The Chinese stock market investors recently were very hyped up over the long awaited bull run. After the SSE Comp and CSI 300 index fell to a low and crushed confidence, a sudden u-turn occurred, and confidence is coming back speedily. ‘Co-incidentally’, this happens around the period of the Chinese National Day (1 October). During a period of high unemployment, housing bubble crash, low spending, the timing of the bull run to celebrate their glorious National Day could not be better. The Chinese stock market is like their national soccer team, big on marketing but very low in actual results. Over the years, people have the contradictory feelings of having some hope but little realistic expectations of it, much like us buying the lottery but also not really expecting to win.
I have not updated for about 3 weeks, partly due to my busy schedule but mainly due to me getting upset and frustrated over my short-term trading portfolio, which has not been doing well. While losing money is painful, the potential actualised financial loss was not the worst reason as I use only my side income – only 1% of my total assets for it. The biggest frustrations comes from not achieving success after trying multiple times, and the attempt at opening up a new source of income has not seen results.
In fact, because of this, I missed out on the chance to average down my cost on Three Gorges (600905) which I have quite a big confidence on, as I had used the money to support my short term trades.
Earlier, I had said that I have big confidence in the future of the Chinese stock market, as the government needs another machinery to give hope to the people and at the same time, suck out the money from their pockets. The collapse of their housing market has made this a necessity. I do have to admit that I did not expect the bull run to be so soon and at this time. We take a look at both the daily charts of the SSE Composite Index and their CSI 300 as at 30 Sep 2024, the last day of trading before they close for their week long National Day holiday.
There were a few policies favourable to the capital markets (I will use capital markets instead of the stock market when referring to the bigger market) which China had announced and pushed down recently, the effect of which is directly reflected in the stock market. Many positive news from the public came out, such as one author deciding to give up writing because he had profited 3 million from it. Others were saying finally they can breakeven their previous failed trades and exit the market.
Takeaway Lessons
This bull run, and more specifically the revival of the Chinese stock market after years of being dead, is a score of success for my prediction. It further highlights the importance of knowing politics, current affairs, economics and a wide range of general knowledge when entering the capital markets. One should not be focused only on the technicals or fundamentals of a particular company, but also the wider picture.
Bull run comes when most of us do not expect it, for we are not the big monies nor the invisible hands. Once we have done our homework, we should slowly put in the money to accumulate our portfolio, buying more with each dip while patiently waiting for the bull run. Nobody can predict the market, and in the capital markets we are testing our holding power. So do not put money you need in the short term future, for you may find yourself holding on for multiple months or even a couple of years. But when the bull run comes, it will make it all worthwhile.
Future Scenarios
Now that the bull run just started, we can predict a few scenarios which may happen.
- The bull run continues for the next couple of years, or even a few decades, just like the housing bubble of China.
- The bull run is only temporary, and it will soon fall back. I am leaning towards scenario 2 as the likely outcome.
- The steam dies off fast and the market becomes stagnant, forcibly propped up by government policy but not supported by the masses due to unemployment.
Nobody can predict the market with 100% certainty, but I am leaning towards scenario 2 because of the upcoming financial crisis. The global economy has not really revived after 2008, and the economic downturn which should happen in 2018 or the Covid period was artificially postponed and its bubble made bigger with money printing. Economic downturns are a natural part of the economic cycle, and delaying this ‘sickness’ may turn it into cancer. When the bubble pops, it will be massive. The US is the best example of this, and in this inter-connected world, the downturn of a major economy is likely to affect the rest significantly. China is no exception, particularly when they are the world’s biggest factory.
The cancer of the Chinese stock market should still be in the process of removal, and a total recovery back to a healthy capital market should take longer. My own assessment is that the government has found it necessary to inject some hope in this depressing Chinese economy. Like a cancer drug, forcibly prolonging your life at the cost of certain suffering, so that you can hold on till the day the battle is won. Else, people will give up if they do not see hope for extended periods of time. But I have to admit, this portion is simply my own speculation without proof.
Potential Foreign Interference
The 1997 Asian Financial Crisis was started by the US, as George Soros started attacking the different Asian economies, leading to a wider implication. The US, the biggest capitalists in the world, will definitely play the game in the capital markets set up by China. Unfortunately, as history has shown us, not every capitalists are good-natured, investing and holding on patiently over the long term. Even Warren Buffett and his seemingly peaceful value investing has political connotations, as I have mentioned in his investment in Japan. And then we have people like George Soros, who are out for blood. Needless to say, such moves by the big monies are also likely to be politically driven.
The profiting from the Chinese economy, sinking of their capital markets in a game which the US knows best and the continual enforcement of US as the number 1 country and economy is certainly a minimal of 3 birds in 1 stone. As I have always said, high level decisions do not simply achieve only 1 objective, but a series of goals across different tiers of priority.
Losing Money In A Bull Run
We often hear about people losing money even during a bull run. The issue lies with their timing of entry. First, when the market started moving, the majority do not believe that the situation has u-turned. As the market goes up further, they hesitate, wondering if they should enter, worrying between a potential drop and the potential profits. As they hesitate and the market continues to rise each day, they see all the earnings they could have made but did not. Thousands or tens of thousands of dollars not made, all while they were hesitating. Coupled with success stories from places like WallStreetBets, they finally decided to FOMO and go in at a high, only to takeover from sellers who want to cash out with a hefty profit. Worse still, in an attempt to cover back all the ‘lost’ earnings, they played on leverage and were sunk.
Certainly professional traders who could put emotions one side, use their money as if it were not theirs and had fast reaction time could make money. But for most of us, when it comes to our hard-earned blood and sweat money, we are unable to be totally emotionally detached. That is why one should do homework in advance, find a good market, sector and stock (or whatever financial instrument you are playing), then patiently invest in it. Of course, diversification is important, for our homework may be wrong.
What We Can Do
The all-important question – what can/should we do in order to profit from this while minimising risks? We are not talking about WallStreetBets here, so I will assume that readers here have properly done their homework on a certain company before entering the stock market, with the timeline being set in the longer term. If one is keen on entering the Chinese stock market now, we should employ a strategy which can cover as much ground as possible with minimal risks.
In that case, what we can do, if we want to enter the market now, is to go in with half of our intended funds. If I have $10,000 now, I will only invest $5000. If the market continues to go up, I will not chase, even if it is a bull run all the way. But at least I have half my stakes in, so it is not as if I do not profit from it.
If however, after my initial investment, the market goes down, I will then slowly invest the rest of my money in to average down my cost. All these while, one has to be patient and continually accumulate the funds needed for the portfolio.
Do note that:
- We are playing the spot market here and not with leverage, because when market goes down, we do not want to be continually paying funding fees.
- We are entering now because we believe the bull run will continue. One should not enter the market if we have no faith in its ability to rebound.
What I Am Doing
I have previously entered the Chinese stock market little by little. Currently I have 6000 shares of Three Gorges (600905), which is not much actually. That is because I had believed that the market will take a far longer time to enter the next bull run. Hence I was not in a hurry to put in too much of money. Coupled with the recent frustrations of my short term trading, which made me missed out buying another 2000 shares at a low. I am not going to chase, but rather I will wait patiently as I set my eyes on a few other Chinese and Singapore stocks.
It is my belief that 2025 will be a turbulent year as the impact of an economic downturn hits the world. If the Chinese stock market sinks, I will go in shopping. Else, I will simply look at other markets, such as the Singapore markets. There are always opportunities around. I will not FOMO. In the meantime, I will work harder at my side jobs to accumulate more funds so that I will have enough ammunition.
