This year’s central economic work conference stressed that under the triple pressure of shrinking demand, supply shock and weakening expectations, “stability” is the key word of 22 years of economic work, and cross cyclical and counter cyclical macro-control policies should be organically combined. The strength of the current steady growth policy can be seen. However, the recent performance of the index is weak. The reason behind this is that the market has doubts about whether the policy can hedge the macroeconomic downturn. This report reviews the market performance under previous counter cyclical policies. It can be found that under the policy support, the stock market has opportunities.
1, at present, the market is entangled in the struggle between policy and fundamentals
The policy signal of “steady growth” of the central economic work conference has been very clear. the central economic work conference (hereinafter referred to as the “conference”) from December 8 to 10 proposed that China’s economic development is facing triple pressures of demand contraction, supply shock and weakening expectation. Under the background of increasing downward pressure on the economy, “stability” is the most prominent keyword of this year’s central economic work conference. 25 words “stability” appeared in the news draft of the conference, and it is proposed that next year’s economic work should be “stable” and “seek progress in stability”. First, economic stability, “strive to stabilize the macro-economic market and keep the economy running within a reasonable range”; Second, social stability, “maintaining overall social stability”. Under the general tone of “stability”, the meeting proposed that all regions and departments should shoulder the responsibility of stabilizing the macro economy, all parties should actively launch policies conducive to economic stability, and the policy force should be appropriately advanced. Since the second half of the year, the tone of macro policy turning to loose has been continued in this central economic work conference, and the conference revisited the expression of “counter cyclical”, emphasizing that “fiscal policy and monetary policy should be coordinated and linked, and cross cyclical and counter cyclical macro-control policies should be organically combined”. In terms of fiscal policy, it is proposed to “ensure the intensity of fiscal expenditure and speed up the progress of expenditure”, and once again emphasize “moderately advance infrastructure investment”. Now the amount of special debt has been issued in advance, the fiscal rhythm will move forward next year, and the infrastructure construction is expected to rise in stages in the first half of the year. In terms of monetary policy, it is emphasized that “prudent monetary policy should be flexible and moderate, and maintain reasonable and abundant liquidity”. The 5bp reduction of one-year LPR interest rate on December 20 is an important measure of easing policy. There have also been positive changes in the policy of real estate. The meeting stressed “strengthening the expected guidance” and “supporting the commercial housing market to better meet the reasonable housing needs of buyers”. In order to maintain the virtuous circle and healthy development of the real estate industry, we expect the real estate policy end to be adjusted gradually to reduce the downward pressure on the real estate market.
the current market is caught in a struggle between policy and fundamentals. although the current policy signal of steady growth has been very clear, the performance of the stock market is still relatively weak after the central economic work conference: as of 21 / 12 / 24, Wande quana fell 2.0%, CSI 300 fell 3.1% and gem index fell 4.7%. This is because the market is still worried about whether the steady growth policy can slow down the downward inertia of real estate and hedge the downward pressure on the economy. Over the past 20 years, real estate has been an important engine of China’s economic growth. Real estate development investment accounts for nearly one-third of the total social fixed asset investment, reaching 27% in 2020. From 2000 to 2020, the annual average contribution rate of real estate investment to the growth of total social fixed asset investment reached 29%, and the GDP of real estate + construction industry accounted for 12.6% in 2020. The fundamental data of real estate in the past 21 years have dropped in an all-round way. The cumulative investment in real estate development has dropped from 38% in February to 6% in November, the cumulative area of new housing construction has dropped from 64% to – 9% and the cumulative area of housing sales has dropped from 105% to 5% year-on-year. Although the real estate policy has been actively corrected since October and the real estate fundamentals have warmed up slightly, the year-on-year growth rate of real estate fundamentals in November is still negative. The year-on-year growth rate of real estate investment in the month is – 4.8%, the newly started area is – 21.0%, and the sales area of commercial housing is – 14.0%.
2, review of stock market performance under past counter cyclical policies
The steady growth signal of this central economic work conference has been very clear, and counter cyclical regulation has been proposed, but recently, the market is still in a struggle between policy and fundamentals, with weak performance. So looking back, how will the market interpret? Perhaps the stock market performance under the influence of counter cyclical regulation policies in the past few rounds can provide us with reference.
