On October 14th, the Buffett Index (CSI 300 market capitalization/GDP) continued to decline to 87.1%; the equity risk premium (ERP) of the CSI 300 Index, a stock-bond cost-effectiveness indicator, rose to 5.99%, nearly reaching the key 6% threshold; suggesting that the current advantage of the stock market relative to government bond yields has increased, and its attractiveness is at a neutral to high level.
-------- 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 CSI 300 Index risk premium (ERP) mainly compares the returns of the CSI 300 and the yield of government bonds. Statistics from the past 10 years show a clear inverse relationship between this indicator and the stock index. Whenever the stock market is in a bottoming-out phase, the risk premium exceeds 6%. In other words, when ERP ≥ 6%, the stock market offers good investment value, while when ERP ≤ 4%, the stock market is often near or at a temporary high, offering low investment value and even warranting caution regarding the risk of a correction.
