Fu Peng: Whether it's the capital market or real estate, policies are meant to "control" and "stabilize" rather than let them go wild. There will definitely be a price to pay after going crazy

After the "Miracle 5-Day" performance of A-shares before the National Day, the hot market has slowed down after the holiday. Will the market see another surge or continue to fluctuate?

Feng Peng, Chief Economist of Northeast Securities, interpreted recent policies and the market in two recent Northeast FM talk shows.

Key points summarized by the investment homework representative are as follows:

1. If the economy really picks up, then the previous market fluctuations will not be so exaggerated, and everyone will gradually return to normal economic logic, and then wait for the economy to weaken again.

2. We are unlikely to see a real estate market boom like in 2015 again.

3. In the current market and real estate market, I believe that policies have clearly defined two key words: "stop" and "stabilize".

The primary task is to prevent the economy from further decline, avoiding entering a vicious cycle, from the household sector to the corporate sector negative feedback.

Secondly, "stabilize" means to stabilize the current market conditions and people's expectations.

1. In the next three months, the real pressure may shift to the Ministry of Finance. What we need to pay attention to is whether new fiscal policies will be introduced, whether these policies are leveraged or unleveraged, short-term or long-term. This is more important than simply focusing on the policy amount.

2. Currently, from a macroeconomic perspective, people hope to see more fiscal policies introduced during this period. During this time, we may experience weak economic data, but strong market expectations, which is the logic between weak economy and strong expectations...

In the next three months, what we really need to guard against is repeating the mistakes of 2015 and 2016.

Feng Peng emphasized that whether it is the economy, capital markets, or real estate, it is now about "stopping" and "stabilizing". It is not about making you go crazy, because who will bear the cost after going crazy. The essence of the policy is to get rid of some current predicaments, but not to let everyone rush to KTV at every opportunity. The central bank also emphasized the need to prevent funds from illegally entering the market, especially credit funds.

Below are the highlights compiled by the investment homework representative (WeChat ID: touzizuoyeben), shared with everyone, with some excerpts from Sina Finance:

When government departments take action is key to hedging economic issues

Q: There were some significant fluctuations in the domestic market before the National Day, do you think the current public perception of the market is correct?

Feng Peng: The relationship between the economy and the stock market is neither completely a barometer nor completely unrelated. It is only when expectations are set, policies are implemented, and effects are transmitted to the corporate sector and the household sector that they begin to have a relationship.

From the three financial giants in the financial sector holding meetings, to a series of unconventional actions later on, many people do not know that we usually do not hold the Central Political Bureau work conference in September, let alone discuss economic issues at this time. However, this time we very rarely held such a meeting at this time What does this mean? In fact, it's quite simple. We are facing tremendous economic pressure and need to make some adjustments. So, what does the current financial market reflect? Is it just reflecting economic issues?

When discussing economic issues, we usually consider situations of oversupply or undersupply, as well as situations of excess demand or insufficient demand. These are the two basic aspects of economic analysis. Later, I specifically consulted with Professor Yu Yongding about why the demand side is always emphasized in discussions rather than the supply side. My understanding is that whether it's demand or supply, they are both two aspects of the problem.

You may have noticed that in all economic forums in September, everyone was discussing "insufficient effective demand." Yes, effective demand. But later, when I asked Professor Yu, why in the Chinese context do we always put insufficient effective demand ahead of oversupply? He explained that in the Chinese language, there is a significance to this expression, and whichever comes first actually implies where the focus of the problem lies.

Regarding the leverage ratios of Chinese corporate and household sectors, this is crucial because it will determine the direction of your policy adjustments.

In simple terms, when there are economic problems, your adjustment options are essentially whether to increase leverage in the household sector, in the corporate sector, or to deleverage in the corporate sector, increase or decrease leverage in the financial sector, or increase or decrease leverage in the government sector.

Just like now, many people are actually discussing when fiscal policies will be implemented, they are actually discussing when the government sector will start taking action, which is the key core that can truly hedge the current economy.

