There are still 2 days to open, is it time to enter the market to catch the bottom?
Yesterday, the Hong Kong stock market in the first trading day of the year of the Tiger tiger, welcome a good start.The Hang Seng opened higher and closed 3.24% higher.Does that smell familiar?It is similar to the script of the Spring Festival holiday last year.Fortunately, A shares have fallen to the utmost, not last year so high fear.Before the festival and we talked about the fear of corruption index, after the fall, finally extreme fear.This fund artifact, let everyone have some bottom.Then the market opens on Monday, should we go in to catch the bottom?It’s still a little scary just based on this one indicator.Today, I will introduce a fund artifact – stock debt price ratio, so that we have a bit more spectrum.Part.1 What is the price ratio of stocks and bonds?In fact, the investment is very simple, with everyone usually buy things about the same, pick cost-effective things to buy.Stocks and bonds are two of the biggest asset classes in the investment world, often acting as substitutes for each other, like opposite ends of the scale.As the name implies, the price-performance ratio of stocks and bonds is a battle between stocks and bonds, which is more cost-effective and which has more investment value.We all know that every financial asset has its potential expected rate of return.Bonds are relatively simple, and we use their yield to maturity as the expected rate of return.That yield, which is set from the moment you buy it, you get that yield as long as you hold the bond to maturity.Stocks, there is no precise measure of his expected return on investment.His expected return is usually measured by the inverse of the p/E ratio.The P/E ratio, the inverse of the P/E ratio, is E/P, which is the earnings per share divided by the price per share.Assuming that ICBC’s earnings per share is 1 yuan and its price per share is 5 yuan, the p/E ratio is 5 times, and the earnings yield is 1/5=20%. That is to say, if you buy ICBC, you will not seek future valuation and profit improvement, and the annual earnings on the book will be 20%. If dividends are added, it is not bad.With these two indicators, we can compare the two categories of assets, which is more cost-effective.Buffett also has a habit of comparing the return on his stock investments to the interest rate on U.S. Treasury bonds, and choosing the assets that currently offer the highest returns.Part.2FED model of the mysterious power specific how to measure the price ratio of stocks and bonds?We’re going to introduce today’s hero, the FED model.As you might guess from the name, it might have something to do with the powerful Federal Reserve.This model is not officially certified, but as early as July 1997, the Fed’s monetary-policy report showed a close relationship between long-term bond returns and S&P equity returns (E/P) from 1982 to 1997.Soon after, Edward Yardini, then chief economist at Deutsche Morgan Grenfell, proposed the model in the same year.Its idea is very simple, that is, we talked about above the price ratio of stocks and bonds.Compare the yields of stocks and bonds and use the difference, known as the risk premium, to determine the valuation of the current point.The FED model’s formula is also more straightforward, taking the inverse of the p/E minus the 10-year Treasury yield.FED premium = Inverse of stock price/earnings ratio (PE) -10-year Treasury yield The higher the FED number, the more attractive stocks are and the more assets we should allocate to stocks.Otherwise, invest more in bonds.We see that in recent years, this model is very effective when applied to A shares.The colored curve is the difference between the expected return on the stock market and the yield on the bond to maturity.The yellow, or even red, bands at the top of the curve represent higher yields for stocks relative to bonds, proving that stocks are a better value proposition and a great buy.Like the beginning of 2019, stocks have been down all year while bonds have been on a bull run.That makes stocks look cheap and bonds look expensive.In March 2020, the stock market plunged due to the epidemic, and investors rushed to buy bonds as a hedge.At this time, the stock price performance again.And vice versa.The green interval indicates that the yield of stocks is very low compared to bonds. Bonds are more cost-effective, so you should invest less in stocks.In the live broadcast of Cathay Pacific Fund Xu Zhibiao before the plus version of share debt cost performance, Biao Ge gave us further suggestions to improve the calculation method of the risk premium of share debt, adding the calculation method of the ratio, that is, the stock yield rate/bond yield rate.When you enter the interface of price performance of stocks and bonds, you can see the switch button of ratio and difference.Over the years, it is true that the indicator of the ratio calculation is more sensitive.Part.4 How to use the FED model asset allocation said so much, how to use this fund artifact?As the stock market falls, the price performance of the stock will increase. When the price performance of the stock is high, increase the proportion of our stock investment, rather than buying after the stock market has risen a lot!As the stock market rises, the price performance of stocks decreases. When the price performance of stocks is low, increase the proportion of bond investments, rather than liquidate the stock market!The chart below shows you how to use the FED index to guide your position allocation.The corruption fear index and the price ratio of stocks and bonds are measures of stock market valuation and sentiment indicators.Corruption index to guide the short-term stock position increase or decrease, stock debt performance ratio to guide the long-term category of asset allocation ratio.Now that we have these two funds, we can use them together:High risk premium + mood extreme fear saucepans buy stock fund risk premium low + short-term make a mood extreme fear but do not continue to fight (collapsed) a few days after the Spring Festival of 2021 low risk premium + mood extremely greedy comprehensive removal or play while withdraw () at the beginning of 2021 high risk premium + mood extremely greedy short-term risk aversion but can also be a hard fight (this kind of feelingBack to the beginning, there are still 2 days to open, do you want to soha bottom fishing?Although the fear of corruption index has been extremely fearful, but from the perspective of the price performance of the FED stocks and bonds, it is obvious that the attraction of the stock market is not big enough to be worth beating the pot and selling iron to catch the bottom.What are your investment plans for the Year of the Tiger?