At the end of last year and the beginning of this year, the market style suddenly changed, and the trend of infrastructure and other sectors with “stable growth” as the main line was like a rainbow.
According to the data, as of February 18, the CSI infrastructure engineering index has increased by 15.57% since November 15, 2021 and 8.31% this year, becoming a scenic spot in a weak market.
Why can the infrastructure sector rise against the market? What is the driving force behind it? Can it become the main line in 2022? In this regard, the reporter of China fund daily interviewed:
Huo Huaming, ETF fund manager of GF China Securities infrastructure project
Luo yingyu, fund manager of Penghua Fund quantification and Derivatives Investment Department
Huang Yue, fund manager of Cathay Pacific Building Materials ETF
Yang Kun, fund manager of Wanjia CSI Dividend Index Fund
Huang Zhi, fund manager of Prudential China Securities infrastructure project
Xie Yi, fund manager of Nord fund
Wang Han, researcher of Boshi fund industry research department
Former manager of Jiangchen Haigang fund
These eight investment researchers believe that under the background of steady economic growth, infrastructure investment, as an important focus to drive GDP, has multiple benefits, won the favor of funds, ushered in the adverse market, and is expected to become the main investment line worthy of attention. Investors should pay attention to the risks behind the fund layout.
multiple factors triggered the strength of infrastructure sector
China Fund News reporter: the infrastructure sector has performed since the end of last year, and the market fluctuated during this period. What do you think triggered this wave of rise?
Xie Yi: since the end of last year, the economic data has approached the cyclical bottom. The central bank has issued a series of measures such as interest rate and reserve requirement reduction to help the economy enter the track of recovery as soon as possible. Under the expectation of steady growth, the market will usually choose infrastructure related industries, including construction, building materials and some upstream cyclical industries. This has led to excess returns in these industries.
Huo Huaming: recently, the infrastructure sector has attracted market attention, mainly for the following reasons: first, policy support: the central economic conference in December last year clearly put forward that the economic work in 2022 should be “stable and seek progress while maintaining stability”, and re mention “taking economic construction as the center”. On February 5 this year, the relevant person in charge of the national development and Reform Commission said that the infrastructure investment should be carried out moderately in advance, and the implementation of 102 major projects in the 14th five year plan should be solidly promoted. The starting point of the policy should be appropriately moved forward, so as to make early arrangements, start early and achieve early results.
Second, financial support: at present, the new special debt limit of 1.46 trillion yuan in 2022 has been issued in advance. In addition, it is expected that more than 1 trillion special debt income in 2021 will be delayed to the first quarter of 2022. At present, the capital of infrastructure is relatively abundant.
Third, project support: the national development and Reform Commission has made it clear to solidly promote the 102 major projects planned in the 14th five year plan. In addition, recently, news broadcast has also continuously reported the centralized commencement of some local major projects. Fourth, the pilot tax policy of REITs project issued on January 29 has effectively reduced the tax friction cost of REITs. REITs has increased the exit mode for old infrastructure projects, which helps to solve the problems of high debt ratio and long payback period of infrastructure projects, which is good for the current infrastructure industry.
Huang Yue: under the background of steady economic growth, infrastructure investment, as an important focus to drive GDP, has multiple benefits, won the favor of funds and ushered in a contrarian market. From the perspective of policy, there have been bursts of warm winds in the infrastructure and building materials sector recently. A few days ago, the executive meeting of the State Council stressed that we should speed up the construction of new infrastructure and expand effective investment. In fact, under the background of moderately advanced infrastructure investment, in mid December 2021, the Ministry of Finance issued 1.46 trillion yuan of new special bonds in 2022 to all localities in advance. Statistics show that in January 2022, the scale of local bonds issued by various regions was 698.9 billion yuan, an increase of 336.564 billion yuan over the same period last year, almost doubling. In terms of purpose, the special debt used for urban and rural, municipal and industrial park infrastructure accounts for 42.2%; Transportation infrastructure construction accounts for 18.3%, and nearly 60% is directly invested in infrastructure construction. After the Spring Festival holiday, the centralized commencement ceremony of provincial key construction projects has been held in Hubei Province, Fujian Province, Shaanxi Province and other places. From the perspective of valuation, the current valuation of building materials and infrastructure sectors is at the lower middle level, and the investment safety margin is high.
