whether for economic growth or market operation, the “cause” of confidence is more important than the “result” of growth. At the moment, strengthen confidence, look at the post holiday market of A-Shares optimistically, and increase positions for the new year.
summary
the weakening of expectations may be the core difficulty facing the current economy. Whether for economic growth or market operation, the “cause” of confidence is more important than the “result” of growth. since the beginning of the year, we have faced multiple internal and external factors, but the gradual clarity of the three logics makes us believe that the dilemma of weakening expectations has reached the bottom. What we need now is firm confidence.
the effect of the steady growth policy initially appeared in the first quarter, and the restriction of external risk disturbance is limited. These two logics are our basic judgment on the operation of economy and policy. on the one hand, the steady growth policy signals are accumulating and there is still a lot of room for development, and the reasonable adjustment and resolution of a series of problems in real estate and hidden debt are still on the way. On the other hand, whether the US Federal Reserve raises interest rates or geopolitical disturbances, they have a very limited impact on China’s policies and economy. The deviation from the China US economic cycle and the “me dominated” policy environment will lead to the continuous strengthening of the short-term differentiation of China US policies.
in addition, a logic we can’t ignore is that the bottom support of China’s economy is still hard enough. manufacturing investment divorced from export is still expected to maintain prosperity (industrial upgrading and energy reform), and the potential space for consumption is increasing (residents’ and enterprises’ savings have increased continuously for three years). These two internal factors will bring about a slow stabilization of fundamentals after the gradual withdrawal of tightening policies.
strengthen confidence and look at the post holiday market of A-Shares with optimism. the negative impact on the denominator side is intensive, the confidence on the numerator side is insufficient, and the pre holiday trading level disturbance is superimposed, and the pre holiday market continues to adjust. Looking forward to the Spring Festival, 1) positive factors will be gradually revised upward. After experiencing the real estate credit risk and local hidden debt problems in recent years, the market inevitably hesitates to stabilize growth. However, at present, the local two sessions have been held one after another, and the word “stability” will take the lead. The steady growth policy will accelerate and exert its force. There is no need to be overly pessimistic about the molecular end after the year. 2) Negative factors will accelerate convergence. At present, the market is gradually pricing the changes in overseas liquidity expectations. The negative impact of overseas liquidity expectations before the year is being accelerated. At the same time, the real estate credit risk will be gradually implemented after the year, and the negative factors at the denominator will accelerate the convergence. Recently, the short-term risk appetite of investors has been at a low level, and the downward space is limited. 3) In addition, from the perspective of calendar effect, it can also be observed that the market performance after the Spring Festival over the years is significantly better than that before the Spring Festival. Overall, the market is expected to gradually recover after the Spring Festival.
in the structural configuration, the water flows low to the bottom, and the underestimated value dances. return to the starting point. At present, there are two ways in front of investors. On the one hand, after continuous adjustment, the cost performance of track companies has gradually increased. On the other hand, with the expected warming of steady growth, the value of consumption and infrastructure allocation has increased. We believe that the liquidity test is not over, superimposed on the low market risk appetite, the market still flows to the low, and the style is accelerated to switch to the undervalued style. Actively grasp the undervalued sector with consumption and infrastructure chain as the core. Recommendation: 1) consumption: accelerate the expected bottom, recommend the direction of performance, support and negative expectation of pig, household appliances, furniture, social service / tourism, Baijiu and so on. 2) Infrastructure: improve infrastructure investment, help “revitalize infrastructure” exceed expectations in the future, and recommend building materials, construction, power operation and other directions; 3) Finance: securities companies and banks; 4) Consumer electronics.
directory
1. The effect of steady growth will appear in the first quarter. The inflection point of the slope of social finance is probably around in March
2. The underlying logic of China’s economy is still supported by positive factors – there is a huge potential space for manufacturing investment and consumption
3. The external risk disturbance is limited, and the Federal Reserve has a high probability of Hawking before pigeon
4. Strengthen confidence and take an optimistic view of the post holiday market of a shares
5. When the water flows low, the underestimated value dances
Since the beginning of the year, the market’s concerns about China’s fundamental pressure, the effect of steady growth policy and external risk events have increased: on the one hand, the internal and external maturity volume of real estate debt in the first quarter is still not low, and the data related to real estate investment fell comprehensively at the end of 2021, making it difficult for the market to dispel its concerns about real estate operation risk. On the other hand, Since the policy orientation of steady growth, the micro data of policy implementation has not been verified, and the market still doubts the strength and effect of steady growth. In this process, the advance of the pace of interest rate hike by the Federal Reserve and the fermentation of Geopolitics in Russia and Ukraine have increased the volatility of overseas assets, which has triggered concerns about the operation of the Chinese market.
