Chapter 5 Section 4: The Stock Market of Excess Currency Flows

Another important area to absorb excess currency is the stock market. From the very beginning, China's stock market assumed a completely different position from that of Western developed countries.One of the original purposes of setting up the stock market in my country was to serve the reform of state-owned enterprises, so that those loss-making enterprises could be brought back to life through financing in the capital market.This positioning determines that the majority of investors in China will take responsibility for the reform of state-owned enterprises. On March 15, 2000, the then Premier Zhu Rongji answered questions from Chinese and foreign journalists at the "two sessions" press conference. A reporter from "China Securities Journal" asked: "China's securities market currently has nearly a thousand listed companies and more than 40 million investors. How does Premier Zhu evaluate the development of China's securities market over the past ten years? The reform of state-owned enterprises and their escape from difficulties will enter a decisive battle this year. What services can China's securities market provide for the reform of state-owned enterprises?"

Zhu Rongji smiled and said, "It's hard to answer the question you asked." After hesitating for a while, he stood up and said, "China's securities market is developing very fast and has made great achievements, but it is not standardized. To achieve national There is still a lot of work to be done for the trust of the people and shareholders. China's stock market is very important, especially for the reform of state-owned enterprises, which is of great significance." In fact, the function of the capital market is not only financing, but also a platform to realize the optimal allocation of resources: people "lend" temporarily unused funds to enterprises that are in urgent need of development funds, and share the benefits of enterprise development, so as to achieve more Funds deposited in the bank have higher returns (compared with the inflation index, China has currently entered the stage of negative interest rates).In this case, it's a win-win.However, the initial positioning of the transfer of reform costs in the capital market means that for a long period of time, the stock market has actually been a one-way platform, that is, a platform for shareholders to transfuse blood to enterprises and powerful vested interests.

Chinese shareholders have not been able to obtain stable returns, which is not only a major factor restricting the development of China's capital market, but also an obstacle to the optimal allocation of China's resources, effectively stimulating domestic demand, and realizing the prosperity of the people and the strength of the country. Putting these aside, the role of the stock market in absorbing currency is also its duty. We know that in 2003, China gave real estate the mission of absorbing currency, and housing prices began to rise rapidly, and the stock market did the same.Different from real estate, if the stock market wants to expand its ability to absorb money, it must solve an obstacle - the problem of split shares.

In the reform of non-tradable shares, it seems that the major state-owned shareholders have given some compensation to the tradable shares, but in fact it is still the state-owned shareholders who benefit the most.Because the major state-owned shareholders did not buy shares in the market with cash when they first went public, but obtained shares and controlling rights at a capital valuation far below the real market price. Once these shares are listed and circulated, the income obtained is very amazing. On January 31, 2004, the State Council issued "Several Opinions of the State Council on Promoting the Reform, Opening up and Stable Development of the Capital Market", clearly proposing "actively and steadily solving the problem of non-tradable shares".

And this period is also the time when China's currency is on the track of super issuance.That is to say, the split-share reform has actually eliminated the stock market’s barriers to absorbing excess currency. At the same time, it has also caused the stock prices of state-owned shares to rise several times in a row, making state-owned assets bigger.The reform of split share structure has enhanced the motivation of controlling shareholders of listed companies to raise stock prices, which means that major shareholders and shareholders of tradable shares have common interests. On June 6, 2005, the Shanghai Composite Index took off from 998.23 points, and on October 16, 2007, it hit a record high of 6124.04.

A large amount of funds poured into the stock market, making the stock market an important place to absorb excess currency. Around October 16, 2007, when the Shanghai stock index reached a historical high of 6124 points, the total market value of A shares in the two cities was about 27.5 trillion yuan.On November 6, 2007, PetroChina went public with a high-profile market value of about 7 trillion yuan, making the total market value of the two cities reach 33.62 trillion yuan. After the currency continued to be overissued, the energy accumulated over the years finally burst like magma. In 2007, prices soared, burning like fire.China lacks a clear mechanism to write off currency like the Fed, which makes evaporating currency through the stock market and eliminating purchasing power an option.