Yang Kun: the overall adjustment of the market began in December 2021, which impacted all market investors. The rising interest rate driven by overseas inflation is affecting global asset pricing. The style switching of northbound funds and other factors have a direct impact on the institutional allocation that originally lacked incremental funds and operated with high positions to a certain extent. In the environment of increasing market uncertainty and loosening of popular tracks in the early stage, the market gradually focuses on the main line of “stable growth” with the most favorable policies and the most clear direction. As an important starting point for China’s steady growth in 2022, infrastructure also showed significant excess returns in the secondary market.
Wang Han: the primary goal of this year is stable economic growth. It can be expected that there will be no great downturn in the economy throughout the year, because the state has policies, ability and confidence to stabilize the overall economy at a relatively controllable level, so as to achieve our set economic growth goal, Therefore, this is the main policy line driven by us since the beginning of the year.
Huang Zhi: since the second half of last year, China’s investment data has fallen continuously, and the two traditional economic drivers of real estate and infrastructure investment have slowed down. Coupled with the repeated epidemic in some parts of China, the downward pressure on China’s economy has gradually emerged. The central economic work conference in December last year pointed out that China’s economic development is facing triple pressures of shrinking demand, supply shock and weakening expectations. Economic work should be “stable and seek progress while maintaining stability”. The market’s expectation of fiscal and monetary policies to hedge against the economic downturn is rising. This round of rebound in the infrastructure sector is essentially an expectation of steady growth, infrastructure development and reversal of industry demand.
Jiang Junchen: we believe that the rising market of this round of infrastructure mainly comes from the feedback of the market about the downward pressure on the whole Chinese economy, the expectation and stimulation of the “steady growth” policy, and the resonance result brought by the switching of capital level.
Specifically, last year, the market itself was generally conservative about the recovery of economic growth in 2022. At the same time, although the covid-19 variant virus Omicron swept the world again, due to the differentiated treatment of foreign anti epidemic policies, the replenishment cycle in Europe and the United States has gradually begun, superimposed with the tightening of overseas liquidity, and the margin of foreign demand of China’s economy will slowly fall in 2022, The role of exports in stimulating the economy will be weakened. In the case of no obvious recovery in consumption, investment is regarded by the market as the first choice in the troika of stimulating the economy at the current stage.
In this context, the central economic work conference at the end of 2021 set the tone of “stability”. Under the pressure of economic growth, macroeconomic policies focused on stabilizing growth in an all-round way, and local governments intensively promoted investment projects, and the capital construction board was the most directly benefited from the large amount of investment projects.
Finally, the crowded growth track in the past has faced problems such as over valuation and possible slowdown in profit growth. The investment cost performance is no longer prominent in the short term. The funds on the site need to seek a direction with more investment value, while the infrastructure sector with policy support, low valuation and relatively determined profit is excavated and laid out by market funds in advance.
Luo yingyu: since the third quarter of 2021, the macro economy has continued to decline. Under the triple pressure of “demand contraction, supply shock and weakening expectation”, the central economic work conference in December required that the future macro policies should “take the lead in stability and seek progress in stability”. “Steady growth” is the main task of all provinces and cities, and “expanding effective investment” is the top priority. Many provincial and municipal governments have raised the growth target of fixed asset investment.
On the other hand, the central economic work conference summarized and reflected on the carbon reduction work of the whole year, especially the impact on the macro economy caused by the supply contraction caused by the campaign carbon reduction work in the third quarter, and proposed that to achieve carbon peak and carbon neutralization is the internal requirement of promoting high-quality development, which should be unswervingly promoted, but it is impossible to complete its work in one battle, The way and method of double carbon work have been significantly adjusted.
Judging from the overseas situation, the Federal Reserve made an obvious attitude adjustment towards US inflation in December last year. Fed chairman Powell’s view on inflation turned to hawks, from the previous view on short-term inflation to the view that the current situation is facing medium and long-term inflationary pressure. The market suddenly warmed up about the timing and range of US interest rate hike, The interest rates of us long-term and short-term treasury bonds rose sharply, and the capital market fluctuated synchronously, especially in the growth sector.
