Main points:
In November, CPI rose by 0.8 percentage points to 2.3% year-on-year, PPI fell by 0.6 percentage points to 12.9% year-on-year, and cpi-ppi rebounded to – 10.6% after 18 months of decline. By combing the internal causes, historical laws and asset performance of the bottom recovery of cpi-ppi, this paper attempts to give asset allocation suggestions during the recovery period of cpi-ppi.
1. Inflation data in November: CPI rose, PPI fell, and cpi-ppi bottomed out and rebounded
1) CPI rose year-on-year, mainly driven by vegetables and energy. The increase of core CPI was limited. CPI rose year-on-year. In addition to the low base, it was mainly boosted by the prices of vegetables and energy, and the decline of pig price narrowed again, but it was still a major drag. The price of household appliances that continued to rise in the first half of the year has been weak since the second half of the year. In November, daily necessities and services became the main drag on non food CPI. In addition, the multi-point spread of the epidemic and travel after the festival reduced the impact on Tourism CPI; Affected by the continued decline of PMI and BCI in the service industry, the core CPI turned around and decreased slightly.
2) PPI peaked and fell, the prices of key varieties fell across the board, and the price transmission from upstream to downstream is expected to be enhanced. PPI peaked and fell year-on-year. In November, the effect of maintaining supply and stabilizing prices of coal and metal prices appeared, and the prices of key varieties fell across the board. The transmission of upstream prices to downstream is still limited, but the marginal strength is strengthened. The gap between PPI means of production and means of living began to narrow, the year-on-year growth of the upper and middle reaches of the seven industries decreased, the year-on-year growth of the lower reaches expanded slightly, and the transmission of upstream prices to the lower reaches is expected to increase.
2. How to understand that the scissors gap between CPI and PPI has bottomed out and rebounded
1) The cpi-ppi scissors gap fell for 18 consecutive months, from a high of 6.4% in April last year to – 12.0% in October. PPI continued to rise due to the dislocation of epidemic cycle, energy shortage and dual control of energy consumption; CPI remained low due to the decline of pig prices, repeated epidemics and weak recovery of consumption. At present, the effect of ensuring supply and stabilizing price has been realized. The PPI fell year-on-year in November. The scissors difference between CPI and PPI should have bottomed out in October and will tend to rise in the future.
2) CPI reflects residents’ living consumption and service prices, which is closely related to the downstream; PPI reflects the ex factory price of industrial products and is closely related to upstream production. In the upward stage of the economic cycle, the price of upstream raw materials is first, and the scissors difference between CPI and PPI is downward. The costs generated by enterprise production and processing diffuse downstream along the industrial chain and are transmitted to consumers and reflected in the price of final consumer goods. The scissors difference between CPI and PPI bottoms out and picks up. At this time, the economy tends to decline.
3) Through historical data review, we find that: first, the recovery of CPI PPI scissors often corresponds to the economic downturn stage. The CPI PPI scissors lag behind the economic output gap for 3-4 months, with a correlation of -0.54. Second, the scissors difference between CPI and PPI is negatively related to the enterprise’s revenue and profit, which is related to the CPI, PPI composition structure and industrial chain transmission structure, that is, 60% of PPI is in the middle and lower reaches, which can reflect the industrial demand and is positively related to the enterprise’s profit. At the same time, CPI represents the cost of living and labor costs. Therefore, it can be seen that the recovery of the scissors difference between CPI and PPI corresponds to the decline of the enterprise’s profit. Third, the cpi-ppi scissors difference is essentially the embodiment of upstream, middle and downstream profit distribution and transmission. In the past five times, the scissors difference between CPI and PPI rebounded, and the profit proportion of upstream, midstream and downstream changed by – 7.9%, + 1.3% and + 6.8% respectively. The downstream benefited greatly from profit transmission.
3. Taking history as a mirror, the macro background and asset performance of the bottom of cpi-ppi scissors gap
1) Since 2000, China’s CPI PPI scissors gap has bottomed out and rebounded five times. From July 2000 to February 2002, November 2004 to September 2007, August 2008 to August 2009, May 2010 to October 2011 and March 2017 to October 2020, the five recovery stages have lasted an average of 26.2 months, and the upward range of CPI PPI scissors gap has reached 10.35%.
2) The operation logic of cpi-ppi scissors difference changed around 2011. Before 2011, China was in the era of economic increment, the debt driven economy was singing all the way, the GDP growth center was at the level of 10%, and the transmission path from PPI to CPI was smooth; After 2011, the lack of endogenous power blocked the transmission of PPI to CPI, and the trend deviated in most periods. The deviation is mainly disturbed by factors such as the pig cycle, the peak labor participation rate and the crowding out effect of real estate. Under the switching of economic kinetic energy, the classical logic that the scissors difference between CPI and PPI reflects the profit distribution pattern of upstream, middle and downstream is still valid, which has good guiding significance for investment.
3) Recovery of major assets: weak stocks and strong bonds in the five cycles, the Shanghai Composite Index fell by 10.56% on average, and the 10-year Treasury bonds and 10-year CDB bonds fell by 44.91 and 55.86 BP on average. There is a strong correlation between industry profit distribution pattern and stock index return. In the downstream profit transmission path, tobacco products, beverage manufacturing, pharmaceutical manufacturing, agricultural and sideline food processing and food manufacturing gained a lot, and the profit proportion increased by 2.14%, 1.42%, 1.35%, 0.80% and 0.79% on average. In the Shenwan industry, the income of food and beverage, building materials, household appliances, medicine and biology was positive when the equity market generally fell, with an average increase of 35.9%, 11.2%, 10.8% and 10.7%.
4. Looking forward to the future: the trend of CPI PPI scissors and suggestions on asset allocation of major categories
1) Inflation forecast: CPI is expected to be low before and high after 2022, which may rise to 2-3% from about 1% this year; PPI tends to fall, which may fall to about 3-4% in the whole year from more than 8% this year (lower than the previous forecast), that is, cpi-ppi bottomed out in October this year, which is – 12%, and then tends to rise to about 5% by the end of 2022.
2) Major asset allocation: the macro situation of this cycle is similar to that of 2000, 2010 and 2017. Combined with historical performance, it is expected that debt is strong and stocks are weak; In terms of industry configuration, we suggest the upward logic of consumption boom under profit transmission, and recommend food and beverage, medicine, biology and household appliances.
Risk statement
Monetary policy relaxation exceeded expectations, economic growth was lower than expected, and the epidemic broke out again.
