On September 21st, Li Xunlei recently made significant market commentary, stating that the Shanghai Composite Index and CSI 300 remain at reasonable valuation levels. He noted that A-shares prefer storytelling over valuation analysis, and emphasized that numerous policy tools remain available, allowing for cautiously optimistic market outlook.
1) Current stock market rally driven by valuation expansion. Li Xunlei indicated that this round of stock market gains primarily stems from capital-driven valuation improvements, triggered by declining interest rates. Since late September last year, the market has experienced approximately 35% gains, with valuation levels rising by over 30% on average, while corporate earnings growth contributed only about 1.7%. Therefore, the market rally has been predominantly driven by valuation expansion.
2) Valuation expansion backed by declining interest rates. What drives valuation improvement? Market interest rates have declined, particularly deposit rates, while China-US trade negotiations exceeded expectations, encouraging off-market capital to enter the market. Regarding current valuation reasonableness, he believes overall levels remain relatively reasonable without obvious bubble formation.
3) Don't expect excessive deposit migration scale. He believes the scale of market entry shouldn't and won't be exceptionally large. A-shares currently have a total market capitalization of just over 100 trillion yuan, while bank deposits exceed 160 trillion yuan. It's unrealistic to expect all deposits to enter the market, so expectations for market entry scale shouldn't be too high, considering much of the money in banks represents low-risk appetite "survival funds" for ordinary people.
4) Interest rate levels may continue declining, bond markets still offer entry opportunities. Although recent stock market enthusiasm has caused treasury yields to rise noticeably, he doesn't believe 10-year treasury yields can reach above 2%. Above 2% presents buying opportunities.
5) Shanghai Index shows no bubble characteristics. The CSI 300 index trades at approximately 14 times earnings, compared to the S&P 500's 29 times and NASDAQ's 41 times. Regarding dividend yields, CSI 300 offers around 2.6%, while S&P 500 provides 1.2% and NASDAQ 0.7%. From both dividend yield and P/E ratio international comparisons, A-shares remain at relatively reasonable positions, especially considering the US remains in a high inflation phase.
6) A-shares require growth and earnings improvement for sustained bull market. A-share market rebounds depend on declining deposit rates driving valuation improvements, but sustained bull markets require continuous corporate growth and earnings expansion. A-share listed companies achieved only 2.5% average earnings growth in the first half of this year, representing insufficient performance. Market momentum sustainability depends on future years' earnings expectations, requiring continued policy support.
7) Going forward, continued A-share advances should provide some support for Hong Kong stocks. Southbound capital's pricing power in Hong Kong stocks should strengthen progressively, creating structural market opportunities. Diversified allocation remains important.
8) Warning about US stock risks. US stock valuation levels appear significantly elevated. Despite potential Federal Reserve rate cuts (referenced September 17th morning speech) that could boost US stock valuations, American inflation pressures persist, suggesting caution regarding excessive US stock allocation.
Diversified investment across A-shares, Hong Kong stocks, bond markets, gold, commodities, and other markets may prove more appropriate as a multi-market allocation strategy.
9) A-shares prefer storytelling over valuation analysis. The STAR 50 index has performed well recently, but its P/E ratio significantly exceeds NASDAQ levels. While unable to disprove AI's potential impact, A-share markets' storytelling characteristic is its inability to be immediately disproven, allowing stories to continue indefinitely, though risks require attention.
10) This rally shouldn't become too extreme. Current conditions differ from 10 or 20 years ago. A decade ago, during the real estate upward cycle, household sectors were expanding balance sheets, whereas now they're contracting, preventing excessive market bubble formation. Markets can maintain cautiously optimistic outlook.
11) Market confidence remains strong regarding policy. Currently in September, last year's "9.24" rally primarily resulted from advanced policy implementation. What policies might emerge in Q4 this year or next year?
Next year marks the first year of the "15th Five-Year" plan, with many tools remaining in the policy toolkit. Market confidence remains strong while maintaining rationality.