The conflict between Russia and Ukraine exceeded expectations, and the United States may become the final winner. In the face of EU and US sanctions, Russia resolutely launched military action against Ukraine, and the expectation of “fighting without breaking” was broken. The core reason why Russia made such a decision is that in the tripartite dialogue with Europe, America and Ukraine, the hope of NATO no longer expanding eastward was dashed, “Abolishing Ukraine’s military potential” and forcing Ukraine to promise neutrality or the main goal of Russia’s military action. As NATO stated that it would not participate in the war, the final outcome of the conflict is obvious. In view of this conflict, we believe that Ukraine may be the biggest loser, losing both sovereignty and national strength; The second is Russia. Although Russia may solve its own security problems, it needs to meet more challenges in the face of strong international sanctions. The United States may become the biggest winner. First, it has enhanced the cohesion of NATO and greatly strengthened the overall coordination of diplomacy; Secondly, sanctions against Russia through joint allies to curb its development and reduce the degree of threat to Russia in the future; Thirdly, the insecurity situation makes the export of us made weapons more extensive; Finally, the suspension of Beixi 2 creates a great opportunity for U.S. energy exports.
After the occurrence of previous overseas wars, the performance of China’s military stocks is not obvious. Since the establishment of the military industry index and the CSI 300 index was relatively late, we chose Avic Xi’An Aircraft Industry Group Company Ltd(000768) and the Shanghai Composite Index to characterize the military industry sector and market. Through statistics of the relative performance of military industry stocks before and after the five overseas wars from 1999 to 2011, we found that the relative return of military industry stocks was the most significant one week before the war (T-7), with a winning rate of 4 / 6, The winning rate continued to decline within one week after the war began. The winning rate on T + 1 day was 2 / 5, and the winning rates on T + 2 and T + 3 days were 1 / 5, indicating that the performance of military stocks was not ideal. The Russian Ukrainian war took place against the background of the sharp correction in the early stage of the military industry sector. With the catalysis of this event, the CSI military industry index gained 5.6% and Avic Xi’An Aircraft Industry Group Company Ltd(000768) 10.9% compared with the Shanghai index in the week before the war. However, we believe that after the war, the emotional factors of the military industry sector will gradually weaken within a week and be dominated by the fundamental logic again.
Precision guided weapons have become the “standard configuration” of modern war. In modern wars, the importance of precision guided weapons has gradually become prominent. The proportion of precision guided weapons used in operations has jumped from about 8% in the 1991 Gulf War to about 70% in the 2003 Iraq war, greatly reducing civilian casualties. In the Russian Ukrainian war, Russia also used a large number of precision guided weapons to destroy Ukrainian military infrastructure and air defense facilities, including x-555 air launched cruise missiles and Iskander land-based cruise missiles, which has strong guiding significance for the development of China’s weapons and equipment.
Investment suggestion: the Russian Ukrainian event catalyzes the sector to stabilize and rise, the fundamentals are the king, and continue to be optimistic about the medium and long-term performance of the sector. Compared with the conflict between Russia and Ukraine, the geopolitical pattern of the Asia Pacific region is also very complex, especially around the Taiwan Strait. Just as the Ministry of foreign affairs stated that China is the only permanent member of the Security Council that has not achieved complete reunification. We believe that only by actively preparing for war and effectively improving our strategic deterrence can we take the lead. The high outlook of the military industry is expected to continue. 2022 should be “light track, heavy individual stocks”. At the current time point, it is recommended to configure the “four dimensions”: 1) oversold rebound targets, including Avicopter Plc(600038) (600038. SH), Fujian Torch Electron Technology Co.Ltd(603678) (603678. Sh), Nanjing Quanxin Cable Technology Co.Ltd(300447) (300447. SZ) and Guangdong Shenglu Telecommunication Tech.Co.Ltd(002446) (002446. SZ); 2) Targets with both performance growth and valuation, including Nancal Technology Co.Ltd(603859) (603859. SH), Tianjin 712 Communication & Broadcasting Co.Ltd(603712) (603712. SH), Beijing Relpow Technology Co.Ltd(300593) (300593. SZ); 3) Targets with higher than expected performance and high certainty of growth, including China Zhenhua (Group) Science & Technology Co.Ltd(000733) (000733. SZ), Unigroup Guoxin Microelectronics Co.Ltd(002049) (002049. SZ); 4) The targets of performance growth improvement by state-owned enterprise reform include Avic Xi’An Aircraft Industry Group Company Ltd(000768) (000768. SZ), Addsino Co.Ltd(000547) (000547. SZ), China Marine Information Electronics Company Limited(600764) (600764. SH), etc.
Risk warning: the risk that the 14th five year plan and military industry reform are not as expected.
