The most important thing in investing is to think independently. If you are on the wrong road, even running is useless.
At the beginning of 2020, A-Shares remained strong, major plates took turns, and the Shanghai Stock Index approached the 3100 point mark. Attracted by the money making effect, the market sentiment is hot.
After the golden 2019 with full harvest, many investors are full of expectations for 2020.
On January 8, the Fifth China Jinchangjiang private equity fund Summit Forum was held in Shanghai. Private placement people and investors were in hot mood. Deng Xiaofeng, chief investment officer of Gaoyi assets, delivered a keynote speech on market structure and return analysis. Its market analysis and investment trends have attracted the attention of investors.
Deng Xiaofeng first analyzed the latest profit structure and market value structure of A-share listed companies.
In terms of a shares, profits are concentrated in the financial industry, of which banks account for 40%. However, observing the market value structure of a shares, the distribution is more scattered and average, and the proportion difference between industries is not as large as that of profits. This market value structure reflects the preference of the capital market for some industries and the relative differences in their valuation levels.
If we lengthen the time and observe the changes in the profit structure of A-Shares in the past 20 years, on the one hand, we can see the structural changes in the economy itself, and once again observe the preference of the capital market for the industry. Overall, over the past 20 years, the overall market value structure and profit distribution have changed in the same direction, but there will be some fluctuations in the middle.
If Hong Kong stocks and China concept stocks are included and analyzed under the full spectrum of Chinese listed companies, the market value is a very different structure from a shares. On the whole, the capital market gives a valuation premium to industries such as optional consumption, information technology, daily consumption and medical treatment, while financial related fields are given a relatively large discount.
For specific cases, in the past three, five and ten years, the two industries with the highest income are food and beverage and household appliances, but the return time stage is uneven. Especially in the food and beverage industry, the industry return has exceeded 220% in the past decade, but the industry return has reached 180% in the past five years.
“Over the past three years, overseas funds have had an increasing impact on the Chinese market, which has improved the valuation level of some industries, that is, good business has been well valued, but the improvement of valuation is one-off. The endogenous growth rate determines the sustained rate of return. The growth rate of market value of these companies exceeds the profit growth rate, which will inevitably put pressure on future returns, which is something we need to think about.” Deng Xiaofeng said.
Deng Xiaofeng, chief investment officer of Gao Yi assets. He used to be the managing director and general manager of equity investment headquarters of Boshi fund and the general manager of stock investment department. He was the champion of public equity fund for 8 years (2007-2014). During his tenure, he managed the products of Boshi theme industry and social security portfolio of RMB 10 billion.
the following is the full text of Deng Xiaofeng’s speech:
latest profit distribution and market value structure of A-Shares
The capital market not only reflects the economic development and the society’s judgment of the future, but also reflects the changes of the times.
When talking about China’s capital market, everyone will say that the current structure is unreasonable. According to the industry classification of Goldman Sachs GICs, we made a statistics on the market value distribution and profit structure of each industry of A-share to see what kind of state the market is in at present.
The profit data we use is the data that has been rolled forward for four quarters in the past. Since there is no data for the fourth quarter of 2019, we collect the data that has been rolled forward for four quarters as of the third quarter; And split the financial industry into two industries: Banking and non banking finance.
In the profit structure, banking is the largest industry, accounting for nearly 40%, and non banking accounts for nearly 11%. Internationally, real estate is also regarded as a part of the financial system, with a proportion of more than 6%. Then the whole financial sector accounts for more than 50% of the profit structure of A-share listed companies.
The profits of industrial sectors related to manufacturing accounted for 11.5%, and those related to upstream raw materials accounted for nearly 7%.
The capital market has preferred industries in the past few years, such as the consumer goods industry, including daily consumption and optional consumption, both of which account for about 5% of the profits; The favorite industries in the capital market, such as medical industry and information technology industry, account for less than 3% and only 2% of the profits of the overall listed companies.
However, reflected in the capital market, the market value structure and profit structure of the industry show great differences.
Many banks are listed in both A-Shares and Hong Kong shares. Here we count all the profits of banks listed in both places, but only the market value of their A shares. Therefore, on the one hand, the proportion of profits may be higher and the proportion of market value may be lower. Observing the market value structure of the whole A-share market, by the end of 2019, the distribution is relatively more scattered and average, and the proportion difference between industries is not as large as the profit proportion gap.
