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The long-term trend of China's stock market is not satisfactory to market investors. The Shanghai Composite Index has stood at 2000 points since 2000, and will still rotate above 2000 points by 2018.
Based on the closing point of the Shanghai Composite Index at 2073 at the end of 2000 and the closing point of the Shanghai Composite Index at 2603 at the end of October 2018, the cumulative increase in the past 18 years is 25.5%, and the compound annualized yield is 1.3%.
The long-term yield of 1.3% of equity assets, on the one hand, is far lower than deposits, bonds, real estate and other major types of assets, on the other hand, it will certainly not beat inflation.
The weak profitability of listed companies is the fundamental reason for the long-term flat of A shares
The A-share market represented by the Shanghai Composite Index has not gone out of the slow trend for a long time. We believe that there is a reason for historical valuation. The reason for valuation is that A-share market has been in a very high valuation range for a long time, including the development of institutional investors, listing of large state-owned enterprises, IPO system reform, split share structure reform, etc
The market has spent a long time digesting the valuation due to the historical accounts of high valuation being paid back by various system construction. A typical case is that there are a large number of central enterprises beginning with 601 in the CSI 300 index, which were listed in the bull market from 2006 to 2007. When they were included in the index, their valuations were very high, and then they adjusted for a long time to digest the high valuations. Did you remember that PetroChina paid 48 yuan?!
But the more important reason is that the overall profitability of A-share listed companies is too poor, which we believe is the fundamental reason for the long-term flat of A-share. In the long run, the money earned by investors is the money of corporate profits, and the slope of stock price rise should basically converge with the ROE of listed companies. While admiring the long bull, slow bull and continuous record high of American stocks, we really have to lament that the profitability of most A-share listed companies is too weak. The figure below shows the number of listed companies with return on equity (ROE) greater than 20% for three consecutive years in all A-shares and US shares. Readers can clearly see that the number of listed companies with strong profitability in A-shares is significantly less than that in US shares, which is about one tenth of that in US shares. At present, the total number of A-share listed companies is almost 80% of that in US shares.
Perhaps it is this profit structure that determines that the dividend level of A-share listed companies is generally not high. According to our estimation, there are only 88 listed companies with dividend yield of more than 2% for three consecutive years in A-share market, while under the same caliber calculation, there are more than 400 listed companies with dividend yield of more than 2% for three consecutive years in Hong Kong stock market. The low proportion of dividends in net profits (mainly due to the low proportion of net cash flow in net profits) and poor profitability (low ROE) are the essential reasons for the low dividend distribution of A-share listed companies. In many cases, many companies may not really want to pay dividends, but do not have the ability to pay dividends.
From the above perspective, we believe that value investment is effective and very effective in the Chinese market. This effectiveness is reflected in the fact that the stock prices of all listed companies with consistently high ROE in the Chinese stock market have a very good rise. But this validity is more a sufficient condition than a necessary condition. That is to say, the stock price of good companies will rise well in the long run, but otherwise, good companies may not be all good companies.
It's just a pity that there are too few companies with ROE in A-share subject matter that remain stable and high! （ Guosen Securities ）
Sina statement: The purpose of posting this article on Sina.com is to convey more information, which does not mean to agree with its views or confirm its description. The content of this article is for reference only and does not constitute investment advice. Investors operate accordingly at their own risk.
Editor in charge: Guo Chunyang
