Rebirth of the Capital Legend

"If Tianci Materials hadn't been dragged down by Shuguang Shares today, it would most likely have continued to rise sharply, or even hit the daily limit, right?" Zhang Wei responded to Zhao Zhiyuan's surprised voice. "As for Beijiang Jiaojian, its trading data is not surprising. If it weren't for Shuguang Shares' sudden drop in the afternoon, which triggered a brief and rapid panic selling, Beijiang Jiaojian would probably have been locked at the daily limit until the close, without any intraday volume."

Overall, the lithium battery sector was originally part of the major infrastructure and new energy industry chain.

The market trend hasn't ended yet, so it's perfectly normal to see this kind of data reflected in the stock exchange's trading records.

However, the net purchase amount of major funds disclosed in the stock trading data of Taihe Co., Ltd. is somewhat surprising, with a net purchase of more than 4000 million yuan.

The free float of this stock was not very large to begin with.

This net buying amount is still quite remarkable given the current market's continued decline in trading volume.

Looking at the major funds that rushed to buy Taihe Shares today, will they dump the shares during trading tomorrow? If the major funds that bought this stock on a large scale today can lock in their positions tomorrow, then the subsequent performance of Taihe Shares is truly something to look forward to.

Who knows, it's not impossible that another "Northern Xinjiang Jiaojian" team might emerge.

After all, there is still much to explore in the infrastructure sector.

Moreover, compared to other mainland property stocks in the Hong Kong stock market, none in the real estate sector have yet achieved a growth rate comparable to the leading mainland property stocks in Hong Kong.

Look at the stock price performance of several leading mainland property companies in the Hong Kong stock market.

Whether it's Rongchuang Co., Ltd., Hengda Real Estate, Country Garden, Longfor Properties, etc., their stock prices have basically more than doubled from their lows.

However, the core stocks in the real estate sector of our A-share market, such as Poly Real Estate, China Merchants Shekou, Gemdale Group, Kewan Real Estate... the leading companies, have not even increased by 50% since their bottom, let alone doubled.
Other second- and third-tier real estate stocks also saw similar increases.

I think that as expectations for the real estate industry improve, people's expectations are also rising.

This sector is certain to produce several stocks that double, triple, or even five times in value. Currently, Taihe Shares seems to have a very good chance of achieving this.

“Taihe Shares is indeed a stock worth paying attention to,” Liang Jiucheng responded upon hearing this. “However, in terms of the overall market trend recently, the sectors with the most capital in the real estate industry chain and even the main infrastructure sector, with relatively good expectations and relatively clean shareholding structures, are still the building decoration and building materials sectors. Among them, ‘Oriental Yuhong’, which belongs to the building decoration sector, is currently the only core leading stock in the entire main infrastructure sector with a gain of over 150%.”

I think it's about the entire real estate industry chain, and even the main infrastructure projects.

To further expand upward potential and increase the speculative potential of leading stocks in the relevant sectors, it is necessary to...

We still need to focus on 'Oriental Yuhong' as the core leading stock to create room for growth first.

Of course, compared to the previous few days, the overall bullish sentiment in the market has clearly declined today, and the overall loss-making effect in the market is also quite significant.

Given this sentiment, it's understandable that the infrastructure sector has seen a correction in recent days.

"It feels like today's market trend is the end of a phase of market activity," Zhao Zhiyuan thought for a moment and continued, "In the previous market trend, the main themes of major infrastructure, new energy industry chain, and smartphone industry chain were basically advancing in tandem. Now, after the sharp drop in the price of Shuguang Shares, the new energy industry chain should be coming to a temporary end."

Today, the smartphone supply chain is not progressing strongly enough.

Although leading stocks in the core smartphone industry chain, such as Lixun Precision, Goertek, O-Film Tech, and Lens Technology, still maintain a relatively strong performance, their shareholding structure has not been significantly dispersed, and their candlestick patterns have not shown signs of trend reversal.

