Rebirth of the Capital Legend

"The main institutional funds in the market have been overwhelmingly favoring mid- and large-cap stocks, as well as sectors with relatively high certainty of expectations such as liquor, white goods, and major infrastructure. This has been going on for quite some time now. I don't think today's market trend is anything to be surprised about, right?" Chen Guiyun's view on the current market trend was significantly different from Li Jinshi's. He continued, "As for the technology-oriented sectors such as film and television media, internet software, and internet applications, their continued weakness and continuous outflow of internal main funds have also been a problem for some time."

Overall, the market is continuing its previous trend.

However, due to limited liquidity and trading volume, the technology sector, which already lacked attention from major investors, began to lose liquidity and became a key area for capital flight.

In reality, the market trend has not changed much from before.

I think the market trend going forward, while not too optimistic, is not too pessimistic either. It will most likely form a medium- to long-term range of fluctuation.

After all, overall valuations have declined, and trading volume is scarce.

Most of the shares in the market are already locked up, so there is insufficient downward momentum.

Moreover, even in the major sectors that are showing strong performance, the large number of retail investors who are easily influenced by emotions do not have enough profit-taking to form a concentrated selling pressure. Institutional investors who are concentrated in these sectors are unlikely to reduce their positions on a large scale or even liquidate their positions before the expected trend has been fully realized.

Of course, this is all contingent on the previous positive news being fully priced in, and without any new positive news to stimulate the market in the near future.

The upward momentum of the index is also insufficient.

Moreover, the market has consistently failed to generate effective profit-making opportunities.

The incentive to continuously attract a large number of retail investors from outside the market is also lacking.

Therefore, with insufficient upward momentum and insufficient downward momentum, it is highly likely that the market will only maintain a sideways trend in the short to medium term.

"I agree with Lao Chen's analysis and judgment." Liao Guoxiang nodded and said, "At this level, the index does not have the momentum for a sustained decline, so we don't need to worry too much about the overall macro trend of the market. I think we should focus on the local market trends. As far as the current market trend is concerned, there are still many opportunities in core sectors such as liquor, white goods, major infrastructure, new energy industry chain, and consumer electronics. Moreover, the sentiment and capital concentration are still good, and it is not yet time to pay attention to risks."

"The main market themes of liquor, white goods, major infrastructure, new energy industry chain, and consumer electronics are indeed the areas where major institutional funds are currently concentrated," Li Jinshi said. "But I always feel that these core themes supporting the market are unlikely to continue to rise at this point, and it is difficult to further gather more bullish sentiment."

In fact, today's market performance...

In these key sectors, many stocks have begun to show a clear downward trend.

A typical example is Shuguang Shares, whose impact on today's market, especially the sharp drop in the afternoon, was quite severe.

Moreover, the losses caused by this stock today are quite severe.

We haven't seen such severe losses in almost a week, have we? Investors who bought Shuguang Shares at the morning's limit up have suffered losses of over ten percent within the day.

Moreover, there is a high probability that this stock will open significantly lower tomorrow morning, or even open at the daily limit down.

This means a loss of more than 20% in just one day.

Such a severe single-day loss will certainly have a significant impact on other stocks in the same sector, as well as on other popular stocks in other hot sectors across the market.

At least short-term sentiment, or rather, very short-term market sentiment, will be greatly affected.

This was already evident in the market movements that occurred in the afternoon.

For example, stocks like Tinci Materials, Tianqi Lithium, and Ganfeng Lithium, which had previously performed relatively well, have all begun to show signs of weakening upward momentum and are clearly about to begin a downward correction.

Overall, only the major infrastructure sector has remained relatively stable today.

Even within the strongest infrastructure theme, the stock 'Beijiang Jiaojian,' which is the core of market sentiment, saw a significant increase in trading volume today. If it weren't for the fact that Oriental Yuhong quickly stabilized the market after the volume surge and even reached a new annual high, thus stabilizing the bullish sentiment in the entire infrastructure theme, Beijiang Jiaojian would likely have experienced a sharp drop.

