Historical experience has shown that securities firms should intervene on the right side and focus on the "big" and "small" in the early stages of a rebound. If the initial increase is too large and the sustainability is poor, it often means risk.

We take the Shenwan Securities Stock Index and the Shanghai and Shenzhen 300 Index as research objects, with monthly units, hoping to explore the essence of securities stock investment opportunities through the trends of securities stocks and the overall market from 2002 to 2011.

From the mathematical statistics of the two indices alone, two simple conclusions can be roughly drawn:

Firstly, there is a strong correlation between the trend of securities stocks and the overall market trend - both rising and falling together. In a total of 119 months, there were 97 months where the stock index and the Shanghai and Shenzhen 300 Index fluctuated in the same direction, with a correlation of 0.84 between the two. Brokerage stocks are relatively difficult to break out of an independent market trend compared to the overall market.

Secondly, the Beta of securities stocks reaches around 1.5, which is a typical high Beta variety. This means that investors buying securities stocks on the left side may suffer losses far exceeding the overall market.

In the process of a good market, the vast majority of securities companies, including brokerage, proprietary trading, investment banking, etc., will benefit, and the rapid improvement of performance will naturally have an upward driving effect on stock prices. In fact, the simplest and most straightforward logic for investors (especially trend investors) to buy brokerage stocks is because they expect the market to strengthen.

Brokerage stocks should intervene on the right side

Continuing to delve deeper into the market situation, we have come to a more meaningful conclusion:

Firstly, in the early stages of a trend market, brokerage stocks usually do not experience significant gains and provide opportunities for right-hand intervention.

Since 2002, there have been two instances of truly trending opportunities, namely from mid-2005 to the end of 2007 and from November 2008 to July 2009. In the second half of 2005, after nearly four years of bear market, the market ushered in a bull market that lasted for more than two years. Although the securities stock index stabilized in the market in June 2005, rebounding by 13% that month, the market fell into short-term volatility and basically returned to pre rebound levels.

The rapid rise only occurred after November of that year. At the end of 2008, the Chinese government launched the "4 trillion yuan" market rescue plan, and in the early stages of the stock index hitting bottom and rebounding, the performance of securities stocks was even weaker. In November and December 2008, the securities industry index continuously underperformed the market, even hitting new lows, until January of the following year when the securities stock index began to rise.

The initial performance of securities stocks in the two rounds of trend market is not consistent with the common sense of most investors. It is generally believed that if the market is predicted to turn from bear to bull, accurately intervening in securities stocks at the market turning point will yield the maximum returns. But the reality is that in the early stages of market rebound, adding securities stocks cannot achieve relative returns in the short term, and it is also easy to fall into losses.

There are three reasons: Firstly, in the early stages of the rebound, investors can only see the financial data of the securities companies in the previous periods. The performance of bear market securities companies is inevitably at a low level, and the relative valuation level represented by the static P/E ratio is at a high level. 2、 From an expected perspective, in the initial stage of the bear bull transition, investors have weak confidence and still have doubts about the sustained strength of the rebound and the future performance trend of securities firms.

3、 From the perspective of asset allocation, after experiencing a bear market, investors tend to hold purely defensive sectors. During the rebound process, even if Beta is added, they will first add sectors with relatively mild elasticity such as banks. Highly elastic securities stocks are not good allocation targets at this stage.

Secondly, in a volatile market, the greater the initial increase in brokerage stocks, the poorer their sustainability.

We examined the performance of securities stocks in a volatile market over the past 10 years after experiencing a sharp decline (defined as a range decline of more than 15% and at least two consecutive months of decline). Among the total 9 samples, there were 3 instances where the securities stock index recorded an increase of over 20% within one month after the sharp decline, 2 instances where it recorded an increase of over 10%, and the remaining 5 sample periods where the increase did not exceed 10%.

In the three sample periods where the monthly increase exceeded 20%, the brokerage stock index subsequently experienced a sharp decline, and the cumulative decline in the following 3-6 months exceeded the initial increase. The most memorable event for investors occurred in October 2010. Driven by QE2 in the United States, the brokerage stock index recorded a 36% increase for the month. But in the following year, the brokerage stock index only rose for three months and wiped out all the cumulative gains from October 2010.

In two instances where the stock index of securities firms rose by more than 10%, there was one positive excess return and one negative excess return in the following quarter. In the sample interval where the stock index of securities firms rose less than 10% at the beginning of the period, there were two positive excess returns and three negative excess returns in the following quarter.

After the rebound of securities stocks is initiated, investors will pay special attention to its subsequent trend. From a historical perspective, if brokerage stocks have already accumulated significant gains in the early stages of a rebound, their sustainability is questionable. A more appropriate and safe approach is to wait for the market trend to be established (if there is really a trend opportunity), and the securities company's performance expectations to improve. It is not too late to participate on the right-hand side at that time. If the current increase in brokerage stocks is still small and investors are optimistic about the future market, it may be better to allocate brokerage stocks, which has a higher probability of success.

In general, whether it is a fluctuating market trend or a trend opportunity, securities stocks can intervene on the right side at the beginning of the market rebound. But if the initial increase is too large, one often needs to be wary of its sustainability.