In this context, China’s capital market has experienced an obvious downward shock, showing structural differentiation. In the early stage, there has been an obvious correction in the popular track stocks, while the large market value stocks represented by finance and infrastructure have stepped out of the independent market. The entire capital market has reallocated and priced assets in the direction of steady growth.
steady growth policy is good for infrastructure sector
China Fund News reporter: at present, “steady growth” has become the main investment direction. What is the relationship between steady growth and infrastructure? Why can it drive the market of the whole infrastructure sector?
Huang Yue: infrastructure investment plays an important role in the process of economic recovery. In terms of the composition of GDP, when calculating GDP according to the expenditure method: GDP = final consumption expenditure + total capital formation + net export of goods and services. When demand shrinks and trade surplus drops, investment becomes an important focus to drive GDP.
Since 2004, the proportion of China’s infrastructure investment in GDP has gradually increased, and has declined since 2017, but it is still more than 6%. The important position of infrastructure can be seen.
In fact, infrastructure investment, as the starting point of countercyclical policy, is often used to hedge against cyclical demand contraction, especially for the downward pressure on exports and real estate. From the historical experience, after the 2008 financial crisis, major economies launched infrastructure investment plans one after another, typical of which are China’s “4 trillion” investment plan focusing on infrastructure construction, the American Recovery and Reinvestment Act of 2009 (ARRA) and so on.
From the statement of the central economic work conference in 2021, the importance of infrastructure is also self-evident. The formulation of infrastructure is “moderately advanced” and the formulation of real estate is “promoting a virtuous cycle”. Therefore, from the perspective of policy strength, the support for infrastructure may be greater than that of real estate, and the implementation pace is faster than that of real estate.
Under the expectation of steady growth, combined with the help of policy and capital, the infrastructure industry ushered in good news. On the policy side, China’s focus is back to steady economic growth, and the first choice is advanced infrastructure. In addition, the implementation of the policy of “ensuring supply and stabilizing price” has been strengthened. From November to December 2021, the price indexes of raw materials such as PPI and PMI fell year-on-year, and the cost side is good for infrastructure development. In terms of funds, the advance issuance of special bonds is expected to support infrastructure growth. The Ministry of Finance said that it had recently issued 1.46 trillion yuan of special bonds to all localities in advance. According to the calculation of Citic Securities Company Limited(600030) , combined with the amount of special bonds issued and invested in the project from November to December 2021, it is expected that about trillion yuan of special bond funds will form expenditure in the first quarter.
Xie Yi: the source of growth can usually be the expenditure of both enterprise departments and government departments, which are all part of economic operation. In the economic downturn cycle and stage, enterprises usually slow down the pace of inventory investment and equipment investment out of pessimistic expectations for the future. At this time, government departments usually take the initiative to expand investment and expenditure to make up for the decline of the private sector and help the economy bottom as soon as possible. The investment of government departments is mainly concentrated in infrastructure, public facilities and other fields, so steady growth usually corresponds to the recovery of infrastructure industry.
Howard Ming: infrastructure has always been one of the important means used by the government to hedge against the economic downturn. We note that the economic data of 2021 have been released. Although the GDP growth of the whole year is 8.1%, which is relatively stable, it is worth noting that the economic trend shows a trend of high before low, of which the growth in the fourth quarter of 2021 is 4.0%. In addition, in terms of structure, the total export increased by 21.2% year-on-year. This is because the overseas industrial chain supply has not been restored due to the epidemic, but it is expected that with the improvement of the impact of the epidemic on the economy in 2022, it is difficult to maintain high export growth; In terms of consumption, the total retail sales of social consumer goods in December 2021 increased by 1.7% year-on-year, and continued to decline compared with November. There is a reverse relationship between consumption and the recurrence of the epidemic. Before the epidemic is completely eliminated, it is difficult to be optimistic about consumption in 2022; In terms of investment, the national fixed asset investment increased by 4.9% year-on-year, of which the manufacturing investment increased by 13.5%, maintained a high boom, infrastructure investment increased by 0.4% year-on-year, and real estate investment fell to – 3% in December from 7.2% in June last year.
Generally speaking, at this stage, it is difficult for consumption and real estate to play a driving role, while exports are expected to be difficult to maintain high growth this year. Moreover, from the relevant economic data of this year’s Spring Festival holiday, it is difficult to be optimistic about the economy, whether it is the number of trips, tourist trips, consumption amount, film box office and other data. In this context, moderately advanced infrastructure investment is conducive to hedging the economic downturn.