In other words, the large-scale infrastructure investment sector is not actually that stable.

Therefore, I think that there is little value in continuing to speculate at high levels for these major market themes, while other so-called low-level themes are even weaker and have a more serious loss-making effect, so they have even less value in speculation.

In short, I believe that market risks are gradually approaching.

At this stage, the reasonable trading strategy should be either to use a small position or to remain completely out of the market.

“Old Li, your analysis makes some sense, but I still don’t think it’s that pessimistic,” Chen Guiyun said. “The stock of Shuguang Co., Ltd. today’s explosive volume and subsequent sharp decline will indeed have some impact on the short-term speculative sentiment of the entire market. However, this stock was originally a limit-up stock.”

Moreover, it was all because of a rumor of restructuring.

It went on for seven or eight consecutive limit-up days, which already represented a slight overextension in terms of short-term gains.

In addition, there is a large-scale shortage of chips.

Given today's sharp drop after hitting the daily limit up, resulting in losses of over ten percent within a day, I think many short-term active funds in the market should have expected it and are not surprised.

Another issue is that this stock doesn't have a high market position; its overall market capitalization and circulating shares are not very large.

The amount of funds that can be siphoned is very limited.

In other words, the active short-term funds trapped in this stock today are just a drop in the ocean compared to the total capacity of short-term funds in the entire market. The fact that this amount of money is trapped will not affect the overall volume of short-term speculative funds in the market, or at least it will not have a significant impact.

Furthermore, this stock is indeed not the core focus of current market sentiment.

Besides a few popular stocks in the new energy industry chain and related concept stocks in the same sector, their performance will be affected by its trend.

The probability of other stocks in other main sectors being affected is still very low. Let's take Beijiang Transportation Construction as an example.

Today, despite a brief surge in trading volume during the session, the overall shareholding structure of Beijiang Jiaojian (北疆交建) did not show any signs of loosening.

Furthermore, it is highly likely that the major speculative funds that intervened in the early stages have not left the market.

Furthermore, this stock has reached its current position without any break in the shareholding structure.

Basically, every limit-up is achieved through continuous trading and the combined efforts of retail investors and speculative funds.

Even if this kind of price movement reaches its peak, it won't be a sharp peak.

Therefore, I am absolutely certain that the current stock's upward trend is not yet over.

Not to mention that Oriental Yuhong's stock continued to reach a new annual high during the trading session today. As we all know, generally speaking, if a stock can continue to reach a new high with decreasing volume, it means that its internal shares are still well locked up, and the large amount of funds that entered in the early stage are still in a locked-up state. In other words, this stock is likely to continue to rise in the future.

Since the stock of Oriental Yuhong has more than doubled from its bottom.

It can still reach new highs after fluctuating at high levels, and continue to create upward space.

This completely demonstrates that the large-scale infrastructure construction trend, at its current point, has not reached its end and has not yet reached the end of its phase.

This can also be seen by looking at the trend of the entire real estate industry chain in the Hong Kong stock market.

The entire Hong Kong stock market.

A large number of major buying funds have not reduced their positions or taken profits in mainland property stocks and other related core stocks in the real estate industry chain. Instead, they are clearly continuing to increase their positions. Otherwise, a number of mainland property stocks would not have risen so sharply and would not have been able to continue to rise and create room for further gains.

Moreover, today's main theme is the entire infrastructure construction.

Overall, the main funds are still showing a net inflow, and new leading stocks at low levels, such as Taihe Shares, are emerging.

Therefore, I believe this line still has great potential.

Let's look at the main sectors: liquor, white goods, and consumer electronics...

In fact, the logic behind the speculation of funds in these major sectors, or the expectations of institutional speculation, are essentially the same: the logic of consumption upgrading under the large-scale recovery of the real estate market.

