The situation in Russia and Ukraine has become white hot, the crisis of resource supply has resurfaced, and the global inflation expectation has risen sharply, which has dominated the pricing of the capital market in the past week. For China, the tone of the government work report will be set this weekend. What impact will it have on the subsequent market? Under the expected fermentation of external stagflation, how should we deal with it?
impact of government work report on subsequent market:
1. The economic target is set at about 5.5%, which is close to the upper edge of the expected growth rate of the market, which means that the demand for steady growth in the first half of the year is further strengthened; With a potential target growth rate of more than 6% in the second half of the year, the transmission from the end of credit to the end of economy in the first half of the year will be gradually opened up, and there will be support at the bottom of the market after external disturbance.
2. The actual deficit ratio rises instead of falling, and the amount of special debt remains unchanged, which means that the finance is not short of money, which helps to dispel market doubts. The target scale of fiscal expenditure has been significantly expanded. In the later stage, we will focus on the support of infrastructure projects to the expenditure target, and there is still upward momentum in the steady growth sector.
3. Carbon neutralization is established first and then broken. The dual carbon goal is more flexible, which means that the energy consumption policy will bid farewell to one size fits all, and the normal people’s livelihood needs and stable industrial production will be further guaranteed.
4. It is estimated that the annual tax rebate and fee reduction will be 2.5 trillion, and the burden reduction of large, small and micro enterprises will be strengthened; Take multiple measures to enhance consumption capacity and reduce the impact of epidemic prevention and control on service consumption. The recovery of the service industry will be an important starting point to achieve the employment goal, increase residents’ income and promote consumption expenditure. Pay attention to the allocation opportunities of relevant sectors of the service industry under the reversal of difficulties.
Russia Ukraine conflict exceeded expectations and stagflation expectations strengthened again
First, as the two countries are major exporters of many types of commodities, the supply chain crisis → rising inflation expectations → pushing up US bond interest rates; At the same time, the term spread reflects strong recession expectations. This combination of risk aversion and inflation is actually the rise of stagflation expectations. Secondly, if the European and American sanctions against Russia tend to be long-term, the sustained high oil and food prices will have a great impact on the global economy, especially the eurozone economy. Although China may benefit from the improvement of export substitution of some industries to Russia and Ukraine in the short term, in the long run, with the gradual inward transmission of costs and the decline of overseas demand, China’s demand will also be negatively impacted. Finally, from the performance of Russia and Ukraine after the war, the performance of US stocks is better than that of A-Shares and better than that of Europe and other emerging markets. The trend of international capital returning to the United States may be strengthened, and the pressure of capital outflow from emerging market countries will increase.
to deal with stagflation, the underestimated value may be the minimum resistance
The expectation of China’s stagflation in Q3 of the 21st year continued to rise, reaching its peak before the shift of the supply guarantee policy in mid September. During this period, it showed typical stagflation configuration characteristics: cycle, Finance technology, consumption, undervalued value overvalued value, CSI 500 CSI 300 gem. The biggest difference between this round of stagflation expectation and last year is that on the one hand, geographical conflict plays the most important role, on the other hand, stagflation transmission from outside to inside. We believe that: first, stagflation in any case restricts interest rates and puts pressure on the valuation of growth stocks; Secondly, the expectation of stagflation caused by geographical conflict is naturally unpredictable, and the fluctuation risk of resource products and cyclical stocks is also increased accordingly; Third, in the context of intensified external shocks and the rising demand for stable growth in China, we are still in a macro combination of weak economy and low credit, and historical experience points to the predominance of undervalued style.
strategy suggestions and industry recommendations
The steady growth sector still has upward momentum. On the one hand, infrastructure investment has entered the effect verification period, and follow-up pay close attention to the commencement progress; On the other hand, the real estate regulation policy also shows a loosening trend. In the next stage, priority will be given to state-owned enterprise developers and banks. From the medium-term perspective, the further trend in the future needs to wait for a follow-up decision. If the high-frequency data in March points to that the physical demand is still low, the value dominant window will continue; If the characteristics of the economic bottom appear in the next 1-2 months, the style of the second quarter is expected to turn to consumption and manufacturing.
(1) the government work report further strengthens the expectation of economic growth, and the steady growth sector still has upward momentum. It recommends high-quality banks and state-owned enterprise developers; （2） Pay attention to communications in the direction of new infrastructure development, state-owned enterprise reform + military industry determined by growth trend; （3） Oil transportation benefiting from the expansion of regional alternative demand, as well as aquaculture and catering with the concept of dilemma reversal.
risk tips : 1. The epidemic is out of control; 2. A sharp recession; 3. The policy has changed more than expected.