learn from history and the force of counter cyclical policy supports the market upward. looking back on the global financial crisis in 2008, China has launched four rounds of counter cyclical policies to stabilize growth, starting at the end of 2008, the end of 11, the middle of 14 years and the end of 18 years respectively. Except for 11-12 years, with the introduction of previous counter cyclical policies, the broad-based index has increased significantly. Specifically:
08 / 11-09 / 08 : in the second half of 2008, the financial crisis swept the world. Under the background of the rapid decline of foreign demand, China’s economic growth fell. Since November, exports began to be negative year-on-year. In the face of downward pressure on the economy, monetary policy turned loose. On September 15, 2008, the central bank announced interest rate cuts and targeted RRR cuts. Since then, four interest rate cuts and three RRR cuts were made from October to December 2008. The national standing committee meeting in November 2008 proposed to implement an active fiscal policy and a moderately loose monetary policy, and introduce a “four trillion” investment plan to stimulate the growth of the real economy. In terms of market performance, if the central bank’s reduction of reserve requirements and interest rates is taken as the early signal of policy easing, during the period from the reduction of reserve requirements and interest rates to the clearer tone of steady growth policy, the market still has doubts about whether the policy can hedge the economic downturn. At this stage (08 / 09 / 15 – / 08 / 11 / 04), wandequan A and Shanghai and Shenzhen 300 fell 22.0% / 21.6% respectively. In November 2008, the national Standing Committee issued a stronger steady growth policy, followed by continuous interest rate and reserve requirement cuts. The market as a whole entered an upward trend. Shanghai and Shenzhen 3 million and wandequan a increased by 129% / 138% respectively from 08 / 11 to 09 / 08.
11 / 12-12 / 12: after the international financial crisis, the world economic recovery was difficult and tortuous, and China’s economy also entered a period of adjustment. In November 2011, the PMI fell to 49.0%, falling below the boom and bust line for the first time since February 2009. Under the downward pressure of the economy, the meeting of the Political Bureau of the CPC Central Committee on December 9, 2011 required to properly handle the relationship between maintaining steady and rapid economic development, adjusting economic structure and managing inflation expectations. On December 14, 2011, the policy keynote of the central economic work conference changed from “maintaining stable and healthy economic operation” to “promoting stable and rapid economic development”. Since the RRR reduction on November 30, 2011, a new round of RRR and interest rate reduction cycle has begun, entering 12 years. The RRR has been reduced twice in February and may, and the interest rate has been reduced twice from June to July. In terms of market performance, in the early stage of policy easing, the market was still in a struggle between policy and fundamentals. From the first reduction of reserve requirement to the central economic work conference, the CSI 300 and gem index fell by 8% and 14% respectively. In the past 12 years, the steady growth policy has been gradually put into force. On the whole, the market fluctuated at the bottom from the end of November to the end of December. Among them, the main indexes ushered in a wave of rise at the beginning of 12. During the period from 12 / 01 to 12 / 03, the growth rate of Shanghai and Shenzhen 300 was 17%, that of wandequan a was 15%, and that of gem index was 18%.
14 / 04-15 / 01 : in 2014, China’s traditional industries had serious overcapacity, weak domestic demand and weak external demand. The economic structure was in transition, and there were signs of depression in the real estate industry. In this context, the meeting of the Political Bureau of the CPC Central Committee in April 2014 stressed the need to adhere to the tone of seeking progress while maintaining stability and increase support for the real economy. The central bank also cut the reserve requirement twice in April and June, and cut the interest rate in November. The real estate policy has also significantly shifted to loose. Since June 2014, 46 cities across the country have successively joined the queue of deregulation or cancellation of purchase restrictions. On September 30, 2014, the central bank and the former CBRC adjusted the housing loan policy and relaxed the second house loan policy. In terms of market performance, since the policy tone changed to positive in April, both CSI 300 and wandequan a fluctuated and leveled during 14 / 04-14 / 07. However, with the deregulation of the real estate restriction policy, the interest rate cut in November showed that the monetary policy was more relaxed, and the market began to accelerate until the bull market peaked. During 14 / 11-15 / 06, CSI 300 increased by 107%, wandequan a by 144% and gem index by 171%.
18 / 12-19 / 04 : in 2018, China’s investment growth declined and consumption growth slowed down, superimposing the impact of external shocks such as Sino US trade friction, resulting in great downward pressure on the macro economy. At the meeting of the Political Bureau of the CPC Central Committee on July 31, 2018, the “six stability” policy was first put forward, and the policy tone has begun to be adjusted. At the central economic work conference in December, the macro policy should strengthen counter cyclical regulation, put forward that the positive fiscal policy should be strengthened and effective, and the prudent monetary policy should be loose and appropriate. From April to October 2018, the central bank lowered the reserve requirement for three times, and lowered the deposit reserve ratio of financial institutions by 0.5 percentage points on January 15 and 25, 19, respectively, to increase the source of loan funds for the real economy. Although the policy tone gradually shifted to loose in the second half of 18 years, the market is still in a downward trend. In the second half of 18 years, Shanghai and Shenzhen 3 million, wandequan A and gem index fell 14% / 16% / 22% respectively. The central economic work conference in December 18 proposed counter cyclical adjustment to demonstrate the government’s determination to stabilize growth. Then, the reserve requirement was reduced by 100bp at the beginning of 19. The policy strength has been significantly enhanced compared with the second half of 18. The market has also stopped falling and turned up. The growth of Shanghai and Shenzhen 300 during 19 / 01-19 / 04 reached 39%, wandequan a reached 40% and the venture board index reached 40%.
