small-cap concept stocks were overvalued and had a certain liquidity premium. In the future, with a major shift in capital preferences, it is very likely that leading stocks in core industries will have a certain liquidity premium, while other small and medium-sized concept stocks will gradually lose liquidity and become junk stocks that few people pay attention to, or similar to penny stocks in the Hong Kong stock market."

"Pretty much," Brother Chen said. "Although the IPO speed has slowed down, the overall number of stocks in the market is still increasing. And with the normalization of IPOs in the future, the number of stocks in the market will probably increase further. Moreover... if the registration system can be implemented in the future, it is not impossible for the number of stocks in the market to reach 5000 or 6000."

At that time, we will be faced with thousands of stocks and an increasing number of newly listed stocks.

With very limited cash flow.

Major capital groups will definitely prioritize concentrating liquidity on leading stocks in various industries. This means that leading stocks in various industries will likely command a premium in the future, while small and medium-sized stocks with no core competitiveness or moat will gradually lose liquidity and become worthless stocks that no one cares about.

This is similar to the Hong Kong stock market today...

Looking at the current Hong Kong stock market, the core liquidity, that is, the vast majority of trading volume, is concentrated in a few dozen large-cap stocks. Other small-cap stocks with purely conceptual designs have a daily trading volume of a few million, which is considered very high. I think this phenomenon will likely reappear in the A-share market as IPOs become more normalized and the registration system is implemented.

so……

We need to make some changes to our investment strategy going forward. The old approach of purely speculative investment, just telling stories and focusing solely on positive news, is unlikely to work.

Even if speculative trading based on emotional factors persists, and even if people continue to engage in limit-up buying, it will likely be much more difficult to achieve consistent profitability than before.

“Yes, we really need to change our approach.” Xu Qiao nodded and said, “Look at the trading records of the past two or three months. We’ve been going in and out several times. In fact, it would have been better to have bought a large position in Oriental Yuhong stock from the beginning and held it without moving. We would have made more money by now.”

"Haha...that makes sense." Old Zhang laughed and said, "The more frequent the trading, the higher the friction cost of trading. If you make a profit on one trade, you might lose on the next, and the final profit will be very limited. I personally think that in this market with such low liquidity, it is quite difficult to make consistent profits in the short or very short term. It seems that it is easier to make profits by swing trading in the current market."

“Yes,” Old Wu said. “By relying on the market’s major themes, buying core leading stocks at the right price and holding them for a long time seems to be easier to make money than frequent trading. However, the core leading stocks in the major infrastructure, new energy industry chain, smartphone industry chain, and consumer sectors that are worth trading in waves and can be held for peace of mind are currently at quite high levels. If the market doesn’t experience a significant deep correction here, there won’t be any good buying opportunities.”

“Good stocks on the market are not cheap anymore,” Lao Zhang said. “But it’s not that you can’t buy them. If you look at the bigger picture, some core leading stocks are still quite cheap at this price.”

“Yes, for example, Lixun Precision, which has only recently emerged as a stock,” Xu Qiao said.

Old Zhang chimed in, "To be honest, Lixun Precision's stock is quite strong, almost uniquely strong among all the Apple supply chain stocks."

"That's because this stock has the highest certainty of future prospects," Chen said. "Also, it has the most complete production line and handles more Apple products compared to other Apple supply chain stocks. Its future scale expansion effect is more optimistic than other Apple supply chain stocks. Therefore, it receives more attention, and the valuation of this stock by major institutional investors is higher than that of other Apple supply chain stocks."

"Lixun Precision's stock is alright," Old Wu said. "If we're talking about outrageous stocks, it has to be Haitian Shares in the consumer sector. Since its listing in March 2015, this stock has barely fallen despite several stock market crashes. Now it's heading straight for a market capitalization of nearly 200 billion yuan. Is this thing really worth 200 billion yuan? The key is that its PE ratio is close to 100, which is comparable to the valuation of many pure concept stocks on the market. Moreover, in the entire consumer sector, this valuation is in a class of its own."

"To be honest, I don't understand Haitian Shares either," Old Zhang said. "I don't understand why institutions are so optimistic about this stock. The key is that the stock has been rising all the way up, and the shares are really locked up. No matter how much it rises or how much it adjusts, the volume is not high. It seems that the institutions that entered earlier have all locked up their shares."

