2024-01-10 - When will the reservoir with the outflow greater than the inflow start to rise? -

When can a reservoir with an outlet larger than the inlet rise? -


When can a reservoir with an outlet larger than the inlet rise?#

If we consider A-shares as a reservoir, then the principle is simple: asset prices are determined by the water level.

The inflow and outflow of A-shares in the past few years are shown in the following figure: the red bars represent the inlet, and the blue bars represent the outlet.

The most important thing to pay attention to is the black bar, which represents the annual cash flow gap of A-shares.


It is clear that A-shares have been in a state of continuous outflow, which means that the money taken out of the stock market is more than the money flowing into the stock market!

In fact, the older generation has long seen this and has already warned us: A-shares are a financing market.

Unfortunately, we haven't thought about this carefully. Now let's make some inferences:

  1. The water level determines the stock price. Only when the inlet is greater than the outlet can the water level rise.

In years with significant outflow, it is difficult to perform well.

  1. Some people may say it's not right! The total market value of A-shares is constantly rising!

That's right.

Total market value = stock price * total shares. The total market value of A-shares is expanding, and an important driver is the expansion of total shares because a large number of new shares are listed every year.

But from the perspective of cash flow, the listing of new shares is a form of outflow.

  1. The delisting of stocks in the US and the stable buyback trend are reducing the total shares.

Going back to the formula mentioned above, with the total market value unchanged and the total shares decreasing, the stock price will naturally increase.

Similarly, the Indian stock market, which has experienced a bull market, also has strict delisting regulations.

  1. The above figure can also explain the root cause of the short bull and long bear in A-shares. The short bull is caused by short-term hot money inflow, such as in 2007, 2014, and 2020.

Attention! The cash flow gap of A-shares in 2020 is rarely positive!

The long bear is caused by the long-term outflow of cash from A-shares.

Also, pay attention: in 2023, the new regulations will implement a set of measures to restrict the outlet; the cash flow gap of A-shares in 2023 has become very small! Only 1.9 billion!

I'm not being sarcastic. Compared to previous years, the outlet in 2023 has indeed decreased significantly!

  1. How the Money World Works This diagram of the water plant is really a masterpiece!


It reveals the fundamental difference between the water plants in China and the United States. The United States draws water from the real economy pyramid and pours it into the financial market to raise the water level. China draws water from the financial market and pours it into the real economy pyramid to expand reproduction.

  1. The core difference lies in values: financial market vs. real economy, who serves whom?

China gave a clear answer last year, and the answer from the United States has always been clear.

It must be said that the answer from the United States is beneficial to shareholders, as shareholder value is truly prioritized.

China's answer is beneficial to the real economy, with social value as the priority. This is also the root cause of the poor performance of many Chinese stocks over the years—they have no problem with sales volume but cannot raise prices and always have to give discounts.

The financing market also serves the real economy. Investors come to the stock market to make money, and companies go to the stock market for IPOs and convertible bond issuance.

  1. If the inlet is temporarily greater than the outlet, then selling A-shares is indeed the key.

Major shareholders have demonstrated this many times, and reducing holdings is important.

Running fast is a technical skill.

  1. If the outlet is consistently greater than the inlet, then this main contradiction can determine many things.

For example, value investing is difficult because even if the value is recognized, the lack of liquidity makes it difficult to achieve good results.

Another example is that the funding situation is a crucial factor.

From this perspective, there is reason to be optimistic about A-shares in 2024 because the faucet of the outlet has been significantly tightened.

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