From the market performance during the above four times of steady growth policy, we can find that in the early stage of policy easing, such as the early stage of RRR reduction, the market is still entangled in the struggle between fundamentals and policies, and the performance of main indexes is poor. In our previous report “strategy dessert 20: stock market performance in the RRR reduction cycle – 20211207”, we also mentioned that if the RRR reduction is used as an early policy signal for steady growth, the poor market performance in the RRR reduction cycle may be due to the intersection of negative factors of economic downturn and positive factors of loose policy during the period, resulting in market ups and downs, The probability of rise / average decline of CSI 300 index in one month after the last RRR reduction date is 60% / 2.4%, 80% / 5.9% in two months and 80% / 7.7% in three months. With the introduction of more powerful steady growth policies and the gradual emergence of policy effects, the market has performed well. Back to the moment, in fact, the one-year LPR interest rate adjustment on December 20 indicates that the steady growth policy is gradually strengthened. Based on historical experience, the market rate will probably perform well in the later stage.
3, coping strategies: actively embrace the cross year market
under the counter cyclical policy, pay attention to the cross year market at the end of the year and the beginning of the year. as early as mid November, we put forward that the cross year market at the end of the year and the beginning of the year is worth looking forward to. There are three specific reasons: first, the effect of the credit easing policy is emerging after the 730 Politburo meeting, and residents’ housing loans and local government special bonds have begun to improve recently. From December 8 to 10, the central economic work conference was held in Beijing. The conference called for stability and progress in economic work next year. All regions and departments should shoulder the responsibility of stabilizing the macro economy, actively launch policies conducive to economic stability, and make appropriate policy efforts. On December 24, the fourth quarter regular meeting of the monetary policy committee of the central bank said that monetary policy should be more forward-looking, accurate and independent, give full play to the dual functions of the total amount and structure of monetary policy tools, and be more proactive and promising. At the same time, it also stressed the need to better meet the reasonable housing needs of home buyers and promote the healthy development and virtuous cycle of the real estate market. The fourth quarter regular meeting of the central bank reflects that the current policy is more active. Drawing lessons from history, with the increase of counter cyclical policy, the market will perform well. Second, the current roe is still in the recovery cycle. All A-share ROE (TTM) in this round bottomed out in 20q2 and began to recover in 20q3. So far, it has only lasted for five quarters. With the force of the wide credit policy, we expect the rise of roe to continue to 22q1. Third, from the review of previous restless market at the end of the year and the beginning of the year, the cross year market usually occurs every year. The reason behind this is that the end of the year and the beginning of the year are often the time window for major meetings. At the same time, there are few fundamental data disclosure of A-Shares from November to March, and the capital interest rate usually drops at the beginning of the year, so the risk preference of investors at the beginning of the year is relatively higher. On the whole, the market performance from July to October this year is relatively weak, the current valuation is acceptable, and the liquidity is relatively abundant. Based on the history, this cross year market may be started in advance this year. Since we put forward the cross year market in November, the increase of the index is not violent at present, but the bottom of the market has been slowly rising. Before November, the bottom of Shanghai and Shenzhen 300 was about 4800 points, and the bottom of the index has been significantly raised recently.
In terms of specific industry allocation, we think it can be balanced during the cross year market period at the end of this year and the beginning of this year. In the past, the agitation market in the early years of the year can be divided into two scenarios. First, the industries with better performance in the early stage continue to lead and go to the bubble, such as Baijiu at the beginning of this year and the beginning of this year. Second, the undervalued sectors in the early stage ushered in a counter attack, such as financial real estate at the end of 2014. We believe that this year, compared with 14q4, the macro policy will be less powerful, and the market structure will be more balanced at the end of the year and the beginning of the year. Specifically, we can focus on three main lines:
underestimated big finance. as the downward pressure on the economy is hedged and concerns about real estate debt subside, the big financial industry is expected to usher in repair. Since the beginning of the year, the growth, valuation and fund positions of large financial sectors have been at a low level. At present (2021 / 12 / 24, the same below) Pb (LF), banks are 0.6 times (at 0.2% quantile), real estate is 1.0 times (at 5.0% quantile), securities are 1.7 times (at 41.3% quantile), and the proportion of fund allocation is low. Among the heavy positions of 21q3 fund, the securities companies are 5.8 percentage points lower than CSI 300, banks are 8.7 percentage points lower, and real estate is 0.7 percentage points lower. We believe that the most important thing in big finance is securities companies. In 2019 and 2020, the net profits of securities companies were 75% and 36% year-on-year respectively, and the corresponding annual maximum increase of securities company index was 56% and 55%, while the cumulative net profits of securities companies in the first three quarters of this year were 24% year-on-year, and the Shenwan securities company index has fallen by 5.7% since the beginning of the year (as of 21 / 12 / 24). In addition, there have been positive changes in the current real estate policy, and credit risk concerns are expected to decline. At the Party committee meeting of the central bank and the China Banking and Insurance Regulatory Commission on November 12, it was mentioned to maintain and promote the stable and healthy development of the real estate market; The central economic work conference in mid December also proposed to support the commercial housing market to better meet the reasonable housing needs of buyers. At present, the domestic bond issuance policy of real estate enterprises has begun to loosen, the reasonable capital needs of real estate enterprises are being met, and personal housing loans have also returned to normal. We believe that real estate is still expected to usher in valuation repair opportunities. Historically, there is a high probability of bank real estate repair at the end of the year and the beginning of the year.
