Core conclusion
When commenting on China's inflation in January, we believe that there is a risk of breaking 3% in the second half of the year. At that time, the oil price was still below US $100 / barrel. In the past month, the oil price and Shenzhen Agricultural Products Group Co.Ltd(000061) soared, and we need to further raise inflation expectations. If the oil price continues to rise higher than expected, the risk of CPI breaking 4 in Q4 China is not low.
Oil price assumptions. 1) Conservative: WTI crude oil price has remained at USD 91.6/barrel since February to December; 2) Optimistic: WTI crude oil price rose linearly from US $91.6/barrel in February to US $120 / barrel in December; 3) Extremely optimistic: WTI crude oil price has risen linearly from US $91.6/barrel since February to US $145 / barrel in December (2008 high).
Pig price hypothesis. 1) Conservative: the average price of pork in 22 provinces and cities has linearly dropped from 21.6 yuan / kg in February to 18.6 yuan / kg in May, and then linearly rebounded to 30.0 yuan / kg in December; 2) Optimistic: the average price of pork in 22 provinces and cities has linearly dropped from 21.6 yuan / kg in February to 18.9 yuan / kg in May, and then linearly rebounded to 35.2 yuan / kg in December.
Forecast results: 1) under the most conservative combination, China's CPI will continue to rise year-on-year from 0.9% in January to 3.7% in November, and fall back to 3.4% in December. The annual average CPI is 2.3% year-on-year; 2) Under the most optimistic scenario, China's CPI will continue to rise year-on-year this year from 0.9% in January to 4.4% in November, and fall back to 4.1% in December. The year-on-year average CPI of the whole year is 2.6%. In either case, the risk of Q3 China's CPI breaking 3 is not low, and the possibility of Q4 CPI breaking 4 is also rising. The asset performance of China's CPI has been traced back when it broke 4. 1) Category of assets: each round is different. It can be said that no category of assets is sure to win or lose. 2) A-share broad-based index: in the first two rounds of the financial crisis, the performance of value stocks was outstanding from August 2003 to May 2004 and from July 2006 to June 2007; Two rounds after the financial crisis
Growth stocks performed better from November 2009 to October 2010 and from February 2019 to November 2019.
Is inflation (or stagflation) necessarily bad for the stock market? International experience shows that the stagflation period before the economic transformation of high-income economies may not be bad for the market. In the history of Japan, Korea and China, there are three rules in the economic structural transformation period: first, there is a short period of stagflation before these economic transformations are completed; and Taiwan has a short history. Second, before the completion of economic transformation, the exchange rates of all countries appreciated significantly; Third, the stock market has performed before and after the completion of economic transformation, but the rhythm is different. Even in the stagflation period, the stock market does not necessarily fall. During the 14th Five Year Plan period, China's transformation direction is "large consumer countries superimposing large manufacturing countries", and is expected to cross the trap of middle-income countries and become a high-income country. Combined with historical assessment, China may have stagflation before the completion of economic transformation, but it may not be absolutely bad for the market.
Risk warning: commodity price fluctuations exceed expectations; China's policy exceeded expectations