However, in terms of capital volume and the willingness of various major buying groups to actively absorb the market during trading hours.

It's clearly much weaker compared to before.

This shows that this line was also greatly influenced by emotions.

The new energy industry chain is likely to enter a period of adjustment. Meanwhile, the smartphone industry chain, with the decline in market sentiment and the upcoming Apple product launch, is unlikely to continue its upward trend for long without new positive expectations.

However, if the smartphone supply chain also enters a period of adjustment...

It seems unlikely that the currently strong infrastructure sector will be able to continue supporting the market and maintaining a high level of bullish sentiment.

If these core themes start to show a series of losses.

There has been a situation where a large amount of major funds have been continuously withdrawing.

I think the market's future trend is unlikely to be very good. It will most likely return to the pattern of gradual shrinking volume and continuous downward fluctuations seen in the first half of the year.

After all, the index is currently at this level...

It's not high in the traditional sense, but it's not low either. At this point, a large amount of profitable funds have accumulated in the market. Once the overall market sentiment continues to decline, these large amounts of funds that have already profited will inevitably take profits, thus suppressing the market.

Therefore, I don't think the subsequent market trend will necessarily be very optimistic.

“If even the major infrastructure sector can’t hold up, then the other main sectors of the market are even worse off.” Zhang Wei responded to Zhao Zhiyuan’s words, “In the current market, which other sector has a stronger expectation than the major infrastructure sector? Which other sector has such a clear and definite future prospect?”

"Do liquor and white goods count?" Zhao Zhiyuan replied.

Liang Jiucheng smiled and said, "Liquor and white goods are examples, but in terms of overall valuation and the increase from the bottom, the valuations of the major sectors of real estate, construction and decoration, and building materials in the major infrastructure sector are definitely lower than those of liquor and white goods. So if the major infrastructure sector can't hold up, then... there will naturally be no reason for the liquor and white goods sectors to continue to be hyped."

“But it seems that the main institutional investors in the market still prefer to invest in stocks in sectors such as liquor, white goods, and food and beverage,” Zhao Zhiyuan said. “Although there are obvious differences in valuation between the two, in terms of certainty, especially in the long term, I feel that the ‘consumption’ sector seems to have the upper hand.”

“In the A-share market, it’s not long ago that major institutional investors have favored consumer stocks, or rather, businesses that directly face consumers,” Liang Jiucheng said. “It is precisely because of this unique capital preference in our A-share market that the valuations of liquor and white goods sectors are generally higher than those of other traditional industry sectors.”

"Is there really no hope left for the three major sectors of film and television media, internet software, and internet applications?" Zhao Zhiyuan paused and continued to ask, "It feels like these three sectors have been completely abandoned by funds. Moreover, LeTV, Baofeng Technology, and Wanda Films... these leading stocks with heavyweights are already showing signs of accelerated decline and collapse. I'm really worried that these stocks and these sectors will drag down the market and ultimately drag the entire market down with them."

“I knew from the time Baofeng Technology went public that the company’s operations were not solid and its future development plans would be difficult to implement,” Zhang Wei said. “This stock will most likely continue to decline and hit new lows, but any rebound will be the perfect opportunity to get out.”

"You're so pessimistic about this stock?" Zhao Zhiyuan asked, somewhat surprised.

Zhang Wei responded, "It's not that I'm pessimistic, but the company behind this stock is really not up to par in terms of future planning and current business strategy. At best, it's just a small company, but its market value is still over 10 billion. Even if the company's business situation improves in the future, I think the current stock price would have to be discounted by 50% or 40% for it to be worthwhile for speculation."

“Speaking of Baofeng Technology stock…” Liang Jiucheng thought for a moment and said, “I think LeTV stock is also seriously overvalued, and the company’s future is probably going to be very difficult.”

Zhao Zhiyuan said, "This stock has quite a few fans online, so I dare not speak carelessly. However, given the current stock price, I definitely will not participate in LeTV. Of course... even if the current stock price is halved again, I still think it is overvalued."

