On August 4th, the Buffett Indicator (CSI 300 market capitalization/GDP) rebounded to 89.85%, after fluctuating since late July. The equity risk premium (ERP) of the CSI 300 Index, a stock-bond ratio indicator, rose to 5.33%, approaching its July high. Since July, it has generally fluctuated around 5.2%, and in the long term, it is at the lower end of the fluctuation range since October 2024, suggesting that the current advantage of stocks relative to government bond yields is neutral.
-------- Note: 1. The Buffett Indicator compares the total market capitalization of the stock market to GDP to determine whether the stock market is currently overvalued. Generally, 70-100% is considered a normal valuation; below this range is considered undervalued, and above is considered overvalued.
2. The risk premium (ERP) of the CSI 300 Index is mainly compared with the returns of the CSI 300 and the yield of government bonds. Statistics from the past 10 years show that this indicator has a clear inverse relationship with the stock index. Every time the stock market is in the bottom area, the risk premium exceeds 6%. That is, when ERP ≥ 6%, the stock market has investment value, while when ERP ≤ 4%, the stock market is often close to or at a stage high, the investment value is low, and there is even a risk of correction.
