In the past week, international market experienced a drastic volatility which was historically rare; stock market and commodity market suffered continuous sharp falls in several short days. In such a weak pattern, A-share was impossible to be immune from impacts by overseas markets. China completely relaxed its macro-control and supervisors also introduced policies favorable to markets, which would help restore investors’ confidence in after-market.
Drastic volatility of international market greatly affected short-period markets trend. Subprime wave is becoming more and more intensified. Investors were shocked by sharp falls of the market: crude oil futures price fell below USD78, 48% decline compared with its summit; US stock went down for 8 continuous trading days and for a time, Dow Jones Index dipped under 8000 points, with largest weekly decline of 18.2%; Nikkei index slumped by 9.6% on 10th, creating the biggest single-day plunge after the stock market disaster in 1987; British stock market fell by 24%, the biggest weekly down after October 1987; Pakistan and Iceland are on the verge of bankruptcy.
As for subprime crisis roots, viewpoints in market aspect are accordant, and the crisis is mainly resulted from the following aspects: monetary policies have been continuously relaxed in the past years; market demand, especially real estate demand was amplified and resulting financial derivatives further magnified gearing and credit profile. We think that although governments have taken many measures such as nationalization and capital injection to cope with financial crisis, it’s difficult to end the crisis in short time: 1) sell-off of assets, de-leveraging and credit crunch caused by confidence collapse in market will continue, and loss liquidity is still incomputable in this process; 2) losses of most American investment banks were presented, while influence on traditional banks, small and medium community banks and European banks has not been unveiled; 3) subprime crisis is bound to bring negative impact on real economy, for example, American auto sales forecast continuous decline in 2008 and 2009 compared with that of 2007, but its influence on consumption has not fully shown yet.
As of middle of September, Chinese government issued many favorable policies. Financing and securities loan are specific signal and essential action to stabilize the market, and also another important reform of market basic system after big shareholders’ increasing holdings and buy-back of listed companies; from the long run, they are beneficial to improving intrinsic stability system of price. Cuts of deposit and loan interest rates and deposit-reserve ratio indicate all-around turning of monetary policy, which helps improve economic growth target, increase market liquidity and perfect market investors’ target. Because downward real economy has not touched the bottom, we believe that loose monetary policies will continue in the future and depression mood in the market is expected to improve.
Considering underestimated: expectation and market value by subsequent favorable policies, if market plunges further, it’s a good time for long-term investors. As for investment opportunities, agricultural plate and individual stocks are hopeful to become hot points.