high prosperity hard technology. in China smart manufacturing series report 1-5, we have always been firmly optimistic about hard technology industries. These industries have good fundamentals and strong stock price performance. In terms of fundamentals, the growth rate of the third quarterly report of A-Shares slowed down. In addition to coal and steel benefiting from the rise in the price of raw materials, only hard technology industries such as new energy industry chain and semiconductor industry chain still maintained a high boom. The cumulative parent net profit of 21q3 / Q2 new energy vehicle industry chain was 83.1% / 125.4% year-on-year, that of photovoltaic wind power industry chain was 54.1% / 68.0%, and that of semiconductor industry chain was 63.1% / 81.3%, Significantly higher than 25% / 44% of all a shares. Under the guidance of the current “double carbon” goal, policies are frequently overweight to support the development of new energy. When looking forward to the energy work in 22 years, the National Energy Administration emphasizes accelerating the green and low-carbon development of energy; According to the information on Deloitte’s official website, the chip demand of consumers, industry and government is rising, the semiconductor shortage in 22 years will continue, and the two major industrial chains of new energy and semiconductor will continue to have a high boom. The essential reason for the recent adjustment of the new energy industry chain is that the market is worried that the valuation of the high boom industry is too high. However, we pointed out in the evolution of the new energy vehicle industry from smart phones – 20210906 that this year’s new energy vehicle industry chain is similar to the smart phone industry chain in 2010, with high boom and high valuation. In 2010, the penetration rate of smart phones exceeded 15%, and then began to accelerate its development, It continued to maintain a high boom. It was not until April 2011 that the smartphone industry chain digested the valuation with the overall adjustment of the market; The penetration rate of Shanxi Guoxin Energy Corporation Limited(600617) vehicles has reached 12.6% from January to November of 21 years, and has increased to 16.8% since the second half of this year (July to November of 21 years). The penetration rate is expected to accelerate in the future. With the steady growth policy, the market is still in a cross year market atmosphere. We believe that the new energy vehicle industry chain is expected to maintain a high boom in the next few years, and the market environment needs to digest the valuation stage by stage.
consumption followed the rebound. has seen a big drop in the consumer sector since the beginning of this year. From the February high point, the index of the Shen Wan Baijiu index has dropped by 15%, and the appliance industry has dropped by 26%, and food processing has dropped by 19% since the end of February. At present, the fund’s allocation to consumption has decreased significantly. Compared with CSI 300,21q3, the over allocation ratio has dropped to 15q1 level; The fund’s heavy liquor Baijiu relative to Shanghai and Shenzhen 300 super allocation to 1.6 percentage points, at a relatively low level of history. The proportion of home appliances and food processing has been reduced by 2.0 / 0.7 percentage points respectively, and the proportion of ultra-low distribution has fallen to the lowest level in 2005. The lower level of institutional investors’ consumption of the consumer sector is the deterioration of the consumer industry this year. According to the latest three quarterly data, 21Q3/21Q2 net income accumulated to 1.1%/25.4%, which is -34.7%/-2.0% compared with the same period in the previous quarter, compared with -34.7%/-2.0%. The profit of subsectors of the first tier industry has almost declined. The net profit of 21Q3 Baijiu is 19%, and household appliances are 17%. Food processing for -19.5%, were lower than the Baijiu liquor 05-20 net profit of the compound annual growth rate of 28%, food processing 31%, household appliances 25% (Note: home appliances 05, 06 years to the mother net profit is negative, therefore statistics 07-20 year net profit compound annual growth rate). At present, the profitability and fund allocation of the consumer industry are at a low level. Looking back, the fundamentals of the consumer sector are expected to pick up and the cost performance will be improved.
risk tip: inflation rose sharply and macro policies outside China tightened.
(Xunzi)