Subsequently, China's stock market plummeted sharply, causing wealth to shrink rapidly, and housing prices that continued to soar immediately turned around.There are signs of deflation in the country.By October 16, 2008, the total market value of the Shanghai stock market was only 10.5 trillion yuan, and the market value in circulation was 3.1 trillion yuan.Over the past year, the total market value of the two cities has evaporated by more than 20 trillion yuan, which is equivalent to 75% of the GDP in 2007 being evaporated! If you understand the government's strict attitude towards controlling prices in 2007 when the inflation was at its worst, it is not difficult to understand the seemingly weird trend of the Chinese stock market, which is actually very clear and intuitive.The decline in the stock market will evaporate part of the purchasing power and become a shortcut to curb inflation from the source-this is one of the basis for my judgment since September 2007 when I called for short positions in A shares.

But the more important function of A-shares is financing. From the beginning of the stock market to the present, this function has always been very important.If you can't understand this point, you can't accurately judge the general trend of China's stock market. In fact, every time I think about it, I can't help but ache. In 2008, when the stock market plummeted, I also called on the government to rescue the market.My idea is: at a time when the world is suffering and many excellent companies are on the verge of bankruptcy, if China can maintain the stability of the capital market, it will be more conducive to go out and make foreign acquisitions. This opportunity is fleeting.But the actual situation is that China's stock market has fallen worse than any other country's stock market. First, it has achieved self-harm, so that it has plunged itself into a crisis, and it is no longer able to go out.

In fact, for China to buy so many US treasury bonds, it is better to buy more equity in companies - this is what I mentioned earlier - to intervene or even control some high-quality foreign companies and assets through this way.For example, Citibank, in 2006, its stock had reached 55.70 US dollars per share, with a market value of 277.2 billion US dollars, but it fell to 3 US dollars in 2008, and on March 6, 2009, it fell to 0.97 US dollars in the intraday market. Compared with the peak period, the decline was as high as 98%, and the total market value was only 5.5 billion US dollars. Compared with China's listed banks, it was only higher than the two city commercial banks of Nanjing Bank and Ningbo Bank, and lower than that of my country's A-shares at that time. other listed banks.

Not only the financial industry, but the excellent manufacturing industry in the United States also suffered a terrible decline.For example, the stock price of General Motors of the United States fell by 90% in one year, and fell to 3 US dollars by the end of 2008.For China, there are too many opportunities like this, and they are all missed. China's way of doing things lacks the view of the big chess game. We already know that financing has always been the biggest function of the stock market.That being the case, then, the stock market's ability to absorb funds will undoubtedly increase.