Yang Kun: from a macroeconomic point of view, at present, the kinetic energy of consumption is weak under the impact of multiple rounds of local epidemics. At the same time, exports are gradually balanced by overseas supply and demand, and there is great pressure under the rebound of employment resumption. Infrastructure investment has become the key to stabilize investment and steady growth in 2022.
We see that the fixed asset investment target of many places in 2022 has been significantly improved, reflecting the strong investment willingness of local governments to make efforts through infrastructure. Meanwhile, since the fourth quarter of 2021, the approval of fixed asset projects by the national development and Reform Commission has been significantly accelerated. Traditional infrastructure is still the main driving force of local governments, and there is huge investment space in 2022. The market has high expectations for the growth rate of infrastructure in the first quarter and the whole year. Under the environment of high valuation of popular track and tightening overseas liquidity, the infrastructure sector with underestimated value and greater certainty has come out of a good market.
Wang Han: in the process of steady economic growth, all industries will benefit, but some high-tech, growth and consumption industries may benefit indirectly, while infrastructure, including commodities, raw materials and other cyclical sectors, may benefit directly. In this process, these undervalued sectors of infrastructure, bulk commodities and raw materials will benefit most directly and have greater flexibility.
Huang Zhi: in the first half of this year, China’s economy is facing great downward pressure. The dividend of supply-demand mismatch at home and abroad caused by the impact of the epidemic is gradually weakening. Disturbed by external demand, the export and manufacturing industries are more likely to face a decline in growth rate under last year’s high base.
Affected by the epidemic, the recovery of consumption is also relatively slow and uncertain. Infrastructure and real estate investment account for a large proportion of China’s GDP. As China’s dual engine of economic growth, infrastructure and real estate often show a “seesaw” effect in history. Although the recent policy correction of real estate regulation and control has occurred, the decline in real estate sales in the second half of last year will be gradually transmitted to the investment side. In the first half of last year, real estate investment will still be under pressure. Under the long-term policy goal of “real estate is not fried”, it is difficult for real estate to have strong stimulation. Infrastructure investment is mainly led by the government, which has strong controllability and effectiveness.
Therefore, according to the current situation, in order to stabilize the economy in a short time, infrastructure is likely to become an important starting point. The infrastructure sector has benefited directly from the recently launched and potential steady growth policies, including the acceleration of financial investment and projects. The improvement expectation of infrastructure investment has promoted the recent market of the sector.
Jiang Junchen: in different periods, the direction that can hold the downward pressure on the economy can belong to the category of “steady growth”, and infrastructure is a more direct industry that benefits from the “steady growth” policy at this stage. As the expectation of steady growth has been strengthened, especially the recent high growth of social finance data, and the Ministry of finance has issued a new special debt limit of 1.46 trillion yuan in 2022 to all localities in advance, which is significantly improved compared with the same period last year. Infrastructure projects in all localities are expected to be launched one after another, which is expected to form a financial support for infrastructure investment in the first half of this year and make steady progress in infrastructure development, The benefit expectation of the large infrastructure sector has increased significantly and has been quickly recognized by market funds, so there has been an obvious market.
On the other hand, in stock investment, market funds also tend to choose the direction with “historical repetition” effect. Looking back on history, we can also see that the previous stable growth infrastructure was basically the main focus. There were three strong stable growth in 2008, 2011 and 2014. During this period, the infrastructure investment rebounded sharply or maintained high growth, which was reflected in the stock market. During this period, the construction sector showed a certain excess return relative to the Shanghai and Shenzhen 300.
Luo yingyu: from the current situation, consumption and export, as an important part of GDP, are under great pressure for short-term recovery, while in investment, the investment cycle of manufacturing industry is relatively long. It is expected that real estate investment will also face great downward pressure this year. At this time, the importance of infrastructure as a means of “steady growth” regulation will greatly increase. In detail, we estimate that for every 1% increase in infrastructure investment, the GDP calculated by expenditure method will be pulled by 0.11%, which has a high driving role. Therefore, infrastructure investment is an important starting point for traditional stable growth.
