Xu Gao, research director and chief economist of Boc International (China) Co.Ltd(601696) said in an exclusive interview with a reporter from the China Securities Journal that the steady growth policy has begun to take effect. From the monthly data, the growth rate of infrastructure investment hit the bottom in the second half of last year and will rise significantly in the first half of this year. The monthly growth rate of real estate investment is expected to reach the bottom in the first half of this year.
He said that this year's A-share market has two main lines worthy of attention: one is to find undervalued sectors related to stable growth policies, and the other is to explore investment opportunities in industries affected by the epidemic. At the same time, the fundamental prospect of the new energy sector is still good, but it is difficult for the capital driven sector to rise in the future.
the growth rate of infrastructure investment will rebound significantly
China Securities Journal: the current steady growth policy continues to be implemented. When will the relevant policies take effect?
Xu Gao: at present, China's economy is facing the triple pressure of shrinking demand, supply shock and weakening expectation. With the policy shift to steady growth, the economic situation is expected to improve soon.
The main reason for the contraction of demand is the weakening of domestic demand. From the second half of 2020 to now, China's foreign demand has been relatively stable. At the same time, the tight financing of local governments and the relatively strict real estate regulation policies weaken infrastructure and real estate investment, drive the growth rate of consumption down, and the total demand is relatively weak.
The supply shock mainly comes from the obvious tightening of China's production restriction policy last year. The production restriction policy has tightened the supply bottleneck, and there is a certain pressure on economic growth. Under the dual pressure of demand contraction and supply shock, economic growth weakened, with GDP growth of 4% in the fourth quarter of 2021. Coupled with some risk events in the real estate industry, market expectations have weakened.
Since these triple pressures mainly come from the changes of China's macro policies, the positive adjustment of macro policies can significantly lead to the warming of economic growth. Since the fourth quarter of 2021, the production restriction policy has begun to relax, which is also supported by the data. The month on month growth rate of industrial production began to rise from the fourth quarter of last year. The relaxation of production restriction can be regarded as a link of the steady growth policy, and the effect of the adjustment has begun to be reflected in the economic data.
In terms of infrastructure investment, since the beginning of the year, local bonds have been increased, and infrastructure projects have started rapidly after the Spring Festival, which has obviously released the signal of infrastructure overweight. From the monthly data, the growth rate of infrastructure construction has reached the bottom in the second half of last year. It is believed that the growth rate of infrastructure investment will rebound significantly in the first half of this year.
In addition, the real estate policy has been gradually adjusted. From the current trend, compared with the end of last year, the risks related to the real estate industry have decreased significantly, and the monthly growth rate of real estate investment is expected to reach the bottom in the first half of this year.
On the whole, the steady growth policy has begun to take effect. Driven by the steady growth policy, this year's economic growth will show a trend of low before high, and the annual GDP growth is expected to be close to 5.5%.
A shares fluctuated, mainly due to external factors and partly due to internal factors
China Securities Journal: Recently, the A-share market has experienced a large shock. How to treat the future market?
Xu Gao: Recently, the A-share market fluctuated. We believe that external factors are the main and internal factors are the auxiliary. The external cause is the withdrawal of the Federal Reserve's loose monetary policy; The internal reason is that the Chinese market still has some doubts about the effect of the steady growth policy.
The Fed admitted last year that the current high inflation is not temporary, so it began to withdraw from easing policy. This year, the market's expectations for the withdrawal of the Federal Reserve's loose monetary policy have increased significantly, and it is generally expected that interest rates will be increased three times in the year.
The Federal Reserve is rapidly withdrawing from its unprecedented easing policy, which has a negative impact on liquidity sensitive assets. Before the Spring Festival, the global stock market generally fell, and A-Shares were not spared, which can be understood as the market's response to the expected exit of loose monetary policy.
In terms of internal factors, although China's steady growth policy is constantly implemented, it still needs a process to fully reflect the policy effect. In particular, it is currently in the empty window period of the release of real economic data, which is difficult to confirm the policy expectation from the growth data, so the market has some differences on the fundamentals. The superposition of external and internal causes leads to the current market in a state of shock.