"The current focus of major institutional investors on the consumer sector has indeed surprised many investors," Chen said. "It's not just Haitian Shares; the entire liquor and white goods sector is basically seeing valuations and performance grow in tandem. Overall, apart from the financial sector, which is heavily controlled by the national team, the core theme that will be the first to recover from the losses of last year's stock market crashes and quickly reach new highs is very likely not the infrastructure sector, but the consumer sector."

"To be honest, I feel the same way," Lao Wu said. "Don't be fooled by the recent performance of the consumer sector, which has lagged behind infrastructure, the new energy industry chain, and the smartphone industry chain. That's just because this sector rose too much in the first half of the year, and it needs to reconsolidate its shareholding structure and rebuild a support platform. If we consider the overall gains this year and the overall performance of the main themes, the consumer sector is still in a league of its own."

"Hearing you say that..." Xu Qiao smiled and replied, "I also want to lock up some of my funds in core liquor stocks like Moutai and Wuliangye."

“Currently, the stock prices of top-tier liquor companies like Qianzhou Moutai and Wuliangye are not expensive, and their valuations are still at the bottom,” Lao Wu said. “I think there is no major problem in locking up some funds here. If the liquor industry, or the various sectors of the consumer sector, has indeed formed a cyclical reversal, then its upward trend will definitely not be at this position.”

“Yes, that’s how I see it too,” Xu Qiao said. “Looking back now, Brother Su’s vision and strategy are truly impressive. He decisively invested heavily and locked in shares as soon as the liquor industry turned around. Now… Brother Su’s investment in the liquor sector should have earned him several billion, or even tens of billions, of profits, right?”

"Brother Su's vision and strategic thinking are truly remarkable," Old Zhang said. "Otherwise, there wouldn't be such a high premium for his seat in the market, nor such a strong following and chasing frenzy."

Along with the discussion among several core members of the "Shanghai Short-Term Trading Group" regarding the current market trend and their outlook on future market developments.

Before we knew it, the market trading hours had already moved into the late afternoon, past 11 a.m.

As soon as the market entered its trading hours at 11:00 AM, the intraday trading volume of the entire market became significantly more sluggish than before.

At the same time, the performance of the major market trends has become more clearly defined.

Among them, the real estate, construction and decoration, and building materials sectors related to the major infrastructure construction theme continued to lead the market. In addition, the lithium battery sector related to the new energy industry chain, the Apple concept sector related to the smartphone industry chain, and the liquor, white goods, retail, and food sectors in the consumer sector were also in a state of high attention from market funds and active buying by major players.

Other less popular storylines...

In particular, sectors with a lack of certainty, such as technology, film and television media, cultural media, and traditionally less popular sectors like agriculture, animal husbandry, fisheries, and aquaculture, are also included.

The market still shows a net outflow of main funds, with leading stocks in major industries continuing to suffer losses.

"The market is still exhibiting a polarized trend, and the overall trading volume is gradually declining. It feels like a breakout is unlikely, and it seems many funds are gradually taking profits and withdrawing. The overall market trend is weakening." As the trading session approached 11:30 AM, Zheng Jinming, a member of the 'Suzhou-based' major speculative capital group who was closely monitoring the market and hesitating about taking profits on some of his positions, remarked with sharp eyes, "The 3100-point level remains unshaken. With the weakening trading volume, it's estimated that it will test lower levels again this afternoon."

Hearing Zheng Jinming's sigh, He Zhong in the group wasn't so pessimistic. He smiled and said, "It's not necessarily going to test the downside. Looking at the market trend, the main core themes are still very strong, especially the infrastructure sector, which continues to draw liquidity from other themes and maintain its upward trend. Moreover, the stock of Beijiang Jiaojian, which represents the point where short-term speculative sentiment in the market has bottomed out, hasn't seen any movement in its limit-up buy orders. This shows that short-term speculative sentiment hasn't clearly subsided. It's just that it's almost midday closing time, and there's nothing noteworthy or that would further stimulate sentiment. At this juncture, it's understandable that various active funds in the market are remaining on the sidelines, not actively buying or selling." (End of Chapter)