According to the recently released monetary policy data, the social finance data has increased sharply, and the Ministry of finance has issued a new special debt limit of 1.46 trillion yuan in 2022 in advance, which is a great improvement compared with the same period last year. At the same time, considering that some special bonds have not been carried forward at the end of 2021, they are expected to form a fund support for infrastructure investment in the first half of this year.
one of the tracks worthy of attention in 2022
China Fund News reporter: has the entire infrastructure sector ushered in an inflection point? Will 2022 be a track worthy of investment and attention?
Huo Huaming: there are many indicators to observe infrastructure, among which many people use the issuance of special bonds and the reserves of projects. At present, these two indicators restricting the infrastructure sector have been improved to a certain extent. In addition, we can also closely track the economic data released by the National Bureau of statistics, because the infrastructure sector is an important tool to hedge against the economic downturn. If we observe an obvious inflection point in the economic data, investors can also use this as the inflection point of their investment in the infrastructure sector.
Huang Yue: as of February 16, 2022, the valuation of China Securities all index building materials index was 11.64 times, in the quantile of 29.93% since July 19, 2013; The valuation PE of CSI infrastructure index is 11.36 times, which is in the quantile of 34.66% since April 3, 2015. Vertically, the valuation of the sector is in the middle and low quantile, and the current valuation is in a historically low position. With the advance issuance of special bonds in the first and second quarters of 2022 and the implementation of financial funds to infrastructure projects, there is much room for valuation improvement, which is a track worthy of attention in 2022.
Xie Yi: we are still cautious about the concept of track. It is difficult to predict the rise and fall of a certain track. Resetting an industry and track will also bring greater volatility. The choice of individual stocks is more important. Specifically in the field of infrastructure, we believe that emerging infrastructure related stocks, traditional infrastructure and upstream cycle related industries can also select excellent targets, which can provide us with long-term investment opportunities.
Wang Han: infrastructure is different from other industries because its construction cycle is very long. From the perspective of real economy, the verification cycle is relatively long. The prosperity of the physical infrastructure industry can be maintained throughout the year, and the infrastructure industry will be better in 2022. However, the specific position of the stock and how long it can rise depend on how fast it can rise in the short term. If you rise too high, the hidden risk will be relatively large, but the overall prosperity of the infrastructure industry will remain at a relatively good level in at least the first half of 2022.
Huang Zhi: since 2018, the implicit debt of local governments has been strictly controlled. The source of funds has become an important constraint on the development of infrastructure investment, and the growth rate of infrastructure investment has slowed down significantly. Last year, traditional infrastructure investment was also faced with the pressure of capital constraints and weak demand, which is also the reason why the infrastructure sector remained at a low valuation for a long time in the past. At the beginning of this year, the capital of infrastructure investment has improved: 1.21 trillion yuan of special bonds were intensively issued in the fourth quarter of 2021, and the first batch of special bonds were issued in advance in 2022, reaching 1.46 trillion yuan. The issuance rhythm of special bonds was also significantly ahead of schedule. 484.4 billion yuan of special bonds were added in January, significantly exceeding that in the same period last year. In addition to the financial surplus funds of previous years, the capital construction investment funds were relatively abundant at the beginning of this year.
From the perspective of infrastructure demand side projects, the reserve of infrastructure investment projects is also relatively sufficient. On January 10, the national standing committee made arrangements to accelerate the promotion of major projects identified in the outline of the 14th five year plan and the special plan, and expand effective investment. The meeting also stressed the need to speed up the implementation of major water conservancy projects that have been demonstrated for many years, and the investment in local water networks and smart water conservancy is expected to accelerate. Judging from the new projects started in December last year and the new orders signed by central enterprises, the demand of the industry showed a rising trend; Last December, the growth rate of infrastructure investment in both narrow and broad sense improved slightly.
Overall, this year’s capital and project demand are expected to form a joint force to promote the moderate recovery of infrastructure investment. In terms of structure, new and old infrastructure is expected to work together. In terms of volume, old infrastructure still occupies an important position. The volume of new infrastructure is relatively small, but the kinetic energy is relatively strong. From the perspective of infrastructure sector stocks, the market may mainly appear in the process of expected improvement and verification, which can be paid attention to in the first half of the year.
