In January of this year, a record-breaking foreign capital inflow of over 100 billion funds instantly drove the overall rise of A shares, which made many short sellers dumbfounded!
But this is far from over. According to the most optimistic estimate of foreign capital this year, there are still 400 billion waiting in line to enter the market!
Many small partners don’t understand, facing the current market value of A shares of nearly 8 billion, what is 100 billion? What is 400 billion?
If you have such doubts, unfortunately, you may really be a leek.
Faced with the inflow of 400 billion foreign capital, A-shares will not go up if they want to.
1. How much foreign capital is waiting to enter the market?
How much foreign capital can flow in, how do we know?
Indeed, it is really difficult to speculate on the behavior of foreign capital, but we can use mathematical methods to model and estimate.
Some institutions have found that the inflow of foreign capital into A shares after 2017 has shown a linear growth characteristic.
What is linear growth?
For example : distance = speed * time
If the speed is constant, the increase in distance is proportional to the time; if the time is constant, the increase in distance is proportional to the speed. This is linear growth.
In other words, the inflow of foreign capital into A shares will continue to increase year by year (from a long-term perspective)
After modeling, the institution drew a linear regression line for foreign capital, as shown in the figure below.
From this graph, you may think of what we often say in value investing, that the price fluctuates around the value.
The scale of foreign capital inflows also fluctuates around the gray linear regression line . If there was less inflow last year, there will be more inflow this year!
For example, in 2018, the inflow was 294.2 billion, and in 2019, the inflow was expanded to 351.7 billion;
In 2020, the inflow will be 208.9 billion (affected by the epidemic), and in 2021 it will be 432.1 billion.
Only 90 billion inflows were made last year. How much do you think will flow in this year?
According to the linear equation, it can be calculated that 500 billion can flow in, which means that there are still 400 billion waiting in line to enter.
We can’t be so optimistic, let’s deduce it in a pessimistic way.
From 2018 to 2021, the average annual net inflow of foreign capital will be about 300 billion. Then let’s assume that the foreign capital inflow this year is the average level of previous years, then there are still 200 billion foreign capital waiting to enter the market!
However, I personally think that the inflow of foreign capital will definitely increase year by year. After all, the global allocation ratio of A shares is still very low.
2. What does 100 billion foreign investment mean for A shares?
Now consider a soul question: How much can 100 billion drive A shares?
We can refer to the situation in January.
The total inflow of northbound funds was 112.5 billion, while the market value of the two cities increased from 72.8 trillion to 77.5 trillion, an increase of nearly 5 trillion. We must know that the market value of the two cities in 2021 will only be more than 85 trillion.
During this period, the Shanghai Composite Index rose by 5.68%, the Shanghai Composite 50 rose by 7.65%, and the ChiNext rose by 10.19%. The A50 index representing foreign capital also rose by 8.21%!
Think about it, there are at least 200 billion behind!
Of course, we cannot linearly believe that 100 billion foreign capital will definitely be able to leverage the rise of 5 trillion in market value.
why?
It depends on whether the A-share market is light or heavy at that time.
If most people are reluctant to sell, then the plate is very light, and a little capital can drive a substantial increase in market value, such as from November to now.
The typical feature of this period is that the shrinkage rises. Run up quickly in small steps!
If it comes to the end of the bull market, the capital of 100 billion is simply drizzle! At that time, there will be heavy volume and stagflation, and the daily trading volume will be huge, but the stock market will not move at all.
Because the plate is too heavy, more and more people want to sell. If you want to continue to rise, you need a huge amount of funds, and it will definitely be unsustainable in the end.
So, on the contrary, I hope that the shrinkage and increase will last longer, and don’t rush to increase the volume. If the amount is released in an instant, the staged market may soon be over.
3. Is it possible for foreign capital to stop flowing?
Of course it is possible! The stock market is a complex system, and we can only calculate probabilities, not absolutes.
If an unexpected black swan breaks out in the world, foreign capital will withdraw.
What kind of black swan?
For example: U.S. stocks plummeted rapidly, the European debt crisis broke out, the global super unexpected recession, local conflicts and so on.
But these things cannot be predicted in advance, so we don’t have to worry about it.
How to deal with it? Two main methods:
First, according to your own risk preference, hold a certain proportion of cash to deal with accidents;
Second, insist on long-term investment. Most of the liquidity crises triggered by these accidents are short-term. From a long-term perspective, they will not fundamentally affect the long-term rise of the stock market.
Once a crisis occurs, the global central banks will work together to release water at full capacity! What will happen?
You can look back and see what happened after the global epidemic in 2020!
Our current valuation is not high, so even if it falls, it will not fall much. If the world starts to release water, the big deal is to squat and jump higher!
Four. Summary
From a long-term perspective, the proportion of foreign investment in A shares is still very low, only 4%! There is still huge room for growth in the future.
According to the linear regression model, there may be another 400 billion A shares to flow in this year.
To be pessimistic, based on the average inflow in recent years, there are still 200 billion waiting to enter the market.
In the case of a very light market, the 100 billion capital will leverage the market value to increase significantly. If foreign capital continues to charge in the next month, I guess domestic capital will not be able to sit still sooner or later!
But I still remind you that the rise of the stock market is never achieved overnight. Don’t stare at the stock price jumping up and down every day, think more long-term! Everything is very clear!
The reward is voluntary, and every penny is a silent support, haha!
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