Policies are rapidly implemented recently, just like during the 2008 financial crisis, and the same goes for supply-side reforms and during the epidemic period. When the pressure reaches its limit, policies will be relaxed. At the turning point of the economy, the market's reaction is often extreme, which is known as the forcing mechanism.

In China, many things do not develop naturally. We are always swinging between two extremes, and when balance is needed, a balance point will naturally be found. For example, during a stock market crash, when the market reaches its peak, regulatory authorities will issue warnings and require deleveraging. If I remember correctly, they usually take action about a month in advance. Nevertheless, the market often continues to be crazy for a while before truly starting deleveraging.

The relationship between our stock market and the economy is also like this. In extreme situations, the stock market seems unrelated to the economy. But in moderate times, the stock market can reflect the true state of the economy. This answer is actually quite clear.

Preventing economic decline and preventing bubbles

Question: Some people say that if everyone makes money using leverage this time and saves the money, won't life improve?

Fu Peng: I believe most people actually understand. I mentioned before when discussing real estate that as long as the rise in house prices is in a certain proportion to rental income, it cannot be called a bubble.

Just like during the 2004 U.S. subprime mortgage crisis, the U.S. faced the issue of a large number of vacant houses, declining rental income, and rising house prices, which was clearly abnormal The stock market is the same. Its long-term value definitely comes from the profits created by companies and the returns to shareholders, which is the core. The fluctuations in the market come from speculation and trading of stocks.

The logic behind speculation and stock trading is similar to real estate. If you bought a house for 2 million and it later rose to 6 million, when you sell it, you must consider who is willing to pay 6 million to buy it. In the end, you will realize that one person cannot single-handedly drive the entire economy. If it is just a redistribution of wealth, then no new wealth is actually created.

Therefore, we need to prevent both economic downturns and the formation of bubbles. When you identify significant potential risks in the economy, you should anticipate that policies will be implemented to hedge against them.

Policies are starting to influence economic expectations, allowing everyone to invest freely

Question: Please analyze and interpret the recent policies.

Fu Peng: Currently, my view is to let everyone invest freely first, after all, policies have provided support to the market, and policies are starting to influence economic expectations. If we follow normal economic logic, after the policies are introduced, everyone's expectations will rise, and then we will wait to see if the economy can really pick up.

If the economy does pick up, then the previous market fluctuations will not be so exaggerated, everyone will gradually return to normal economic logic, and then wait for the economy to weaken again. In fact, the period after the stock market crash was good, the market provided very positive feedback.

Wealth transfer through real estate turnover is unlikely

Question: After this market performance, will it drive the real estate market like in 2015?

Fu Peng: Personally, I don't think we are likely to see a real estate market boom like in 2015. First of all, although young people today have the drive and pressure to make money, their interest in buying property may not be very high.

In other words, when considering all issues, we should focus on what the most core issue we are currently facing is. Currently, our core issue is how to stimulate effective demand in the residential sector.

I remember at the Wudaokou Forum on September 28th, Mr. Yu (Yu Yongding) raised a point, he believed that the only way to address effective demand in the residential sector is to improve the level of capital and human capital. In fact, this means raising people's incomes, providing financial support, ensuring their income stability and job security. This is the most crucial issue.

Rather than as many people currently hope, achieving wealth transfer through real estate turnover, such as whether the post-95s can take over properties from the post-80s, I think the probability of this happening is not very high. In the end, it may still be wealth transfer between the post-70s, post-80s, and post-60s that is possible to happen.

For the capital market and real estate market, policies have clearly defined two key words: control and stability

For the current market and real estate market, I believe policies have clearly defined two key words: control and stability. The primary task is to prevent the economy from further decline and avoid entering a vicious cycle, from the negative feedback from the household sector to the corporate sector.

Secondly, stability means stabilizing the current market conditions and people's expectations. Prevention and stability are crucial, we must not repeat the mistakes of 2015 and 2016, the cost of which was enormous, and we need to remain rational.

What we really need to guard against in the next three months are the mistakes of 2015 and 2016

Q: Approximately when can it be confirmed or refuted?

Fu Peng: Simply put, the second half of this year may not be enough time to achieve a rapid economic transformation, which is why we feel very urgent now.