Jiang Junchen: at present, the infrastructure sector has the advantages of high expectation and low value. Compared with other sectors, it has stronger certainty and higher investment cost performance. The first is the high expectation of policy support. At the end of last year, the central economic work conference officially confirmed that the focus of the policy has shifted to “stable growth”. Subsequently, various high-level and local statements and meetings said that the policy is increasing, and the central bank has also started to cut interest rates. At present, the policy effect of infrastructure has been reflected in social finance in January, but the economic stabilization signal has not yet appeared. It is expected that the steady growth policy will continue to increase until the economic stabilization is clear. Referring to the previous steady growth market, the infrastructure sector is expected to continue to show excess returns at this stage.
Secondly, the infrastructure sector also has the advantage of undervaluation, and its valuation is at the lower middle level in history from the perspective of P / E ratio and P / B ratio. As of February 18, the price earnings ratio (TTM) of the architectural decoration sector was 11.23 times, the price earnings ratio quantile was only 43.16%, the price to book ratio fluctuated only about 1 time, and the price to book ratio quantile was only 24.61%, which were below the historical average level. There is still a large space for valuation and repair in the future.
Luo yingyu: the growth rate of infrastructure investment has declined significantly in the past few years, maintained a low single digit steady growth in recent years, and the concentration of central enterprises in the head of infrastructure has increased significantly in previous years. Since the second half of last year, we have observed that the listed companies in relevant infrastructure sectors have improved significantly. From the order situation of listed companies, the orders of some companies in December of 21 have improved significantly. Throughout the year, the growth rate of infrastructure investment is expected to maintain a high single digit growth, especially in the first half of the year, the growth rate of infrastructure investment is expected to reach a new high since 2017.
From the recent high-frequency data, the commencement of projects after the festival is accelerated, and the superimposed capital construction fund support is large. The physical workload of capital construction is accelerating, which may form an obvious market style preference when reflected in the capital market.
new infrastructure, urban infrastructure, green infrastructure and rural infrastructure are favored
China Fund News reporter: there are many subdivided fields covered by infrastructure. What subdivided tracks can we pay attention to?
Howard Ming: new energy business is deeply involved in sectors, equipment buildings and other sectors. For example, pumped storage is a relatively mature and economical energy storage scheme. According to the medium and long term development plan of pumped storage (2021-2035), by 2025, the total scale of pumped storage will double that of the 13th five year plan to more than 62 million KW; By 2030, the total scale of pumped storage production will double that of the 14th five year plan to about 120 million KW, which means an annual growth rate of about 15% in the next 10 years. For example, for prefabricated buildings, in recent years, the labor bonus of China State Construction Engineering Corporation Limited(601668) industry has gradually disappeared, and the labor cost has begun to increase; The traditional construction industry has serious environmental pollution. In the future, the supervision of environmental protection will be strengthened. The extensive development model will be difficult to continue, and the cost performance of prefabricated buildings will continue to increase. At present, the penetration rate of prefabricated buildings in China is still low, and there is a broad space in the future.
Xie Yi: from the bottom up, we think that stocks with long-term investment value first probably appear in the field of new infrastructure, such as digital economy and renewable energy related infrastructure, which have long-term allocation value and are worth holding for a long time. Secondly, we can also find many opportunities worthy of attention in the upstream raw materials of traditional infrastructure, including building materials, engineering services and other related fields.
Huang Yue: the four resonance of “new infrastructure + urban construction + green infrastructure + rural infrastructure” is expected to continue to drive the investment value of the industry. The new infrastructure covers network upgrading, digital transformation, scientific and technological innovation and intelligent integration, and enables economic growth in combination with industrial upgrading; Urban renewal and construction drives the demand for municipal infrastructure such as urban pipeline aging, renewal and transformation and old community transformation, and the market space is large; “Double carbon” releases the demand for green infrastructure, and industries related to energy-efficient and energy-saving equipment and urban green transformation welcome growth opportunities; Financial investment in rural infrastructure has been gradually increased, and agricultural and rural modernization has brought investment opportunities in rural infrastructure.
Wang Han: the capital construction sector can be divided from two perspectives. One is the direction of capital construction, such as transportation, warehousing and transportation, electricity, gas, shipping, warehousing, etc. in fact, there are great differences in the growth space in different directions. Firstly, the power sector may be the most elastic, because there have been several power tensions and coal power tensions in 2021, The power of the whole country has been strongly challenged. In the future, with the implementation of the double carbon policy, more and more new energy sources such as wind power and photoelectric power may be introduced into the power supply in the future. The other is that transportation may also have a certain increment.