First of all, from a macro perspective, we are about to enter the vacuum period of real economic data, and will also face more certain fed interest rate hikes and continuous disturbance of overseas geopolitical factors. However, we believe that the supporting logic of the three dimensions will gradually become clear in the first quarter, and the expected weakening dilemma is facing the bottom stage:
● the effect of the steady growth policy will be reflected in the first quarter, so there is no need to worry too much about the effect and strength of the steady growth policy;
● the two positive factors in the underlying logic of China’s economy have not changed, supported by manufacturing investment and consumption space, and there is no need to be overly pessimistic about the fundamentals.
● the external risk disturbance is limited. The Federal Reserve has a high probability of Eagle before pigeon, and there is little room for conflict between Russia and Ukraine.
The steady growth effect of 1 and will appear in the first quarter, and the inflection point of the social finance slope is probably around in March
Since December 2021, the Guojun macro team has repeatedly stressed that the steady growth policy is imperative in the “steady growth force series”. In the specific direction, we have combed all aspects such as the return of large infrastructure construction to the stage, real estate rectification and Rural Revitalization. In essence, it will not be achieved overnight from the policy shift to the increase of policy signals, and then to the intensive implementation of policies. Moreover, the particularity of This steady growth is precisely to get out of the early tightening industrial policies and “carbon charge”. This top-down transmission needs a certain transition period.
at present, we believe that the steady growth policy has begun to accelerate. on the one hand, in the process of credit from stable to wide, the broad monetary orientation is clear, the interest rate and reserve requirement reduction can be expected, and the follow-up space is still not small. On the other hand, in the statements of most local two sessions just concluded, the willingness of local governments to implement steady growth by focusing on major project investment has significantly increased compared with previous years.
we believe that credit needs to wait in the short term from stable to wide, but the inflection point of the slope is not far away. the financial data ending in 2021 is “general in total and poor in structure”. It is indeed difficult for the growth rate of short-term social finance to rebound significantly, and credit relief will not be achieved overnight. For the judgment of the sub item of social finance, first of all, due to the imminent advance force of finance, it is still the main force of social finance in 2022q1. It is expected that the net financing of government bonds in 2022 will reach 500 ~ 600 billion yuan in January and slightly fall to about 400 billion yuan from February to March. Secondly, in terms of credit, driven by the forces of stabilizing real estate, increasing infrastructure, expanding small and micro enterprises and promoting green loans, the credit made a good start in the first quarter is not pessimistic. The credit in 2022q1 is expected to increase year-on-year, and the increase range may be equivalent to that in 2021, but it is less than that in 2020, and the corresponding credit scale is about 8.1 trillion.
The upward acceleration of social finance growth will appear in the middle and late of the first quarter, when the year-on-year growth rate will reach 10.4%, and the significant credit extension may be seen near the middle of 2022.
under the background of our policy, there is still much room for steady growth policy:
● in terms of monetary policy, for the reduction of reserve requirement, the central bank stated that “the monetary policy toolbox should be opened wider to avoid credit collapse”. The liquidity gap during the Spring Festival is superimposed with economic pressure, which makes it more necessary to reduce the reserve requirement again, and the subsequent reduction range may reach 50-100bp. In particular, in 2022, the special financial force is ahead (the current issuance of special bonds in Shanghai has been accelerated), and the probability of RRR reduction in the first quarter still exists. For interest rate cuts, the two major reasons of “steady growth” and “bank interest margin” will promote the marginal increase of the possibility of subsequent continuous interest rate cuts, and from the perspective of historical recovery, there is still room for interest rate cuts. At the time point, there is a probability before and after the two sessions. February and March are the possible time points for the reduction of MLF and Omo interest rates. However, referring to history, it is rare to cut interest rates before and after the two sessions. The time point mentioned in our previous report is more likely in the early second quarter, and the LPR interest rate will be adjusted accordingly. If the real estate downturn is fast, it is difficult to stabilize the economic fundamentals, and the peak maturity of real estate bonds catalyzes credit risk, the pace of 5-year LPR reduction will also continue. There is no need to worry about the space and duration of monetary policy, especially the duration of wide currency, which is likely to exceed the current market expectations in the dimension of the whole year.