In 2007, the initial public offering (IPO) of the A-share market hit a historical record. The funds raised by IPOs in Shanghai and Shenzhen were about 477.1 billion yuan, plus 365.7 billion yuan in refinancing. The sum of financing in the five years of 2006 also exceeded the sum of financing in the United States, and China's IPO amount ranked first in the world.In contrast, the Brazilian and Russian stock markets, which ranked third and fourth, only issued more than US$20 billion of new shares. In the first half of 2008, when the stock market fell all the way and investors suffered heavy losses, A shares still raised 243.722 billion yuan, a year-on-year increase of 25.31% compared with the first half of 2007. In 2009, the scale of equity financing in the A-share market reached 512.526 billion yuan, ranking first in the world in terms of financing scale. In 2010, when the development of government investment reached a critical point, the government work report in March of that year proposed to "actively expand direct financing. Improve the multi-level capital market system, expand the scale of equity and bond financing, and better meet the needs of diversified investment and financing."By the end of 2010, 531 companies had raised 1,027.52 billion yuan in the A-share market (including A-share IPOs, refinancing and bond markets), making it the largest financing year in the history of A-shares.Among them, 347 IPOs raised 488.3 billion yuan, more than half of the total global IPO financing, and once again ranked first in the world. In 2010, the initial price-earnings ratio was as high as 58.33 times, and some new stocks even set a "sky-high price" with a price-earnings ratio exceeding 100 times.Many companies have overdrawn their future growth for many years.The most typical example is Hepalink, where the inquiry agency and the sponsoring agency supported each other, and the highest quotation from the inquiry agency reached 250 yuan, and the company's issue price was finally set at 148 yuan, exceeding the raised funds by more than 5 billion yuan. On May 6, 2010, Hai Purui, the most expensive stock in China, was listed and traded on the Shenzhen Stock Exchange. It opened at 166 yuan, up 12.16%. In fact, judging from the development history of the stock market, its function is not limited to financing. The simplistic positioning of the stock market is an endless source of grief for investors. It took 100 years for the U.S. stock market to expand to 800 stocks, with an average of 8 stocks per year; it also took 33 years for the Hong Kong stock market to expand to 800 stocks, with an average of 24 stocks per year.However, China has issued more than 2,000 stocks in just 20 years—this is actually a kind of bubble, a kind of bubble caused by horizontal expansion and accumulation caused by excessive financing. Due to excessive financing, in 2010, the performance of A shares in the world's major stock indexes was only slightly better than the Spanish stock index, ranking second to last in the world. The bleeding effect produced by unrestrained financing makes it difficult for A-share investors to obtain a stable return corresponding to the amount of their investment.Of course, as far as this period of time alone is concerned, since entering a new cycle in June 2010, there will be opportunities during the bubble accumulation period. The problem is that the accumulation of bubbles will burst, and after the bubble bursts, wealth will still evaporate, leaving behind It is still painful for ordinary investors, and it is difficult for the profit-making effect of A shares to remain stable and sustainable. Research by Eloylu Dimson, Paul Marsh and Mike Stanton of the London Business School believes that in emerging countries like China, the return on the stock market lags far behind the speed of economic growth, and the correlation between the two is almost does not exist.In fact, it is not difficult to understand: excessive money supply, excessive issuance of new shares, and the transfer of interests in the capital market have diluted the wealth and rights of ordinary investors. Therefore, investing in the Chinese stock market must attach great importance to this particularity.In trend judgment and stock market investment, these seemingly "external" but actually more important factors must be considered. In addition to the expansion of financing scale, issues such as insider trading are also a huge hazard to ordinary investors. The perfect information assumption in economics does not exist in reality.In the capital market, relevant stakeholders are always influencing the market in various ways to guide the market in a direction that is beneficial to them.For example, those institutions that hold heavy positions always show full confidence in the market. At any time, they are always the leaders of market sentiment, deceiving ordinary investors to follow suit, and when they throw away their stocks, they immediately change their faces and become stock investors. Singing short, in order to promote the stock market to fall, waiting to collect bloody chips from retail investors at a low level. Therefore, economist Wu Jinglian said bluntly that the Chinese stock market is not even as good as casinos. In January 2001, CCTV's "Dialogue" and "Half an Hour of Economics" broadcast an interview with Wu Jinglian. Wu Jinglian talked about his views on the stock market, during which he said, "China's stock market is very much like a casino, and it is very irregular There are also rules in the casino, for example, you can't look at other people's cards. But here, some people can look at other people's cards, cheat, and engage in fraud."This leads to the previous year, when Wu Jinglian expressed a clear view on the "shady fund" issue, and the public generalized this series of non-positive remarks as "casino theory". Casino theory is a true portrayal of China's stock market. In China, information asymmetry is the norm in the stock market.This defect has become a tool for certain interest groups to influence the market and manipulate stock prices. Coupled with the existence of regulatory loopholes and well-known corruption factors, insider trading can grow under such soil. Insider traders are "pickpockets" lurking in the securities market. While making unjustly huge profits, they also create injustice, seriously damage the confidence of investors, and shake the foundation of the capital market.Therefore, many countries are continuously increasing their crackdown and sanctions on this. Since the concept of legal system in Western countries has been cultivated for hundreds of years, the regulatory system is relatively systematic and perfect, and the concept of listed companies doing their best to serve shareholders is deeply rooted in the hearts of the people. It is not easy to speculate on concepts, tell stories, break promises, and insider trading. occur.For example, if a listed company releases good news after a certain stock rises, then the regulatory authorities may conduct in-depth investigations, and those who take advantage of information for profit will be severely punished by the law.In China, after some stocks have been pulled up several times in a row, the good