On October 9th, the Buffett Index (CSI 300 market capitalization/GDP) fell again to 88.77%; the equity risk premium (ERP) of the CSI 300 Index, a stock-bond ratio indicator, rose slightly to 5.93%, approaching its highest level since August 25 years ago. From a long-term perspective, the potential return compensation of stocks relative to government bonds has further increased, and the stock-bond ratio is tilting towards stocks.
-------- Note: 1. The Buffett Index compares the total market capitalization of the stock market with 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 this range 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.
