Enlightenment from the bursting of the Nifty 50 bubble in US stocks

  In the early 1970s, there was a wave of bubbles in the US stock market, which was very similar to the market of A-share core assets. Referring to the trend of the bursting of the US stock bubble, it has important reference significance for the subsequent trend of A-share core assets.
  Just as there are differences among institutions on the list of core assets, various institutions in the United States also have differences in the list of Nifty 50. The more authoritative list of Nifty 50 is authored by American MIT professor Jamie? Siegel provides, including Coca-Cola, Disney, Procter & Gamble, McDonald’s, Johnson & Johnson, Gillette razors, General Electric, IBM, Dow Chemical, Pfizer, Merck, Kodak and other companies that are familiar to everyone. From the perspective of industry distribution, The companies in the “Nice 50” list are mainly distributed in the tertiary industries such as consumption, medicine and information technology. The number of companies in the daily consumption, optional consumption, medical and information technology industries are 13, 11, 6 and 6 respectively. The total number of companies in the four industries accounted for more than 70%.
  The common feature of Nifty 50 companies is that the industry concentration has increased rapidly, and the company’s ROE level is significantly higher than that of companies in the same industry. This is similar to the market for A-share core assets. “Mao”, after the supply-side reform, the industry concentration is also increasing rapidly, and the profitability of various “Mao” is very prominent.
  From 1971 to 1972, the growth rate of various industries in the “Pretty 50” in the United States far exceeded that of the S&P 500, with an arithmetic average growth rate of 102%, which was nearly three times that of the S&P 500. The PE of the 500 is 19, and the average PE of the US “Nice 50” is 2.2 times that of the S&P 500. The reason for the bursting of the Nifty 50 bubble in the United States is that the stagflation triggered by the oil crisis has brought about a decline in the entire capital market, and the international oil price has risen from US$3 per barrel to US$12 per barrel. Imported inflation brought about by the depreciation of the US dollar and the soaring oil price has rapidly increased the inflation rate in the United States, which already implements a loose monetary policy. In response to unprecedentedly high inflation, the Federal Reserve continued to raise interest rates, which finally punctured the stock market bubble. From 1973 to 1980, the interest rate on the 10-year U.S. Treasury bond rose from 6% to 14%. 500 reached 6.7 times, and the final bubble cleared as long as 7 years. During this period, the U.S. “Nice 50”, which was seriously overvalued, had the largest bubble and the worst decline. From the market high at the end of 1972 to the market low in September 1974, the arithmetic average decline of the 50 stocks in the U.S. “Nift 50” portfolio was 50%, while the S&P 500 fell 43% over the same period.
  Referring to the current A-share market, although the stock prices of various Moutai have undergone adjustments in the past two years, the bubble is too hard and has not been fully cleared. The dynamic PE of Kweichow Moutai is 37 times, and the dynamic PE of Haitian Flavor Industry is nearly 60 times. , Pien Tze Huang’s dynamic PE reached 64 times, and so on. Judging from the latest top ten holdings of funds, it is still dominated by liquor + new energy, the grouping of institutions has not disintegrated, and the valuation bubble has not been cleared.
  Of course, most of the companies in the “Nice 50” of the US stock market still exist today, and some companies have gradually grown from leading companies in the United States to leading companies in the world. After the bubble burst, most of these stocks still have good long-term returns. Therefore, from the perspective of 2-3 years, the core assets of A shares may not have excess returns, but if viewed from a perspective of more than 10 years, these stocks are more likely to have excess returns. Looking back at the Nifty 50 bubble burst, it was inflation and interest rate hikes that punctured the bubble, and the situation is similar now, with the Federal Reserve raising interest rates continuously, oil and other energy prices are high, and US inflation is at its highest point in 40 years. This macro combination it’s the same. In the medium term, the bubble burst of A-share core assets is still in progress, not over.

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