news came out, and many people cast envious eyes, regretting that they did not know the relevant news in advance. The dislocation of the market has distorted the mentality of investors to such an extent! Sometimes I have to sigh that different institutional environments have cultivated different citizens, as well as different ways of thinking and behaving.In today's China, the wind of speculation is pervasive, and the lack of down-to-earth professionalism is very closely related to this system.Of course, complaints can't solve any problems. All good mechanisms are promoted by everyone's efforts, rather than waiting for them. In fact, insider trading is not difficult to trace, the key is the system. For example, there are many reorganizations in the Chinese market. Some people who have obtained non-public information in advance (such as company executives) can lay out other people's accounts in advance to hide, while keeping secrets from others, and there has been no obvious change in stock prices.Then, after the restructuring information was made public, the stock price continued to rise, and the lurkers took profits. This form of insider trading is more concealed than the behavior of profiting only by taking advantage of the time difference in obtaining information, and it is more profitable and more harmful.Because the company's executives may blindly reorganize for the benefit of hidden accounts in advance. Because this kind of reorganization uses the company's planning and shareholders' funds to satisfy personal self-interest, the quality of the reorganization is often very bad-of course, this is not insider trading. are most concerned about. Especially after the implementation of the share reform, the interests of listed companies and their executives are more closely tied to the stock price. The impulse of listed companies to tell stories and create various themes is stronger. Some executives who lack responsibility often only seek short-term effects. Ignoring the substantive effect, many investments have nothing to do with it. Therefore, I once wrote an article suggesting that the relevant departments should severely crack down on insider trading. They should not only pay attention to the changes in stock prices, but also pay attention to the substantive effects of restructuring. , Before and after the investment, along with the ups and downs of the stock price, whether there is insider trading. However, the flaws in the system determine that in China, if the stock market wants to reach the formal level of developed countries in Europe and America, it will have to go through a very tortuous and painful process.It's not just a matter of time.It is often said that there are such kind of system as there are citizens, but in fact, there is such kind of system as there are citizens.The establishment and improvement of the system has never been based on inert and slavish inferiority, but on active promotion, enterprising spirit and unremitting pursuit. There is one point that we have repeatedly emphasized.If the currency is overissued, it has already been issued after all, no matter where it is, it is real.Instead of trying to control prices in a hurry, it is better to control the floodgate of currency oversupply from the source.After all, price issues are fundamentally monetary issues. Excessive currency issuance will inevitably lead to inflation.People of insight in the field of economics have great worries about the flood of money in the future.Economists believe that M2 has grown by 450% in the past ten years. If it continues to increase, it may lead to inflation, a sharp devaluation of the renminbi, rising bubbles, and even a severe financial crisis. Liu Yuhui, director of the Economic Evaluation Center of the Chinese Academy of Social Sciences, believes that countries are at different stages of development, have different economic systems, and have different tolerances for money supply, and the indicators are not comparable.But generally speaking, the economics community generally uses the ratio of money supply to GDP to measure whether money is overissued.At present, the ratio of money supply to GDP in western developed economies is below 1, while in emerging market countries it is relatively high. Money supply is generally 1 to 1.5 times of GDP, and rarely more than 2 times. On November 2, 2010, Li Daokui, member of the Monetary Policy Committee of the Central Bank and director of the China and World Economic Research Center of Tsinghua University, said that after the adjustment of the financial crisis, my country's currency stock has exceeded 10 trillion US dollars, ranking first in the world. The proportion of GDP reached 200%.Overspeeding money supply will inevitably bring about potential systemic financial risks. Asset bubbles, financial institution operating risks and capital flow risks must be paid close attention to. "Excessive money supply will cause asset prices to rise too fast, forming a bubble. Once the formed bubble suddenly bursts, it will bring about a series of balance sheet problems for households, investors, financial institutions, and enterprises." Li Dao Kui suggested that macroeconomics should pay attention to asset prices, and even control asset prices.The systemic risks mentioned by Li Daokui also include the decline in the operating conditions of large-scale financial institutions, and the transition from excessive affluence to tightness of funds-the global transition from excess liquidity to "cold shower". If there is an orderly and large-scale outflow, it will have a serious impact on the economy. Also warning was Xia Bin, an adviser to the central bank's Monetary Policy Committee and director of the Financial Research Institute of the Development Research Center of the State Council.He said at the Davos Forum in September 2010, "The new Basel agreement has reduced the leverage ratio of non-central banks to create money, but if the central bank is still inconsistent and creates a huge money supply, the crisis will still break out."He called for controls on currency issuance. But a slowdown in China's money supply is next to impossible. Zhou Qiren, member of the Central Bank's Monetary Policy Committee and dean of the National Development Research Institute of Peking University, wrote: "What is more distinctive is that China has taken a different path from most developed countries. In those places, the ratio of currency stock to GDP exceeds 90%. The high point will turn down. And China's currency trajectory continues to climb. We may need new verification to see whether asset marketization drives higher currency demand than product marketization? But before drawing conclusions, institutional analysis It can also lead to problems in another direction: if the process of monetary deepening stagnates or reverses, then the excessive money stock will reduce the 'consumption demand', which in turn will suppress general commodity prices and asset prices, causing inflation and certain asset prices. The skyrocketing prices." Then, China will inevitably go to the road of the game with the bubble, defeat the bubble, or be destroyed by the bubble.Beyond that, there seems to be no middle ground to choose from.