Financing Era: Stock Market Thriving

After the financial crisis, the global group has embarked on the road of cutting interest rates and draining water. It has also welcomed the stock and debt market, including the United States, Japan, Europe and China.

This disconnection is not unexpected in the short term, including the 98 or 01 years in China's history.

Thriving.

But in the long run, there is no economy.

The support of capital market prosperity is unsustainable.

If we compare the history of the United States and Japan in the past 30 years, we can see that everyone is cutting interest rates. The interest rate of the 10 year treasury bonds has dropped from around 10% to about 0%, but the US stock market has risen from 1000 to 17000, while the Japanese stock market has fallen by 17000 points from 40000. So do not see that the Japanese stock market has been pretty good in the last two years. In the past 30 years, it was a big bear market which was far from the US.

So what is the difference between Japan and the United States? We find there are important differences in economic growth. Japan's economy has not increased in the past 30 years, and the US GDP has increased 3 times in the past 30 years.

Therefore, in the short term, falling interest rates can stimulate the valuation increase.

Short term prosperity, but in the long run, the continued prosperity of the capital market still comes from economic growth and corporate earnings improvement. In the long run, economic growth is crucial.

Behind the economic growth is the driving force of growth, which is related to factor endowments but not to GDP figures.

The economic miracle of China in the past 30 years is that China has three major driving forces: demographic dividend, capital and opening to the outside world. But now the demographic dividend has ended, the rate of return on capital has declined, and the proportion of exports has peaked. This means that the traditional driving force of China's economic growth has all failed, and the new growth momentum must be sought in the future.

The central economic work conference pointed out that there are three new driving forces for China's economic growth in the future, namely, the human capital, reform and innovation of university representatives, and the innovation is the core of these three.

Where does innovation come from? We find that innovation has an important relationship with the structure of financial markets.

First of all, if we compare the financing structure of the United States and Japan, we can find that the financing of the United States is mainly enterprises, and the proportion of government financing is not more than 20%, while Japan's financing is mainly government, Japan's national debt is two times that of GDP, and the proportion of Japanese government financing in total financing is more than 50%.

We know that government investment is the lowest efficiency. If the government does anything, there will be no enterprise innovation.

So in the past 30 years, Japan has been constantly stimulated by government spending.

Therefore, this contrast gives us the greatest inspiration that China must develop financial markets with corporate finance as the main body in the future.

From this perspective, we can also explain many black swan events that occurred at the end of last year.

Why suddenly many local governments deny that the city investment bonds belong to the local government debt. Why does the Dengfeng card kill the financing qualification of the city investment bonds? The intention behind it should be unified.

Since the implementation of the new budget law in 15 years, the local government can issue the local government debt in a right and proper way, but the premise is that all debts should be entered into the budget, which means that the government financing is fully standardized.

In the future, capital investment must adopt PPP mode, and social capital must be introduced. Without cash flow, social capital is impossible to enter.

This means that in the past, the era of local governments financing their brains for construction is over. The infrastructure projects in the future must be built with efficiency, which limits the excess capacity from the source.

From this point of view, China is now fully regulating the financing of the government, and it also means that the future enterprises will become the main body of financing in the financial market, which is beneficial to innovation.

Another important support behind us growth is equity financing.

Many people say that Asia lacks the culture of innovation, but we also notice that East Asia is also lack of innovation. The common feature of the United States and Korea is that equity financing is developed. Equity financing is the best way to encourage innovation, because equity is owned by itself, and it is through the PE system that support for entrepreneurship has gone out of apple, Google, Facebook and other large companies.

Japanese enterprises are mainly dependent on debt financing, because debt is someone else's, and for a long time, they lose the power of innovation.