"So, the reason why core stocks in sectors like film and television media, internet software, and internet applications have been falling continuously is because the overall valuation of these sectors is slightly overvalued, right?" Zhang Wei said. "If the stock price and valuation were cheap enough, there should still be relatively good future prospects, right?"

Liang Jiucheng said, "The recent weakness in sectors that lean towards the technology theme, such as film and television media, internet software, and internet applications, is not just a matter of valuation. I think the main factor is the preferences and biases of the market's major funds."

“Yes, that’s what I think too,” Zhao Zhiyuan said. “In the current market, various capital groups prefer large-cap stocks and mid-cap growth stocks. They are not very willing to take on pure concept stocks, stocks with uncertain future prospects, or stocks in sectors or industries that are still in a downward trend.”

Even if some major positive developments occur at a certain point in time.

The funds that come in briefly are mostly just for short-term or even very short-term speculation, with no intention of holding them for the long term. This naturally makes it difficult for the overall shares in sectors that are more technology-oriented, such as film and television media, internet software, and internet applications, to truly settle down.

When the internal chips cannot be settled, there are too many floating chips.

Furthermore, as the positive feedback was completed, the buying power further declined, and sentiment returned to calm.

Therefore, when the subsequent buying forces are unable to offset the continuous selling pressure in the market, the stock price will naturally continue to fall.

In my opinion, given that the overall market's main capital flows haven't shifted towards these technology-oriented themes, as well as a host of small and mid-cap stocks, we should still follow the market's own trend and focus our attention on the slightly stronger infrastructure theme.

What is there to say?

Only by engaging in speculation where market sentiment is most bullish can one earn excess returns exceeding market index performance, or in other words, have a high probability of making a profit.

If you go against the trend, you can gamble on the main sectors and individual stocks that are already experiencing significant losses.

Even if you make the right move temporarily, it will probably be difficult to leave with profits.

Moreover, going against the trend, even if you make money temporarily, is based on a flawed trading model. If you profit this time, there's no guarantee you won't lose even more next time.

“That’s right. Trading rules and trading models are more important than simply making money,” Liang Jiucheng said. “Money earned in the wrong way will eventually be returned to the market. After all, money earned by trading in the wrong way can only be said to be earned by luck, and money earned by luck will definitely be returned to the market by luck in the future.”

"According to what you two said..." Zhang Wei responded, "then the only core themes that can be traded in the current market should be the major infrastructure theme, and the liquor and white goods sectors, right?"

Liang Jiucheng nodded slightly and said, "That's about right."

"Actually, the steel and coal sectors have been performing quite well recently," Zhao Zhiyuan paused, then added, "Moreover, the market's overall attention to these two sectors is not high, and people's expectations for them are not very high. Given that valuations are cheap and the industry fundamentals have shown initial signs of a turnaround, there is still a high probability of reaping excess returns from the market by investing in these two sectors."

“Yes, the prices of rebar and coking coal have indeed been rebounding recently.” Liang Jiucheng nodded and said, “However, how much of this price change in the futures market can be transmitted to the stock market, and whether this rebound can form a final reversal, still needs to be observed. It is a bit too early to draw conclusions now. Simply put, the steel and coal sectors are still in the left-side trend.”

After listening to Liang Jiucheng's words, Zhang Wei pondered for a moment and said, "I think we should pay close attention to these sectors. Indeed, after experiencing extreme overcapacity and supply-side reforms, the fundamentals of these two sectors are showing signs of a fundamental reversal. Although the current trend of the core stocks in these two sectors is still in the less certain left-side phase, many stocks within these sectors have suffered significant losses and are now very undervalued. Even with insufficient certainty, in the worst-case scenario, even if you make a mistake, you shouldn't lose much money. From a risk-reward perspective, it's still very worthwhile to gamble on." (End of Chapter)