Chief outlook | Tianfeng Liu Chenming: the valuation of A-Shares in the year of steady growth is supported, but it is difficult to win

[editor]

2021 is an extraordinary year. Behind the twists and turns of the A-share market is the silence of the traditional white horse stocks represented by the “Mao index” and the sudden emergence of the “Ning combination” industrial chain.

Entering the new year of 2022, how will the capital market perform? Recently, surging news reporters interviewed a number of chief strategic analysts, chief economists and star fund managers of securities companies, took the pulse of the new main line of investment, explored new market opportunities and looked forward to the new trend of the market.

This journal is an exclusive interview with Liu Chenming, chief strategic analyst of Tianfeng Securities Co.Ltd(601162) .

Tianfeng Securities Co.Ltd(601162) chief strategic analyst Liu Chenming

Looking forward to the A-share market in 2022, Liu Chenming believes that 2022 is a year of steady growth. Steady growth will lead to credit expansion, which also means the improvement of residual liquidity and support the overall valuation.

Liu Chenming said that 2021 is a year of intense differentiation. The performance of new energy and old cycle sectors is very good, while the performance of other sectors is relatively poor. However, 2022 is a year of steady growth, and the corresponding undervalued sectors may have staged performance. At the same time, the prosperity of high-end manufacturing and other circuits is still high, and several types of plates will have rotational opportunities.

In terms of configuration, Liu Chenming is mainly optimistic about industries with relatively fast absolute growth rate but little decline, or in the direction of acceleration. The first is the core direction represented by automobile chain, such as automobile electronics, automobile intelligence, automobile parts, whole vehicle, etc. The second is other high-end manufacturing directions, such as military industry and new energy operators, including energy storage. The third is the direction that can be reversed without relying on policies, such as mandatory food, pork and so on.

the following is the actual record of the dialogue between surging news and Liu Chenming (slightly edited):

Surging news: the profit-making effect of the A-share market has narrowed in 2021. What do you think of this phenomenon?

Liu Chenming: the macroeconomic policy in 2021 provides a background similar to deleveraging, so we see the overall credit contraction and the accelerated decline of social finance, which leads to the continuous decline of residual liquidity in the whole market. Correspondingly, in addition to individual high prosperity directions, the A-share market as a whole has entered the valuation stage. This is the main reason for the poor profit-making effect in 2021.

On the other hand, in 2021, the policy will strictly regulate some industries, represented by antitrust, which has a great impact on the corresponding industries. Of course, the impact is also due to the high valuation of corresponding industries. For example, the valuations of consumer industries and Internet industries are in a high position in February 2021. Adverse information at the industrial level may form a great negative drag on corresponding stocks.

On the whole, it is the credit contraction that leads to the decline of residual liquidity and the suppression of valuation; Structurally, the unfavorable policies have had an impact on several important industries, but mainly because of the high valuation.

surging news: China’s foreign investment continued to maintain a good growth trend in 2021. What do you think of the current willingness of foreign investment in the Chinese market?

Liu Chenming: 2017 is the first year of foreign capital inflow. It can be seen that since 2017, the proportion of foreign capital including northbound capital and QFII in the circulation market value of A-Shares has been rising at an almost constant slope.

In other words, the direction of global capital reallocation of Chinese assets remains the same. It may be affected by global risk appetite, or there may be periodic outflow, but the overall inflow trend remains unchanged. Therefore, from top to bottom, foreign capital continues to flow into a shares.

Looking ahead, from the historical perspective, it takes about 5-8 years for MSCI to incorporate stocks from China’s Taiwan and Korea into the index. During this period of time, foreign investors usually continue to reallocate stocks in these regions. Therefore, I think the trend of foreign capital flowing into A-Shares is far from over, because the proportion of MSCI into A-Shares is only 20%, and there is still a long way to go from 100%. In this process, it should be the trend of inflow.

surging news: what do you think of the structural market in 2021? Do you think this situation will continue until 2022? Why?

Liu Chenming: from the perspective of plates, 2021 is a year of intense differentiation. The performance of new energy and old cycle plates is very good, while the performance of other plates is relatively poor.

However, the plate differentiation in 2022 may not be so intense. On the one hand, the high valuation of white horse shares has been digested for a year, and there may be phased opportunities for white horse shares in 2022. On the other hand, 2021 is a year of comprehensive deleveraging and suppression of real estate and infrastructure, but 2022 is a year of steady growth, and the corresponding undervalued sector may have phased performance. At the same time, the prosperity of high-end manufacturing and other tracks is still very high. I think several types of plates will have rotational opportunities and will not be divided as much as in 2021.