From another perspective, the infrastructure enterprises themselves can be classified into three categories: central enterprises directly under the central state owned assets supervision and Administration Commission, provincial infrastructure enterprises and private enterprises. There are some differences between them. The demand for infrastructure is an overall stimulus at the national level, and the infrastructure enterprises of national central enterprises may benefit more. For private enterprises, we should pay attention to the safety of its capital chain.
Huang Zhi: when the infrastructure demand is expected to improve marginally, the profit growth of leading infrastructure enterprises is relatively stable, the current valuation is still at a historical low (some head central enterprises are less than 1 times Pb), the valuation still has a large upward repair space, and we can pay attention to the main line of undervaluation.
Capital construction is a huge market. In addition to traditional capital construction, it is also breeding many subdivided new tracks with rapid capacity expansion. These tracks with good growth also deserve our attention. For example, new power system investment, with the “double carbon” background and high investment efficiency, new power investment may become an important focus for the steady growth of infrastructure, and the sector elasticity is relatively large.
Jiang Junchen: judging from the current approval of special bonds, it may be the joint efforts of new and old infrastructure in the future. The probability of new infrastructure is the direction of long-term policy preference, and there may be phased opportunities for old infrastructure in the short term. In terms of investment logic, the old infrastructure mainly focuses on repair and valuation. It is suggested to pay attention to the cement industry and construction industry with rising industry demand and high profit stability. The new infrastructure proposal focuses on areas such as digital economy, Internet of things, UHV and so on.
Luo yingyu: from the perspective of the main direction, intensity and rhythm of this round of infrastructure investment, I suggest you pay attention to the following directions:
First, the early cycle of pipe / waterproof and other building materials. The second is the upstream steel sector, which is at the core of steady growth. This sector has the characteristics of high elasticity, undervalued value, high red rate and so on. It responds quickly and violently to the downstream demand. The third is the infrastructure sector represented by central infrastructure enterprises. After the survival of the fittest in the past few years, this sector has improved its concentration, optimized its competition pattern, and directly benefited from the commencement of major infrastructure projects, directly forming income and profits.
the main risk point is the economic trend
China Fund News reporter: what are the risk points of investment in infrastructure sector that we need to pay attention to?
Howard Ming: the relationship between the infrastructure sector and the economic trend shows a certain negative correlation. In the future, investors need to pay attention to the economic data released by the Bureau of statistics, especially the infrastructure investment data. In addition, investors need to understand the fluctuation risk of the secondary market. If it rises sharply, they should avoid chasing after the rise and killing the fall.
Xie Yi: we think the risk lies in the concept of investment. If we calculate the time window when the infrastructure sector may obtain excess returns from the perspective of prediction, and trade based on these predictions, we may face greater risks. But if you focus on individual stocks and choose companies that can cross the cycle and have long-term competitiveness, the odds of winning may be higher.
Huang Zhi: the market is facing a game between the slowdown of growth momentum and the expectation of stable growth policy. For the sector as a whole, since the capital construction market is mainly driven by the expectation of steady economic growth and capital construction force, the risks are mainly the risk that the policy strength is less than expected and the recovery of capital construction investment is less than expected. The capital construction investment strength will affect the direction and Sustainability of the market, such as the availability of funds and the implementation of project approval, which need to be tracked and verified.
For specific companies, we should still pay attention to the company’s own operational risks, which may include cash flow, accounts receivable, debt ratio and so on. In addition, some construction enterprises have a high proportion of real estate business, and they should also pay attention to the impact of the decline of real estate capital chain and investment.
Jiang Junchen: first of all, the infrastructure sector belongs to a cyclical industry. The overall industry will be affected by relevant factors such as economy, policy and industry prosperity. Reflected in the market, the concentrated performance of the sector is often impulsive or phased, and the relevant stocks will also be affected by their own operation and profitability, Therefore, it is suggested that before investing in the infrastructure sector, investors need to understand and understand the logic of the internal development and rise of the sector in advance, and screen the fundamentals of the underlying stock before making investment judgment. At this stage, the rise of the infrastructure sector is more due to the expectations brought by the “steady growth” policy. Investors also need to pay attention to the implementation of the actual policy, the expected difference caused by the risk that the commencement of infrastructure projects may be less than expected, and the callback risk caused by the rapid rise of the sector.