Although banks are the largest industry in market value, they account for less than 17% of a’s stock market value. The second largest industry is some fields related to industry and manufacturing, with market value accounting for about 15%. If the ratio of market value to profit is compared, the bank will give a huge discount compared with the average p / E ratio of the overall market.
The third largest industry is the information technology industry. The profit of this industry accounts for only 2%, but the market value accounts for nearly 14%, which means that our high pricing and valuation of this industry represents the market’s preference for this direction. It may also have better development from the perspective of future economic development.
The non bank financial industry ranks fourth, mainly insurance and securities companies, with a market value accounting for less than 10%. Compared with the proportion of profits, its average p / E ratio is also slightly lower than the average level of the market.
For the consumer goods industry preferred by the market, whether it is optional consumption or daily consumption, the P / E ratio given by the market is about twice the overall average level. The proportion of optional consumption in the whole market value is close to 10% and the proportion of profit is 5%; The market value of daily consumption accounts for 8.4%, corresponding to 4% of profits. The valuation level of the medical industry, which is more favored by the market, is also more than twice the average level, accounting for 6.8% of the market value of the whole market, but less than 3% of the profits.
Overall, this market value structure reflects the preference of the capital market for some industries and the relative differences in their valuation levels.
A-share profit structure and market value change since 2000
If we take a longer time dimension to observe, the historical changes in the profit structure of A-share listed companies since 2000 not only reflect the structural changes in the economy itself, but also reflect the changes in the preference of the capital market for these industries.
It can be seen that after 2005, with the listing of most of our banks, the banking industry has become the industry with the largest proportion of profits, and the proportion of the banking industry is particularly prominent compared with all other industries.
The profit structure of industry in the capital market for a long time is maintained in a stable pattern without much proportion fluctuation.
In fact, the great development of non bank finance was after 2005. After 2005, insurance companies were gradually listed. Since then, as a very large sector, most securities companies have also realized capitalization, so the proportion of this industry has increased significantly.
The upstream raw material industry can be seen that from 2003 to 2005, when the heavy chemical industry developed greatly and the five golden flowers performed prominently, the upstream industry once accounted for a very high proportion of market profits, but with the economic development and the adjustment of economic structure, the proportion of profits in this industry gradually decreased.
The real estate industry has maintained a stable expansion proportion, especially after 2005, more real estate companies listed, to a large extent, also achieved rapid development, leading to the rapid increase of industry profits.
The listing of two barrels of oil is the peak period in the history of the energy industry, which basically occurred from 2005 to 2010. Later, due to the development of the economy, the profit proportion of the industry decreased significantly. The lowest point was in 2014 and 2015, when the supply side reform had not started. Since then, due to the supply side reform, the profits of the upstream industry, especially the coal industry, have recovered significantly, and then the proportion of profits has rebounded to a certain extent.
The proportion of profits in the consumer goods industry has increased steadily, especially in the last five and ten years. Public utilities, including electric power, airports and ports, have had brilliant times, but with the maturity of the economy, the market value and profit proportion of these industries have decreased. In particular, the power industry was once one of the five golden flowers, but its profits have been in a relatively depressed stage in recent years.
The profit proportion of the information technology industry basically began to increase after 2007. It has participated in both the transfer of the global supply chain to China and the great development of the mobile Internet industry. However, the information technology companies listed in China are usually hardware companies, and their position in the science and technology industry chain is not so prominent, As can be seen from the chart, the profit share is relatively low.
Although the medical industry has been growing well, the profits of the industry itself in listed companies account for less than 3%, and the proportion of China’s medical industry in GDP is less than 6%. Therefore, from this perspective, if China moves towards a more developed and mature country, the proportion of the medical industry in GDP will gradually increase, and the proportion of profits of the medical industry may be higher in the future.
if we look at the change of market value structure, it changes in the same direction as the distribution of profits, but there will be some fluctuations in the middle. Among them, there has been a rapid decline in the market value of the energy industry, which reflects the obvious changes in oil and coal.
Under the full spectrum of China concept stocks and Hong Kong stocks, which industries are valued at premium vs. discount
Based on a broader and clearer map, we have counted all H-share and red chip companies listed in Hong Kong, as well as China concept companies listed in the United States, which are included in the overall statistical scope. This result will be significantly different from that before, and it reflects the development of the capital market to a greater extent.
