Background conditions for the U.S. bull market

1. Long-term stable economic growth

Long-term stable economic growth is the most basic prerequisite. The GDP of the United States in the past 10 years, Except for negative growth in 2007 and 2008, the rest have always been above 1.5%, while other countries do not have this premise. Economic growth requires two factors: first, the demographic dividend, which is the stable growth of the population; second, there must be technological innovation and progress. Without these two points of support, it would be difficult to achieve long-term stable growth. For example, although Japan and Europe are advancing in technology, their populations are experiencing negative growth, while the United States currently has both conditions.

2. The currency is in a state of over-issuance

You will definitely say: China is also in a state of over-issuance! But our over-issued currency has not been introduced into the real economy. The over-issued currency has mainly gone to real estate. The high housing prices in recent years have been pushed up by funds. If these funds flowing to real estate flow to the field of daily necessities, then the domestic inflation rate will definitely be devastated.

3. A pattern dominated by institutional investors

Institutional investors are inherently risk-averse and will not speculate in concept stocks. They must buy stocks of shell resources. There are leading companies in various industries. The reason why a company becomes an industry leader must have its unique competitiveness. As long as the industry is still on a growth trend, then the industry leader must be the first to benefit, and profit growth is guaranteed. If institutional investors are attracted to hold the stock for a long time, the stock price will hit new highs again and again, thus entering a virtuous cycle.

4. Various sub-industries are moving toward stability

Competition in various sub-industries has shifted from full competition to oligopoly. For example: Do you know the current market value of A-share Gree Electric Appliances and Midea Group? Don't look it up, just feel it. These two companies are competitors, both belong to the traditional manufacturing industry, and both have the air-conditioning business. However, we see that in recent years, the stock prices of Gree Electric Appliances and Midea Group have continued to rise. So far, their respective market values ??are early. It exceeded RMB 200 billion (Midea Group’s RMB 384.8 billion on January 22, 2018), and its gross profit margin continued to rise. In the first half of 2017, the operating income of both companies in air-conditioning products exceeded RMB 50 billion. Gree grew by 30%, and Midea grew by 41%.

This is because after the emergence of giants in the industry, the entry threshold and competition difficulty of the industry become very high. It is extremely unrealistic for small companies to enter and compete with industry giants. They must either transform or be acquired. Any start-up company trying to carry out innovative research and development in the field of home appliances today has no chance of getting ahead. These giants spend 1% of their operating income on research and development expenses, which is enough to kill you in an instant. Looking back 10 years ago, when the industry was at its peak, there were more than 300 air-conditioning manufacturers across the country. If they wanted to make money, they did not rely on product quality or cost control, but on price competition and revenue flow. It depends on who can use the credit period to do the side business better. Although the demand in the air-conditioning market has been growing steadily, the stock prices of listed companies have not risen. Because of the chaotic price war in the industry, the profits of listed companies are unstable and difficult to grow. Now, the industry competition pattern has stabilized! Market demand is still growing steadily, but the market share has been divided up by these giants with scale, brand, and quality. There is no longer vicious price competition, product profits are guaranteed, and corporate performance is stable. Growth, institutional investors will naturally buy and hold, and the stock price will continue to rise.

Compare some characteristics and differences between the Chinese and American stock markets:

The Chinese stock market, especially the main board, has always been an unchanging market. What I mean by unchanging is that it does not matter whether it is bullish or bearish. Our largest weight will always be the bank, and the largest weight among banks will always be China Agricultural and Industrial Construction.

The largest weight in the U.S. stock market has been changing. For example, around 2000, it was Microsoft, Cisco, etc., and 10 years later, in 2010, the largest weights were Apple, Google, etc. Looking back to 1990, the largest weights were IBM and General Electric. It changes almost every decade.

The result is that the constant changes in the weight of the U.S. stock market, due to the rising market value of companies in emerging industries, have a strong pulling effect on the entire market index. According to the basic mathematical concept of weighted average, everyone will know why the US stock market is a long bull market.

In addition, the United States is a capital market open to the world and has the smartest investors in the world. So when the Chinese stock market failed to allow JD.com to list on the A-share market, the United States opened the door. Almost all high-quality companies around the world like the United States. For example, Finland's Nokia is also listed in the United States. These outstanding companies continue to innovate and perform beyond expectations. It has driven U.S. stock indexes to new highs.

On the other hand, the Chinese stock market is a market where bad money drives out good money.

In fact, the continuous listing of a large number of innovative companies is the fundamental guarantee for the bullish trend and the bearish bearish trend. It is very unscientific to compare the Chinese stock market with that of the United States. Only when China's market is truly legal, market-oriented and transparent can it not only attract high-quality Chinese companies like Tencent, Alibaba, Baidu, and JD.com to be listed on A-shares, but also attract high-quality foreign companies such as Apple, Facebook, and Google. The company went public in China.

Only then can Chinese investors truly live a life of bullishness and bearishness.

To sum up, the basis of the bull market is the continuous listing of high-quality super-growth companies. In fact, there are no high-quality innovative companies in Taiwan to go public, and Japan has not reached a record high in 30 years. But these areas at least have legalization and delisting system guarantees. Therefore, the arrival of China's bull market still has many, many ways to go. It will not be seen in 3 or 5 years.

The above content comes from the Internet and is for reference only.