● in terms of fiscal policy, the overall fiscal strength in 2021 is not obvious, which is mainly due to the fact that under the concept of cross cycle regulation, the fiscal reserves “ammunition” for the downward pressure of the economy and the contradiction between revenue and expenditure in the future. The surplus funds of the two financial accounts exceeded 2 trillion, and the finance made a good start with sufficient “ammunition”. In 2022, the general public budget has formed a total surplus of more than 860 billion yuan. At the same time, the executive meeting of the State Council on January 10 stressed that “the 1.2 trillion yuan of local government special bond funds issued in the fourth quarter of 2021 should be allocated to specific projects as soon as possible”, indicating that the special bond funds issued in 21q4 have not yet formed a physical workload. The balance of the two accounts reached a record $2 trillion, which corresponds to the abundant financial “good start”.
2, the underlying logic of China’s economy is still supported by positive factors – there is a huge potential space for manufacturing investment and consumption
in the process of economic slowdown, we see that China’s manufacturing investment has always maintained a high boom. At present, manufacturing investment is still the most important positive factor in the fundamentals. the sustained high prosperity of manufacturing investment is inseparable from the positive impact of strong exports on the one hand, but more is the continuous support brought by industrial upgrading and energy reform. We can see that in 2021, under the constraints of the dual carbon policy, the investment in manufacturing industry will still be positive. In the future, there will be three driving forces to continue to positively support the investment in manufacturing industry, including industrial digital upgrading, technological transformation and business expansion after high profitability of traditional high energy consuming industries, and reasonable investment after dual carbon correction. In addition, the rise of overseas capital expenditure cycle resonates with China’s capital expenditure, and will also become an important force to promote the high prosperity of China’s manufacturing investment in the first half of the year.
in addition, consumption, the ballast stone of China’s economy, has great room for recovery in the future, the general direction of repair remains unchanged, and the recovery is likely to accelerate in the second half of the year. since 2019, the savings deposits of residents and enterprises have increased for three consecutive years, with an average increase of about 100 billion. The savings deposits of enterprises and residents have brought enough upward space for the subsequent recovery of consumption. At present, the slow recovery of consumption is mainly due to the weakening of expectations, which restricts the willingness to consume. However, these factors have produced obvious positive changes, including the loosening of the margin of real estate regulation, the weakening of the impact of the epidemic, and the full implementation of steady growth. We expect that the economy will stabilize in the second quarter, and the economic stabilization will become an important catalyst for the expected recovery of consumption. Consumption is expected to accelerate the repair in the second half of the year, and relay manufacturing investment will become an important driving force for economic growth.
although real estate investment is in a painful period, the bottom is not far away, and the probability of stabilization and rebound in the second quarter. the decline of short-term real estate investment will continue, which will inevitably bring some pressure on economic fundamentals, but there is no need to be overly pessimistic. As we mentioned in the annual strategy, in the long run, when the real estate policy gradually returns to normal and the real estate market returns to the state of healthy development, real estate investment will still rebound. According to the historical laws of developed countries and the prospect of China’s urbanization, it is expected to maintain an investment growth rate of about 3% – 5% in the medium and long term in the future. In the short term, with the support of policies, the merger and reorganization of the industry continues to speed up, which is expected to help the industry soft landing of credit risk. Due to the deregulation of urban policies, the mortgage interest rate has declined. From the historical law that the real estate sales lag the interest rate by about one quarter, the real estate sales probability hit the bottom and rebounded in the second quarter. Once the capital warms up, the completion end support will also pick up, and the real estate investment chain will also hit the bottom and rebound in the second quarter.
3, risk disturbance is limited, and the Federal Reserve has a high probability of Eagle before pigeon
in terms of external risks, the tightening expectation of the Federal Reserve is heating up. but when the economic fundamentals are not strong and inflation is close to the top, the Fed has a high probability of Hawking first and then pigeoning. In the just concluded interest rate meeting, the Federal Reserve further raised the expectation of policy tightening. Powell said at the press conference that he was hawkish and was open to raising interest rates more than four times and the range of interest rate hikes in the year. “It is not ruled out that interest rates will be raised in every meeting” and “the range of interest rate hikes is not preset”. Powell’s statement led to the increase of interest rate hikes in the market to 4-5 times in the year, And triggered a sharp adjustment in asset prices. However, we believe that the Fed has a high probability of hawks before pigeons during the year. The tightening expectation may peak in the first quarter, and the inflection point of doves appears as soon as the third quarter. In the first quarter, the US inflation rate probably peaked. At the same time, affected by Omicron, the US economic data in the first quarter is expected to be weak. We think we will see the peak of the Fed’s tightening expectation in the next January to February.