Luo yingyu: at present, the capital market has many doubts about the steady growth of infrastructure investment, which needs to be continuously confirmed or falsified in the process of development deduction. There are the following concerns:
First, whether the rise in the growth rate of infrastructure investment can hedge the decline in the growth rate of new construction is a variable of key concern for some time in the future.
Second, under the requirements of high-quality development, it will not “big projects” as before, pay more attention to project quality, and it is difficult for investment to rebound quickly.
Third, the shortage of local financial resources affects the willingness of local governments to invest. Tax reduction and fee reduction and negative growth of land transfer income in 2022 will exacerbate the tension of local financial resources, and debt borrowing will be strictly regulated. With limited financial resources, the willingness of local governments to increase investment will inevitably be affected.
Fourth, the bottom line thinking of preventing and resolving risks has not changed, and the supervision of implicit debt and urban investment debt will not be relaxed.
Fifth, fiscal expenditure structure adjustment. Since the outbreak of the epidemic, the priority of people’s livelihood expenditure is significantly higher than that of infrastructure expenditure, and infrastructure expansion is limited.
pay attention to risks through the layout of industry theme funds
China Fund News reporter: for investors, how to participate in infrastructure investment through funds? How should I filter?
Huang Yue: investors who are optimistic about the follow-up investment opportunities of infrastructure can layout ETF products in some industries.
Xie Yi: infrastructure is a bit like military industry. In the long run, the opportunities of individual stocks are greater than those of sectors, which need to be accurate to individual stocks. If you take a portfolio or fund, you may have higher requirements for timing ability. In terms of choice, it may be suggested to pay attention to a wide range of investable funds, such as but not limited to infrastructure, which are optimistic for a long time, because there is still room for adjustment after the steady growth stage.
Howard Ming: due to the large differentiation in the infrastructure sector, ordinary investors can invest by index to share the growth achievements of the whole industry. In addition, at present, there are several indexes in the infrastructure sector. Investors can compare the sample selection range of various indexes and the top ten constituent stocks before making investment decisions.
Yang Kun: since the economic work conference in December 2021, the central bank has continuously reduced the reserve requirement, lowered the policy interest rate, increased the amount of special bonds and increased social finance in January, which greatly exceeded the expectations. We are undoubtedly in the time window of marginal “wide credit”. Looking back on the credit expansion cycles under the background of steady growth since 2010, we find that in the turn of economic expectations, When the growth rate of social finance picks up, the performance of finance, cycle resources and infrastructure chain is better.
The inflection point of overseas liquidity may repeatedly impact this year’s market risk preference and overestimate the value of “crowded bubbles”. Compared with previous overcrowded growth tracks, “high market value + undervalued” high dividend valuation sector has limited valuation space, and stable profits and dividends are expected to bring absolute gains and relative benefits. At the same time, the current round of steady growth policy continues to work, and the financial, infrastructure, cyclical energy and other industries are at the center of the policy target. In the stage of economic climbing from the bottom, the CSI dividend index with bottom valuation, pro cyclical and high dividends deserves attention.
Huang Zhi: in the process of steady growth and rising temperature, the capital construction sector has the power to repair and improve the valuation. Through investing in the index fund of capital construction theme, we can easily and quickly grasp the sector investment opportunities. For passive index tools, when screening, you can pay attention to the matching degree between the target index and the investment in the infrastructure sector, the tracking effect of the fund on the index, the liquidity of the fund, etc.
Jiang Junchen: for investors, if they want to participate in investment in infrastructure, on the one hand, they can allocate industry index funds with relevant themes. However, it should be noted that they have high concentration and relatively large fluctuation. Investors need to know whether their risk return characteristics match their own risk tolerance. On the other hand, the infrastructure sector in the Hong Kong stock market has more advantages than A-Shares in terms of valuation, and the safety margin is relatively high.
Luo yingyu: investors can participate in relevant investments by grasping the main investment logic style of the market and configuring corresponding theme / industry index funds, so as to reduce the risk of asset fluctuation and obtain industrial development dividends.
