What Factors Influence Asset Prices?

Asset price refers to the ratio of assets converted into currency, that is, how many currencies a unit of assets can be converted into.

Asset price

Maintaining a stable price level has always been

Definition of asset price

There are many different understandings and definitions of inflation. The most common economic standard is defined as: the currency depreciation and price rise caused by the issuance of banknotes exceeding the amount of money required in commodity circulation are called inflation. According to this traditional definition, CPI has become the main indicator of inflation in various countries. However, this definition often leads us to ignore another important aspect, which is the change in asset prices. In fact, from the perspective of the economic operation cycle of China and other countries in the world, the rise in asset prices is an important manifestation of the initial stage of inflation. We define it as the first stage of inflation. In the traditional sense, the rise in CPI is It has a certain lag, and often starts to rebound after asset prices rise. We define it as the second stage of inflation.

Close relationship between asset prices

In order to have a deeper understanding of inflation and its relationship with asset prices, we select the trend of interest rates to represent the direction of monetary policy, the Shanghai Composite Index to represent the situation of asset prices, and the CPI to represent the rise and fall of prices. The trend relationship and the economic significance behind it are summarized, and the following rules are obtained: The CPI index lags significantly behind the Shanghai Composite Index, and the lag time is about half a year. The direction of the country's monetary policy, that is, the interest rate, is the key to connecting the two indexes. factor. Specifically, the economic downturn has caused the CPI to continue to fall, the central bank gradually relaxed its monetary policy, and interest rates have continued to decrease. The stock market has successfully built a bottom in hesitation. Although the CPI is still falling, the Shanghai Composite Index has started to rise, and the two indexes have diverged. After the CPI has changed from falling to rising, the Shanghai Composite Index can still rise further. The continuous rise of the CPI has caused the central bank's monetary policy to change from loose to tight. The stock market peaked ahead of time. In 2006, China's interest rate was only 2.25, which was at a low level. The low interest rate caused a large amount of funds to flow into the stock market. The Shanghai Composite Index started to fluctuate from the lowest point of 998. As the CPI continues to rise, the country has started to raise interest rates, from 2.25 in early 2006 to 4.14 at the end of 2007. Although the CPI peaked in April 2008 (8.50), the Shanghai Composite Index rose in October 2007 To 6124. In 2006, the United States ended its long-term low interest rate policy and began raising interest rates. By July 2008, it had risen to 5.6, and US stocks peaked in October 2007. Similarly, markets such as Japan and Hong Kong have shown similar phenomena in their development.

Analysis of Economic Meaning of Asset Price

We believe that the above rules between interest rates, the Shanghai Composite Index, and the CPI actually contain rich economic meanings, as detailed below: In order to promote economic growth, the country began to implement loose monetary policies. When the economy was in a state of extreme prosperity At that time, the price index CPI also reached a high level, in order to prevent excessive bubbles, the central bank began to implement a tightening monetary policy. Although the economy was still very hot in the early days of tightening monetary policy and CPI hit new highs, the capital market, which was regarded as an economic barometer, began to show signs of peaking. With the continuation of the tightening monetary policy, the CPI finally peaked and fell, while the stock market is in the process of continuous adjustment. Deflation has become the government's most worried aspect, so the monetary policy has shifted again. The central bank began to release a lot of liquidity through interest rate cuts and loose loans . Although the economic situation still seems to be deteriorating and CPI has repeatedly hit new lows, under the effect of abundant liquidity, the stock market has gradually completed the bottom construction in hesitation, asset prices have started to rise rapidly, and the rise in asset prices has triggered a strong market for the economic recovery. expected. At the same time, the economy began to show signs of recovery under the stimulation of abundant liquidity, asset prices further rose, CPI began to reverse the downward trend and entered an upward channel. The market's concerns about inflation were intensified, and the capital market also showed a marked bubble characteristic. The tightening of monetary policy to curb the overheating of the economy is coming again, and asset prices dive quickly after hovering high. In this way, the economy repeatedly runs between inflation and deflation, and the stock market has become the best weathervane.

Asset price and price rise

The global financial crisis has caused the world economy, which lacks real productivity support, to quickly fall into recession. In order to promote the fastest and maximum economic recovery, governments led by the United States have injected a lot of liquidity into the real economy through loose monetary policies and active fiscal policies. The dollar has shown signs of depreciation, commodity prices have rebounded, and a large amount of capital has poured in. The stock market has boosted asset prices. Although the CPI is still negative, it has shown signs of stabilization. Therefore, we are currently in the process of entering the second stage from the first stage of inflation. The economic role of loose monetary policy in the future will gradually manifest, and low interest rates will also help the economy to gradually pick up. Under the influence of these factors, the price level of food and other products will increase, and the CPI at the bottom of history will gradually change from negative to positive. During this period, the world stock market still has room for further rise, and A-shares are also expected to continue the shock upswing. But with the intensification of the capital market bubble, rational investors should be more vigilant, especially if the CPI rebound trend is formed and monetary policy begins to change, the stock market may enter the adjustment channel. In view of the expectations of future price rises, investors are advised to pay close attention to the current small-rising sectors such as agricultural products, food and beverage, and paper, in addition to the resource sectors such as nonferrous metals and steel.