Firstly, the current worst situation has been to some extent under control. I believe that in the next three months, what we really need to guard against is not an immediate turnaround of the economy, as economic changes are a slow process. The effects of numerous policies take time to manifest, which is usually a slow variable. It may not be until after the Spring Festival next year that people will begin to calmly discuss and verify the effects of these policies.

Secondly, in the next three months, the real pressure may shift to the fiscal department. What we need to focus on is whether new fiscal policies will be introduced, whether these policies are leveraged or unleveraged, short-term or long-term. This is more important than simply focusing on the amount of the policy.

Of course, if the policy amount exceeds expectations, that is also acceptable. But if the policy amount is lower than expected, then there may not be a need to discuss its structural issues.

Policies can generally be divided into leveraged and direct subsidy policies. Leveraged policies, such as lowering mortgage rates, aim to stimulate demand by reducing borrowing costs. However, this type of policy still requires residents to borrow, thereby increasing leverage. Direct subsidy policies, such as directly lowering existing mortgage rates, directly reduce residents' debt burden.

The effects of these two types of policies are different. Indirect policies, such as fiscal policy, may require residents or businesses to increase debt to stimulate total demand or supply. Direct policies directly reduce the burden and support demand. We need to understand the difference between the two.

Fiscal policies are further divided into short-term and medium-to-long-term based on their time frame. For example, if fiscal policy is used for infrastructure construction, it is a short-term stimulus to total demand through government action; whereas if fiscal policy is used for compensation in the household sector, such as pensions, social security, healthcare, and education subsidies, these are long-term policies. Although these policies may not immediately boost total demand in the short term, they have long-term benefits.

Currently, from a macroeconomic perspective, people are more hopeful to see more fiscal policies introduced during this period. During this time, we may experience weak economic data but strong market expectations, which is the logic between weak economy and strong expectations.

So, what do we really need to guard against? I believe that in the next three months, what we really need to guard against is repeating the mistakes of 2015 and 2016.

The essence of the policy is to break free from the dilemma, not to rush to KTV

All of our policies are currently aimed at hedging the economy, or you could say boosting confidence. If this market heats up, it can boost confidence to some extent. Some people say this is actually fine, there's no problem picking faults.

But fundamentally, the essence of these policies is to get out of some current dilemmas, not to let everyone rush to KTV all the time. Yesterday we were joking, because I mentioned before that when this market is too happy, the market remembers, and I'm not sure about this memory.

Today, we were also in communication with Northeast Securities. It seems that the age group of new account openings from the holidays until now mainly focuses on 20-year-olds, with some in their twenties. In my opinion, when I calculate, I find that they may not have actually experienced the magnificent leveraged market and market trends of 2014, 2015, and 2016, as well as what happened at that time and the consequences it brought. I guess they may not really understand.

Risk Warning: If the market becomes too irrational in the future, there will definitely be trouble

But as I said, you see the central bank saying in advance that we must prevent this capital from illegally entering the market now, especially the illegal entry of credit funds into the market, why?

Because during the holidays, I believe some consumers may have received calls. "Brother, need money? We can offer you consumer loans." I guess in front of the camera, there should also be people who have received such calls, I often receive them. They can't directly say it's to avoid compliance, because compliant consumer loans or operating loans cannot be used for investment.

Of course, when we talk about this risk, if in the future everyone in the market becomes too irrational, loses their reason, there will definitely be trouble.

When something goes wrong, someone has to take the blame, so who will take it? Think about the cost back then, what price did each department pay for it, I believe if you look back, this is not hard to understand.

Our financial policy serves the real economy, boosts the capital market, but does not let the capital market go crazy. In other words, as I mentioned before, it is "stop and stabilize." (Prevent the economy from further decline, stabilize the current market conditions and people's expectations, and must not repeat the mistakes of 2015 and 2016)

Whether it is the real estate economy or the capital market, it is these two words, "stop and stabilize." Remember, whether it's the economy, the capital market, or real estate, it's all about "stop and stabilize" now, it's not about letting you go crazy, because who will bear the cost after going crazy.

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Source: Investment Homework Pro Author: Wang Li