The Shanghai composite index can rise to 4000, +/-200, because the Shanghai Stock Exchange has effectively broken through our previous 3400 price targets. 3400 is also the important resistance point that we predicted more than three months ago. The effect of reducing interest rates and RRR on the market has diminished. But some central bank's expansion measures, such as the recent Treasury's debt swap program, still support the price of risky assets. However, China's stock market is no longer cheap, and the final hundreds of sprint will be full of huge market volatility.

Shanghai's stock market has continued to climb, successfully breaking through the resistance point of 3400 points. The 3400 point is the first target price we set in December 5, 2014, which is a strong resistance that we foresee more than three months ago. At the same time, this resistance point is a bubble level that has never been seen since China launched the stimulus measure of RMB four trillion yuan. At present, the median market rate of A share market is 4.3 times, and the median of P / E is 56 times. Only about 1/5 of the shares are below the market rate of 2.6 times, and the P / E ratio is less than 36 times. Shanghai stock market has become very expensive.

In January 19, 2015, the China Securities Regulatory Commission investigated two financial transactions, Shanghai. equity market It fell 7.6% in a single day. Although we predicted the range of stock market adjustment by comparing the market situation of the "5.19" event in 1999, we also proposed the possibility that the Shanghai stock market could climb up to 4200 in the case of extreme bubbles. The premise is that the Shanghai stock market can eventually effectively raise the important resistance point of the 3400 point. In addition, we have also detailed the 4200 point level of the calculation. At present, Shanghai has broken through resistance and begun to move towards new fields. And what will the ending be like?

Recently, we visited one of the poorest areas in China and saw some projects. The mountain town, once a remote area, has been transformed into a huge construction site. Many residential projects are being developed synchronously. A site is claimed to have a total living space of 1 million 800 thousand square meters. After completion, it can accommodate more than 500 thousand residents. In a city with more than 3 million residents, the project will be difficult to sell. In addition, several other similar projects in the city will undoubtedly make the sale of this property more difficult. One of the selling points of the project is that the surrounding environment is quiet and natural. However, we passed through bulldozers and dusty building land, and we saw the only wild animal, an image of a solitary seagull on the commercial billboard of the project.

The current situation of the city reflects the plight faced by many three or four line cities in China, and many local governments are carrying bad investments. 2015 is the peak year for local government debt repayment. Many investment funds are facing the risk of loss, thanks to the Ministry of finance's elaborate design. Debt swap program The situation seems to have changed. Under the new plan, local governments can replace their high interest loans with bonds with lower interest rates. Although debt replacement will not change the quality of related assets, debt replacement can indeed help hedge short tail risks similar to those mentioned above. For bullish people, this is a new piece of news.

Since January, we have experienced a drop in rate and a rate cut once in a row. However, for those who are still busy speculate on how many times this year will cut interest rates, the market has changed from the dull reaction to the complete disappointment of these traditional monetary stimulus measures. The reduction of interest rates is mainly aimed at easing the pressure on higher real interest rates and capital outflows. Therefore, these policy initiatives are more like a kind of support rather than a stimulant.

Under the Treasury's debt swap program, who will buy new local government bonds remains a controversial issue. Commercial banks are unwilling to replace low yielding bonds with high-yield assets. After all, these local government debts were also believed to have some credibility based on implicit government guarantees. Private capital can seek more attractive asset classes, such as stocks, at this juncture. Therefore, a feasible solution or the central bank can provide commercial banks with cheap funds to complete the replacement through loans like PSL.

The central bank recently extended and expanded the operation of the MLF scale, suggesting the possibility of such a scenario. In 2014, the central bank released the liquidity of about one trillion yuan through these "innovative" means. If China's central bank's assets and liabilities can be expanded through direct injection into the underlying currency, it will be conducive to the risk asset price, which is similar to the impact of the expansion of the Federal Reserve's balance sheet scale on the US stock market over the past few years. In fact, the city that I visited has already received RMB 5 billion yuan debt swap amount, which has bought some valuable borrowed time for the city to ease its debt burden.