For the future, we are not pessimistic. We have confidence in China's steady growth policy. 2022 is the year of the 20th National Congress. I believe the policy will make efforts to stabilize growth. This will support the relevant sectors of economic recovery.
China Securities Journal: since this year, hot sectors such as new energy have continued to adjust, and there have been differences in market views. How will it be interpreted in the future?
Xu Gao: the fundamentals of the new energy sector are still good. It is expected that the profits of Companies in the new energy sector will continue to grow steadily this year, and the growth rate is expected to reach 50%. At present, relevant analysts in the new energy industry have not lowered the profit growth expectations of new energy companies. Taking into account the carbon peak carbon neutralization policy and the still low penetration rate of new energy in China, the fundamental prospect of the new energy sector is still good.
The main reason for the recent stock price adjustment of the new energy sector is the change of market style, and the factor behind it is the withdrawal of the easing policy of the Federal Reserve mentioned earlier. The new energy sector was greatly affected by this round of style changes because of its large increase last year and high valuation.
Looking forward to the future, in the context of style changes, it is difficult for the new energy sector to see the general rise of capital driven sectors like last year. However, because its fundamentals are still stable, there are still stocks worth picking after the sector adjustment.
focus on three factors
China Securities Journal: in 2022, what factors affecting the trend of A-share market deserve special attention?
Xu Gao: the three main factors affecting the A-share market in 2022 are the impact of the epidemic, China's steady growth policy and the withdrawal of the Federal Reserve's easing policy.
First, the impact of the epidemic on the economy is expected to decline further this year, but the decline may be different outside China. The "dynamic clearing" strategy for epidemic prevention and control in China may continue for a long time. Compared with European and American countries, China pays more attention to the health of the people, and the large-scale spread of overseas Omicron virus will bring more challenges to China's epidemic prevention and control. Therefore, there is uncertainty about the changes of the epidemic in the future.
Second, in terms of China's steady growth, 2022 is a key year, and this year's macro policies will keep the bottom line of steady economic growth. Therefore, China's economic growth is expected to hit the bottom and pick up within the year. In order to realize the bottom recovery of economic growth, the production restriction policy on the supply side will be relaxed, and the two steady growth drivers of infrastructure and real estate on the demand side will also be significantly strengthened.
Third, the withdrawal of the Federal Reserve's loose monetary policy will continue to impact the market. After the outbreak, the Federal Reserve adopted an unprecedented easing policy, which has seriously distorted the asset market. Historically, the yield of US Treasury bonds has a very obvious positive correlation with the PMI of US manufacturing industry. When the economy is good, the yield is relatively high. However, in recent quarters, the PMI of U.S. manufacturing industry has been at an all-time high, while the yield of 10-year Treasury bonds has been at an all-time low. The degree of deviation between the two has been at an all-time extreme level. Behind this is the price distortion effect brought by the Federal Reserve's loose monetary policy. When the Federal Reserve quickly withdraws from the easing policy, the asset prices seriously distorted by the easing policy may be sharply adjusted, and the overvalued assets will bear the brunt.
China Securities Journal: what do you think should be the focus of this year's market?
Xu Gao: we should grasp the main line of this year's A-share market from two ideas. The first is to look for undervalued sectors related to steady growth policies. As mentioned earlier, infrastructure and real estate are two important starting points for steady growth this year, and the policy attitude towards these two sectors will become more friendly. In the context of infrastructure and real estate recovery, the performance of the large financial sector represented by banks will not be too poor. At the same time, the valuations of infrastructure, real estate and banks are not high, which may bring good investment returns to investors.
The second is to explore investment opportunities brought by industries that are less affected by the epidemic. From the perspective of trend, the impact of the epidemic on China's economy will continue to decrease, which is conducive to the recovery of China's consumption; The recovery of real estate will also drive the recovery of relevant optional consumer goods industries, so we are optimistic about the opportunities brought by consumption recovery. As there is still uncertainty in the development of the epidemic, we need to find a good time to seize this opportunity.
