On October 22nd, the Chinese Academy of Social Sciences, also known as the Chinese think tank, proposed a suggestion to issue 2 trillion yuan in special treasury bonds to establish a stabilization fund. In addition, on October 23rd, foreign media Bloomberg cited Evercore ISI, an investment bank, stating that if Trump were to be elected as the President of the United States, China would likely introduce a massive fiscal stimulus plan of 11 trillion yuan.

Industry insiders exclaimed that the savior of the stock market had arrived, and many people even said that it was just short of directly distributing money. So, what exactly is a stabilization fund? Furthermore, in recent days, there has been a continuous stream of good news, such as the 2 trillion yuan stabilization fund. Is it just a gimmick or a new catalyst for the stock market?

The "Guardian of the A-shares"?

Speaking of the stabilization fund, it is not a new term, as there are numerous experiences of countries like the United States, Japan, and Hong Kong using bailout funds to intervene in the market.

The so-called stabilization fund, also known as an intervention fund or a stability fund, is essentially a fund created by the government through a specific department, following prescribed methods, primarily aimed at stabilizing our market.

In the context of the stock market, the stabilization fund is like a fund specifically established to maintain the smooth operation of the stock market. More directly, if the stock market experiences abnormally violent fluctuations for various reasons, the stock prices of listed companies may not accurately reflect their true value.

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At this time, the stabilization fund can step in and perform operations that are contrary to the overall market index, smoothing out the fluctuations in the stock market and making the market more stable.

For example, if the stock market suddenly experiences an inexplicable sharp decline, the stabilization fund can meticulously and targetedly carry out some buying operations. This can provide certain support to the stock market, preventing it from falling further and even potentially promoting a positive development in the stock market, thereby safeguarding the interests of a broad range of investors as much as possible.

Take Japan, for instance, in the 1960s, the stock market stabilization fund was already in place and has been activated three times to rescue the market.From 1963 to 1965, the Japanese economy was in decline, coupled with the impact of increased taxation in the American market, the Japanese stock market gradually shifted towards a bear market, during which Japan established two stabilization funds.

In 1995, after the bursting of the bubble, the sluggish state of the Japanese economy continued, and the addition of a terrifying Hanshin earthquake caused the Nikkei 225 index to fall by more than 30% at one point.

To stabilize the market, the Japanese government decided to establish a project called the "Stock Market Stabilization Fund", with a total amount of about 2 trillion yen, most of which came from the banking industry.

Therefore, many people call it the protector of A-shares.

But the current issue is that the 2 trillion stabilization fund is still just a proposal, does our country really need to establish a stock market stability fund?

Naive stock market, mature capital

Speaking of this issue, we need to first understand the characteristics of our country's stock market.

In fact, everyone says that the Chinese stock market is like mud that cannot be supported on the wall, because compared to the stock markets of developed countries, the Chinese stock market is too naive.

This sense of immaturity is mainly manifested in the fact that the various rules and regulations of the stock market are not yet sound, there are some loopholes and blind spots, and some institutions and financial magnates take the opportunity to exploit these gaps for their own purposes.

Looking at the trend of the stock market, we usually see a situation where "bears grow as fiercely as lions, and when the bull market comes, it is as rapid as a roller coaster".These phenomena actually indicate that our stock market is not mature, but rather resembles a young and inexperienced teenager. In the national stock market transactions, the vast majority are retail investors with small amounts of money participating. Small-scale investors have become the force that dominates the entire stock market, and the funds placed in the stock market are just a drop in the ocean compared to bank savings. The speculative nature of the stock market far exceeds its investment nature. In light of these characteristics of our country's stock market, the establishment of a stabilization fund is very necessary. This stabilization fund is established by the state, and its purpose is not to make money, but to make the stock market operate more stably and develop in a healthy and orderly manner. From the day the stabilization fund officially operates, those big bears have to be careful. Whether it is foreign financial sharks or domestic main bears, as long as they try to manipulate the stock market to obtain illegal profits, the stabilization fund will ruthlessly strike. In addition, the investment project of 11 trillion yuan is expected to make investors more confident in China's economic growth, thereby attracting more people to invest in the stock market, and thus driving the flow of funds in the entire financial market. Only in this way can our stock market develop healthily, protect the interests of small and medium investors, and also ensure that high-quality companies can raise funds smoothly, promoting the upgrading of our country's industries.Only when investors make money can the staggering 297 trillion yuan in savings in banks potentially flow into the stock market, injecting new vitality into it. Earnings for investors can not only reduce the speculative nature of the stock market, increase consumption levels, stimulate economic growth, but also attract more long-term funds to stay in the stock market.

In summary, we investors must have a few basic understandings about this stabilization fund: First, even if a stabilization fund is established in the future, it cannot guarantee that the stock market will only rise and not fall. The market has its own rhythm and patterns of ups and downs, and the primary responsibility of the stabilization fund is to stabilize the overall market.

Secondly, even with the backing of a stabilization fund, when making market investments, one should still try to take a long-term view, selecting high-quality companies with good fundamentals and great development potential, and then patiently waiting for the stable returns from long-term holding.

Lastly, even if a stabilization fund is truly established, it does not mean that one can only invest in the stock market. At all times and in all places, one must consider building a diversified investment portfolio to reduce the risk of a single asset, while also paying attention to strengthening the management of investment risks, setting appropriate stop-loss and take-profit points.