Under the overarching logic of consumption upgrading.

The entire consumer sector, including liquor, white goods, retail, and consumer electronics, has a promising future.

Moreover, it is clear that the expectations and underlying logic of the consumer sector have gradually been realized, showing a trend of actual performance growth.

In other words, the underlying logic of this approach is more stable than that of large-scale infrastructure projects.

Given that future expectations continue to improve and overall valuations are not high, with little room for inflation or bubbles, where do the risks and selling pressure come from?
The underlying logic of consumption.

This can also be seen in the sustained strong performance of stocks such as Moutai, Wuliangye, Luzhou Laojiao, Haier Electric, Gree Electric, Midea Group, Haitian Shares, Lixun Precision, Goertek, and O-Film Tech…

“Old Chen’s analysis makes sense.” Liao Guoxiang chimed in, “When the market is adjusting, we should still see the positive side. At present, the two core themes of infrastructure and consumption have not shown any obvious signs of reversal and are still maintaining a good upward trend. Since that’s the case, we don’t need to overemphasize the risks. We should just follow the market trend and focus on the core themes.”

"Old Liao, have you sold some of your shares in Lixun Precision?" Chen Guiyun asked with a smile.

Liao Guoxiang said, "Just like you said, the trend hasn't turned bad, and the shareholding structure hasn't collapsed, so there's no reason to sell. I haven't sold a single share of this stock yet. Let's continue to observe, even though the performance of small and mid-cap stocks is not good today."

The market as a whole leaned towards the technology sector, while relatively less popular sectors such as agriculture, animal husbandry, aquaculture, and pharmaceuticals performed poorly, resulting in significant losses.

However, these sectors didn't have much potential to begin with, as the industry was already on a continuous downward trend.

In addition, there is a lack of overall market liquidity.

This trend is quite normal, given that various capital groups are increasingly focusing on the main themes of consumption and infrastructure.

When might potential risks arise?

I think we should keep an eye on stocks like Beijiang Jiaojian, Oriental Yuhong, Conch Cement, Qianzhou Moutai, Wuliangye, Gree Electric Appliances, and Lixun Precision... These are the stocks where various large and small funds are most concentrated and where the most active funds are gathered. We should then observe when these stocks experience a collective correction.

Generally speaking, when the core leading stocks in the main sector start to falter and begin to adjust.

Market risks are quietly approaching.

“Indeed, regardless of which direction the market chooses next, whether it goes up or down, focusing on the core leading stocks and paying close attention to any unusual movements in these core leading stocks will be the right approach.” Chen Guiyun nodded and continued, “As for the technology-related themes, which are already showing signs of losses and are seeing increasingly serious exodus of major funds, there is really no need to pay too much attention to them in the current overall investment climate, nor is it necessary to waste too much energy and position. Even if you want to buy these stocks at the bottom and make a rebound from oversold conditions, you can only enter with a small position.”

"I think it would be better to avoid or not participate in the main sectors such as film and television media, internet software, and internet applications, which are experiencing increasingly serious losses," Liao Guoxiang said. "I feel that the current market ecosystem is much more mature than before. Nowadays, funds are less willing to speculate on stocks without any performance support or future expectations. Moreover, I feel that the investment strategies of many institutional investors in the market are completely different from before."

“Yes, I feel the same way.” Chen Guiyun nodded and said, “It feels like the entire market ecosystem is changing. If we continue to use the old investment and speculation strategies, it will be difficult to make money, or at least it will be difficult to earn excess market returns.”

Liao Guoxiang smiled and said, "That's right. In reality, the essence of stock price increases—expectations, valuations, industry cycles, sentiment, positive news… all of these are superficial. The real core driving force is the continuous accumulation of funds. And the reason why funds can continuously accumulate is mainly due to the preferences of the major institutional investors with pricing power in the market, as well as the profit-making effect caused by the combined efforts of various funds." (End of this chapter)