Of course, the differentiation at the individual stock level will still be relatively large. In many industries, leading companies have risen much and their valuations are expensive, but some small and medium-sized companies have just improved their penetration or just entered the industry, and their valuations have high room for improvement and cost performance. I think the internal division of the industry may continue.

surging news: in 2021, white horse stocks such as consumption and medicine, which were favored by foreign investment, made a sharp correction. What do you think is the main reason?

Liu Chenming: , from historical experience and data replication, the white horse leading by Baijiu, liquor, consumption and medicine has relatively strong performance. The future rise and fall will depend largely on the valuation level.

In other words, these industries will not explode, but they will not be too bad. Because of its strong stability, there will be a fluctuation range in the valuation. If you buy when the valuation is very cheap, the future rate of return will be very high; Conversely, if you buy when the valuation is extremely expensive, the future rate of return may be very low.

From our valuation model, these white horses are extremely expensive in February 2021, so their performance is very general. However, in April 2020 and the end of 2018, the valuation of these white horses is extremely cheap, so the follow-up performance is very good. The performance of these big white horses is poor in 2021. I think an important reason is that their valuation is very expensive during the Spring Festival in 2021. In addition, the industrial and policy levels have also caused varying degrees of impact.

surging news: the central economic work conference first proposed the full implementation of the stock issuance registration system. What changes do you think this will bring to the A-share market as a whole?

Liu Chenming: on the one hand, for small and medium-sized stocks, I think the supply of new shares will increase, the valuation of many small and medium-sized stocks may be further differentiated, and small and medium-sized stocks may be further selected. In addition, many small and medium-sized stocks face the pressure of capital or valuation.

On the other hand, I think the full implementation of the registration system may bring some new opportunities. In recent years, policies and markets are encouraging “specialization and innovation” to support the listing and financing of these companies that make up their weaknesses and forge long plates. In the future, if more “specialized special new” new shares are issued, I think it can bring more investment opportunities to the A-share market.

There may be a situation in the A-share market: while these “specialized and new” small and medium-sized enterprises gradually grow up, they will also bring investors opportunities to make money, and this virtuous circle may spiral up.

surging news: looking forward to 2022, what kind of market do you think A-Shares will go out? Why?

Liu Chenming: we just mentioned that 2021 is a year of deleveraging, and the overall market performance is relatively general; However, 2022 is a year of steady growth. Steady growth means credit expansion, which means the improvement of residual liquidity and the overall valuation is supported. On the whole, the overall market in 2022 should not be too bad.

From the specific market rhythm, we believe that the next half year is a stage of credit expansion but declining profits, and there may be range shocks at the index level. For example, it may rise from the Spring Festival to winter, but it may callback in the second quarter. Therefore, the next half year may be dominated by interval shocks, and the performance may drop to a low point in the middle of the year.

At the same time, credit may still be expanding, so looking forward to the third quarter of 2022, there may be a synchronous recovery of credit and profit, plus about half a year of valuation digestion. We tend to think that there may be a wave of upward opportunities at the index level from the middle of 2022 to the third quarter.

As for the fourth quarter of 2022, it may depend on the degree of continuous credit expansion. We now basically judge that the second and third quarters of 2022 are the main credit expansion stage, and the credit expansion remains to be observed in the fourth quarter. If credit cannot be further expanded, it may become a shock stage again.

surging news: looking forward to 2022, what industries and directions are you optimistic about? Why?

Liu Chenming: among the large industries and direction types, we are mainly optimistic about the industries with relatively fast absolute growth rate but little decline, or the direction of acceleration. Specifically, the absolute growth rate of the industry is more than 30%, and the growth rate is no more than 50% lower than that in 2021, or maintain a relatively high growth rate, or even continue the high growth direction.

Among these directions, first, we focus on the core directions represented by automobile chain, such as automobile electronics, automobile intellectualization, automobile parts, whole vehicle, etc. The second is other high-end manufacturing directions, such as military industry and new energy operators, including energy storage. Third, we are also optimistic about the direction of dilemma reversal, which can be reversed without relying on policies, such as mandatory food, pork, etc.

surging news: what suggestions do you have for investors in the A-share market in 2022?

Liu Chenming: we say that in 2021, investors can lie and win in the direction of new energy. Before 2020 and 2020, you can lie in Baijiu, consumption, medicine and so on. We think that 2022 may be a year that needs to be excavated from bottom to top, and it is difficult to win in the general direction.

Specifically, there may be more opportunities for many small and medium-sized stocks. However, for personal investment, mining is more difficult. Therefore, if you are optimistic about some growth directions and suggest that you buy funds in the corresponding direction, you may get higher returns.

(surging News)

 

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