The SSE Composite Index resumed recovery after an adjustment for half a month and is close to 3,300 points. As the policies and fundamentals remain stable, this round of surging is driven by the improved risk preference. However, the surging driven by the market sentiment is not solid. It is still uncertain whether it will surpass 3,300 points.
Analysts indicated that as the index surges for one week, the problem of insufficient transactions has been increasingly exposed. It is difficult to benefit from the surging index and make profits at the same time. However, the current condition will benefit the medium market conditions. Investors are advised to pay attention to leading stocks with continuous improved performance and valuation to make long-term profits.
SSE Composite Index close to 3,300 points
The SSE Composite Index resumed jumping last week. Cyclical stocks represented by iron & steel and property recovered after the previous calmness. The relatively low valuation of securities companies stocks also caught the attention from capitals. Cyclical stocks and financial stocks contributed to the recovery. Besides, the ChiNext Price Index jumped above 1,800 points, which boosted the demand. The SSE Composite Index surpassed the five-day, ten-day and 20-day averages and may further jump in short term.
The SSE Composite Index opened slightly higher and jumped later yesterday. Boosted by China United Network Communications Limited (600050.SH), which soared by the daily limit of 10 percent, the nonferrous and financial sectors, it closed 0.10 percent higher at 3,290.23 points. It has closed high for four straight days. Compared with the previous three trading days, it showed that the market is further bullish and it may further hike.
As a representative for higher risk preference, the trend of margin capitals also shows the trend. The SSE Composite Index declined from August, but margin capitals were further bullish and the margin balance has been hiking significantly against the trend. It soared from 900 billion yuan at the beginning of August to 924.204 billion, hitting a new high in three months.
Meanwhile, after the ChiNext Price Index jumped above 1,800 points, the half-year average brought further pressure on the index and the index has been fluctuating around the average. As a result, the SSE Composite Index enjoys advantages to further hike. Firstly, the lower economic data has lower effects on investors’ than expected and the market risks preference is still high, which will boost the index further higher. Secondly, medium and small stocks are solid on the whole. If the stock pattern further squeezes, the SSE Composite Index is very likely to jump above 3,300 points.
However, based on the performance of the market, capitals are unlikely to boost the weight sector. On the one hand, with the declining of the ChiNext Price Index, the intraday turnover has been declining from nearly 100 billion yuan to about of 70 billion yuan. The turnover on the main board of Shanghai and Shenzhen stock exchanges also shrank significantly. Although the SSE Composite Index advances towards 3,300 points, the basis supporting the surging of the index is not solid.
Two bottlenecks to break
The turnover always precedes over the price in the A-share market. Without the support of the turnover, no surges will last long. What is the fundamental of the bullish capitals in the recent surging trend with a shrinking turnover?
The answer is the consistent expectation. Based on the analysis of Wanlian Securities, investors currently have consistent expectations on the fundamental and policies. The weak economic data and the tight capitals in short term have no significant effects on the market. As a result, the SSE Composite Index hiked with a shrinking turnover last week. However, as the stock capitals will gradually cut positions, the bullish force in the market will reduce and the turnover will also decline.
However, based on the SSE 50 Index leading the surge in the market yesterday, there are no clear signs on capital increases in the market. The SSE 50 Index hiked 1.02 percent yesterday. The surging component stocks contributed to the hiking SSE Composite Index. But the intraday turnover of the sector was only 37,445 million yuan. Despite an increase of less than 10 billion yuan, it is far below the turnover of 50 billion to 60 billion yuan for cyclical stocks in July. The overall market liquidity has been stable since July and the A-share stock pattern remains unchanged. With the hiking of the index, bullish forces may see differentiated performance. On the one hand, some will continue to support the index. On the other hand, some capitals will exit after making profits. It is noteworthy that the surging SSE 50 Index is also boosted by China United Network Communications Limited, which soared by the daily limit of 10 percent. The turnover of the stock surged significantly to 6,248 million yuan yesterday.
It is also noteworthy that after the chaos of hotspots in early August, the market gradually reaches consensus on the short-term performance. Cyclical stocks and the ChiNext Board performed one after another. As for capitals, margin capitals and ordinary investors change stocks in the two sectors. However, it also has obvious drawbacks. Firstly, it boosted the consumption of capitals as the market swings between the surging index and making profits. Secondly, the rapid changes of hotspots are not beneficial to capitals. The fluctuation of the SSE Composite Index is expected.
In the short term, analysts believe that unless the market can see outstanding performance of growth and leading stocks, the SSE Composite Index may fail to jump over 3,300 points again. Whether growth stocks can remain active concerns the expansion of hotspots and the entering of new capitals. Otherwise, even the SSE Composite Index hit 3,300 points, the disorders capitals may drag it down soon.
Crisis coexists with opportunities
Under current market conditions, it is difficult for the SSE Composite Index to stand above 3,300 points. But it does not mean that such efforts are meaningless.
On the one hand, the SSE Composite Index failed to jump over 3,300 points many times in nearly two years. It means that it faces much pressure in surging to the point. However, the basis has been consolidated each time, making it easier to hit the level next time. Based on the K line, the highest level each time has been hiking.
On the other hand, it also safeguarded the bullish forces as the market has limited new capitals, which will further boost bullish forces. On the contrary, without the support of turnovers, the index may plunge even if it managed to surpass the level.
It also shows that the market is full of crisis and opportunities currently. In the short term, gaming risks are increasing with the hiking of the index. Analysts advised investors to jump out of growth stocks and cyclical stocks and defend for medium and long-term investment.
China Galaxy Securities believes that the periodic performance of cyclical stocks is just a recovery instead of the beginning of a new cycle. The recovery is not expected to last long. The recovery of certain growth stocks represented by the ChiNext Board with significant declines will be affected by the declining performance and the hiking valuation. There are insufficient conditions and basis for the hiking of the ChiNext Board. On the whole, the market will focus on consumption and big finance while investors have to choose individual stocks for the ChiNext Board.
Based on the changes in the industrial sectors of the A-share market since 2010, Huatai Securities believes that the market share and profitability of leading stocks will increase. Investors are advised to follow the investment strategy of “following leading stocks”.
Translated by Coral Zhong
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