However, the Fed’s attitude has completely changed, and we still need to wait for the signal of effective easing of inflationary pressure or obvious weakening of the economy. In terms of inflation, inflation in the United States will ease significantly in the second half of the year, and is expected to fall below 3% in the fourth quarter, entering a range that can be tolerated by the average inflation targeting system; In terms of economy, the economic momentum of the United States will reach a phased high in the second quarter due to the impact of post epidemic compensation. The subsequent economic momentum will weaken, and the rapid decline of economic growth may be unavoidable.
in the environment of self dominated policy, even if the Fed accelerates tightening, there are limited restrictions on China’s policy. especially at the stage of great fundamental pressure in the first half of the year, it does not constitute a restriction point from the perspective of exchange rate or China US interest rate spread. During the two rounds of monetary policy dislocation (14-16 years and 18-19 years) of “China easing and the United States tightening” in history, the interest rate spread between China and the United States narrowed to 50 ~ 60bps, and the historical average interest rate spread was also near 60bps. In the recent round of monetary policy dislocation of “China easing and the United States tightening”, the central bank once stated in April 2018 that the current 92bps interest rate gap between China and the United States is acceptable. April 2018 is the initial stage of China’s fourth round of monetary policy easing, while the United States is in the second half of the interest rate hike, and there is also obvious differentiation in China US monetary policy. We believe that at present, although the interest rate difference between China and the United States has reached about 100bps, there is still a certain distance from 50 ~ 60bps, and the first half of 2022 will not be an obvious constraint on China’s interest rate reduction.
In terms of exchange rate, the current RMB exchange rate is still strong, which provides a certain space for easing such as interest rate reduction. Behind the strength is the strong foreign exchange settlement brought by strong exports in 2021. Due to the small interest rate difference between China and the United States, there is a certain “safety cushion” in the first half of 2022, which does not restrict China’s monetary policy.
4, strengthen confidence and take an optimistic view of the post holiday market of A-Shares
the negative impact on the denominator side is intensive, the confidence on the numerator side is insufficient, and the pre Festival trading level disturbance is superimposed. The market continues to adjust before the Spring Festival.
● intensive negative shocks at the denominator: the Fed’s turn to Eagle exacerbates the liquidity expectation pressure
on the one hand, on the basis of the consistency of China’s current broad monetary expectations, the impact margin caused by the Fed’s expectation of raising interest rates and shrinking the table in advance is amplified. from the perspective of marginal change, the current market expectations for China’s liquidity are relatively consistent, and there are no differences on the wide currency rhythm. However, the current overseas liquidity expectation is still in high volatility, which has become the core leading factor affecting the market liquidity expectation. Judging from the FOMC meeting in January, Powell held an open attitude towards raising interest rates more than four times in the year and the range of interest rate increases at the press conference, which further exacerbated the concerns of the market. We believe that the liquidity test in 2022 is the only way for the market. In recent years, profitability has gradually become a structural problem. Even in the downward period of profitability, high prosperity and low growth coexist. However, the liquidity in 2022 is expected to change fundamentally compared with the past, and will move from positive driving to negative impact in the past two consecutive years. Therefore, the market valuation end will experience a severe test. Of course, it should also be recognized that the liquidity test experienced by the market before the festival is relieving the pressure after the festival.
on the other hand, market risk appetite continued to decline under the influence of risk events. the market risk appetite has been suppressed by real estate credit risk and is already at a low level. However, the recent conflict between Russia and Ukraine has exacerbated the volatility of the global equity market, which further has a negative impact on the A-share risk appetite under the overseas infection.
● lack of molecular confidence: the market has poor confidence in the strength of “steady growth”
the current market also has a slight lack of confidence in fundamentals, but it is not the main reason for the recent market adjustment. at present, the market has no differences on the direction of steady growth, but the market still has obvious differences on the strength and effect of steady growth, and is still worried about the transition from wide currency to wide credit. In addition, there have also been disturbances at the recent market transaction level. The early spring festival in 2022, the poor profit-making effect before the festival and the fluctuation of net value have led to the reduction of capital positions with absolute return as the core.
optimistic about the market after the A-share Festival, the negative expectation of liquidity will gradually peak and digest, while the positive factors will be gradually revised upward, and the market will gradually recover after the Spring Festival.