In this map, the fields related to finance still account for 50% of the overall profits. It can be seen that banks account for about 30%, non bank finance is about 10%, and the real estate industry is more than 10%. The important reason is that a large number of leading real estate companies are listed in Hong Kong. After they are brought in, the proportion of industry profits has been greatly improved.
at the same time, the proportion of industrial fields highly related to the manufacturing industry ranked second after the inclusion of overseas listed companies, accounting for 11.5% of the profits of all listed companies, which is close to the A-share market structure.
The proportion of optional consumption profit has increased significantly, because the e-commerce industry is included in the industry classification, and the profit ratio of this industry has increased significantly, about 7.5%. If the structure corresponds to the market value, it will be found that optional consumption has become the industry with the largest market value.
The information technology industry has become the second largest industry because many excellent Internet companies listed overseas have been added.
Therefore, from the perspective of market value distribution, the industry distribution of all Chinese assets has been a very different structure. Optional consumption is the largest industry, information technology is the second largest industry, the industrial field related to manufacturing is the third largest industry, and the market value of banking only ranks fourth, less than 12%.
The whole bank, non bank and real estate account for about 25-26%, that is, 1 / 4 of the market value. If we look at the proportion of these industries in our national economic profits, they are in a relatively balanced situation. The whole financial industry accounts for about 20% of the profits of our whole society, but because the capitalization rate of the financial industry is higher, most companies in the financial industry have been listed in the capital market.
In all the maps, the consumer goods industry, mainly the daily consumption industry related to food and beverage, ranks the sixth largest market value after non bank finance. If you look at its profit share, the valuation level of the industry given by the capital market is twice its profit share.
On the whole, which industry capital markets give it a higher valuation level and premium? It is in information technology, optional consumption, daily consumption, medical and other industries; Which industries have given relatively large discounts? It is often a financial related field.
Looking back on the market value ranking of industries in history, we also add overseas listed companies to look at the changes in their market value structure and profit structure in the past two decades. Generally speaking, this chart reflects the changes in the economic and industrial fields of our country, as well as the expectations of the capital market for the future.
endogenous growth determines continuous return
Next, let’s do a simple case study.
In the past three years, the five industries with the highest cumulative income and the five industries with the worst income. The industries with the highest income are food and beverage, home appliances, non bank finance, banking and electronics. In the past five years, food and beverage, household appliances, electronics, leisure services, agriculture, forestry, animal husbandry and fishery; If we look at the past decade, it is food and beverage, home appliances, computers, electronics and leisure services.
Both the first and second places are relatively stable, that is, the food, beverage and home appliance industries, but the time stage of the rate of return is uneven. More rate of return occurs in the recent three and five years, rather than the recent ten years, especially the food and beverage industry. The industry return in the past ten years is more than 220%, but the industry return in the five years is more than 180%.
Look at the data of Baijiu industry, which has been widely recognized in the capital market in the past few years. The Baijiu industry in 2012 was the last peak. The market value of the major Baijiu listed companies is a contrast with the market value of the liquor. What is the growth of the market value? In 2012, the profit at that time was compared with the current profit. How much profit growth?
The data show that the growth rate of market value obviously exceeds the growth rate of profit, and the change of valuation plays a very important role. It is of certain reference and reference significance to make a comparison with the same high point.
Let’s look at the comparison between the profit growth and market value growth rate of the second home appliance industry in the past five years. We can see that in the past five years, the growth rate of market value has exceeded the growth rate of profitability to a greater extent; If the growth rate of profit exceeds the growth rate of market value in the ten-year dimension, the home appliance industry was once regarded as a relatively boring industry by the capital market. There was no rapid growth and has been given a very low valuation, but it has changed in recent years.
In the past three years, overseas investors have had an increasing impact on the Chinese market. Overseas funds have some preferences for these industries, and good businesses finally have a good valuation, which has improved the valuation level of these stable return industries to a certain extent. However, we should also consider that the endogenous growth of the industry is the basis for their sustainable return in the future. If this piece can not keep up with the growth of their market value, will there be pressure? I think this is a problem and we need to rethink, because in the long run, your endogenous growth determines your future return.
In the past few years, overseas investors have had a huge impact on the investment behavior, valuation methods and industry preferences of the Chinese market. Is it at the stage where the one-time dividend has been gradually digested to some extent? At present, this time point needs to return to the origin and re-examine it from the perspective of the company’s endogenous business development.
(brokerage China)
