Discussion on the main line of industry allocation: the main line of allocation in December: over allocation valuation repair and steady growth

Core conclusion: the main stock selection logic of the market in November is new energy, growth sector and valuation repair. In November, the main stock selection logic of the market still focused on valuation repair, The rebound industry spread to more Internet sectors (such as computers). The popularity of new energy and semiconductors has picked up, and the growth sector is dominant. Other concerns of the market include steady growth and easing the pressure of commodity price rise. The implementation of the comprehensive RRR reduction, the clarification of the steady growth overweight at the meeting of the Political Bureau of the CPC Central Committee, and the upcoming Central Economic Work Conference are expected to ignite the steady growth market.

The fundamentals of military industry are relatively independent and less affected by macro-economy. Under the background of overall economic downturn, suppressed real estate prosperity and weak consumption fundamentals, the market has formed a high consensus on the certainty of military industry growth. In terms of funds, the military industry is expected to be favored by institutional funds. From a fundamental point of view, the military industry also has performance under the stock selection logic based on next year's prosperity allocation. From the perspective of valuation, the current valuation of military industry is still in a reasonable range, and the valuation of some high boom sectors is more attractive.

From the leading reasons of communication, the logic of oversold rebound is the most appropriate, and there is no reverse improvement in the basic outlook. This year, the overall performance of TMT sector is weak, the adjustment time and range are large, and there is a driving force for technical valuation repair. From the current valuation level, the valuation of communication and media PE (TTM) that rebounded first is at the level of 28.4% and 11.3% since 2010, and the valuation of Computer PE (TTM) that began to perform in recent one month is at the level of 59.5% since 2010, indicating that the valuation repair began to spread to more sectors with weak early performance, short adjustment time or slightly higher valuation level.

Suggestions on industry allocation: (1) Finance: the short-term performance of financial stocks requires major changes in economy, policy and market as a catalyst. The recent steady growth policies have been implemented one after another and are expected to increase, which is beneficial to financial stocks and is expected to catalyze the market. There is probably an absolute return in the next half year.

(2) Consumption: at present, it is still in the technical rebound at the quarterly level caused by the easing of transaction congestion. The impact of the inflection point of consumption fundamentals this year has been fully digested. However, the logic of fundamental improvement has not been found, and it is difficult to enter a unilateral upward stage in the short term. However, strategically, there may be opportunities brought by fundamental improvement next year.

(3) Growth: strong sectors still have performance opportunities at the end of the year. Growth sectors with weak early performance and low valuation also have valuation repair opportunities. We can pay more attention to middle and downstream industries that are less affected by capacity expansion, such as media, computers, etc., as well as military industries with the best supply and demand pattern.

(4) Cycle: after commodity prices and economic expectations stabilize, there will be a wave of rebound around the next year after panic. However, investors will be worried about the interference of policies on production capacity and the impact of macroeconomic downturn on the earnings realization of cyclical stocks in the coming year, and there may be a rest in the commodity super cycle in the next year (similar to 2004-2005).

Risk factors: the economic downturn exceeded expectations.

 

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