● negative factors will accelerate convergence. at present, the market is gradually pricing the changes in overseas liquidity expectations. The negative impact of overseas liquidity expectations before the year is being accelerated. At the same time, the real estate credit risk will be gradually implemented after the year, and the negative factors at the denominator will accelerate the convergence. In addition, the short-term risk appetite of investors has been at a low level recently, and the downward space is limited. Through the research on the dynamic relationship between risk awareness and return pursuit in the past decade, the current market risk appetite has rapidly reduced to the bottom area, indicating that the bottom of the market is approaching.
● positive factors will be gradually revised upward. after experiencing the problems of real estate credit risk and local hidden debt in recent years, the market inevitably hesitates to stabilize growth. However, at present, the local two sessions have been held one after another, and the demand for steady growth is strong. The steady growth policy will accelerate and exert its force. There is no need to be overly pessimistic about the molecular end after the year.
● in addition, through the historical study of the calendar effect, we found that from the two important time windows of the Spring Festival and the two sessions in the spring market, the market performance after the Spring Festival is significantly better than that before the Spring Festival. Similarly, the market performance after the two sessions is also significantly better than that before the two sessions.
5, the water flows low, and the underestimated value dances
the water flows to the lower part, and the undervalued style will continue to dominate. from the perspective of structural configuration, there are two ways in front of investors, and they have returned to the starting point. On the one hand, after continuous adjustment, the cost performance of track companies has gradually increased. On the other hand, with the expected warming of steady growth, the allocation value of the undervalued sector with consumption and infrastructure chain as the core increased. We believe that the liquidity test is not over, superimposed on the low market risk appetite, the market still flows to the low, and the style is accelerated to switch to the undervalued style. Recently, the structural market of the market has gradually shown the characteristics of high-low switching. Since the beginning of January, the low price to book ratio index and low price to earnings ratio index have been stable, with cumulative increases and decreases of 0.66% and – 0.45% respectively, while the corresponding high price to book ratio index and high price to earnings ratio index have fallen by – 9.49% and – 9.33% respectively.
in the undervalued sector, additional attention should be paid to the direction with profit reversal or marginal improvement advantage in 2022, which will further catalyze the valuation repair slope of the undervalued sector. the biggest catalyst for valuation repair in the undervalued sector comes from the expected improvement or even reversal of fundamentals. The positive feedback mechanism of fundamentals will determine the slope of valuation repair. Looking forward to 2022, we need to focus more on the improvement or even reversal of fundamentals. According to the consensus expectation analysis of the industry and wind of Guojun Research Institute, the track of boom reversal in 2022 includes: animal husbandry and breeding, power generation and power grid, aviation, general retail, small household appliances, condiments, etc; The tracks that will improve in 2022 include consumer electronics, white electricity, environmental protection, games, etc. With the gradual deduction of the positive feedback mechanism of fundamentals, leading companies in the industry will take the lead in revenue.
to sum up: take an optimistic view of the post holiday market, and actively push along the undervalued sector in the structure. the core logic of the market adjustment since January 2022 is the pressure to kill the valuation caused by the expected change of liquidity at the denominator. At present, China’s easing expectations tend to be consistent with less increment. The overseas monetary policy tends to be hawkish, accelerating the market’s adjustment of liquidity expectations. Looking forward to the Spring Festival, the negative expectation of liquidity will gradually peak and digest, while the positive factors will be gradually revised upward, and the market will gradually warm up after the Spring Festival. In this context, the focus of investment has shifted from high growth to undervalued value. Recommendation: 1) consumption: accelerate the expected bottom, recommend the direction of performance, support and negative expectation of pig, household appliances, furniture, social service / tourism, Baijiu and so on. 2) Infrastructure: improve infrastructure investment, help “revitalize infrastructure” exceed expectations in the future, and recommend building materials, construction, power operation and other directions; 3) Finance: securities companies and banks; 4) Consumer electronics.
Citic Securities Company Limited(600030) : “emotional bottom” and “market bottom” resonate, and market overshoot brings better buying points
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Haitong Securities Company Limited(600837) : empty energy is released, and the stock index will rebound technically at any time
