Matters:
Since March, the A-share market has entered a new wave of adjustment period after the stable period in February. As of March 14, the cumulative rise and fall of Shanghai stock index, Shanghai Shenzhen 300 and gem in March were – 6.9%, – 8.9% and – 10.8% respectively.
Ping An View:
The core focus of the market has returned to epidemic control, less than expected liquidity easing and overseas military turmoil (resulting in a sharp rise in global commodity prices). While the three major factors have brought great uncertainty, some relatively optimistic economic fundamentals expectations since the beginning of the year also need to be adjusted. At the macroeconomic level, the probability of consumption and investment in the first half of the year is lower than expected, and the pressure on overseas Chinese stocks is serious, which has dragged down the performance of the A-share market as a whole.
First, the spread of the epidemic in China exceeded expectations, which led to the upgrading of epidemic prevention measures, dragged down the decline of consumption and the commencement of enterprises, and further increased the downward pressure on the economy. Since March, the epidemic situation in China has been obviously repeated, and a new round of the spread of Omicron virus in China is fierce, followed by further strengthening epidemic prevention and control policies across the country. Under the clear dynamic clearing policy, the overall epidemic prevention measures are facing upgrading and adjustment, and the short-term economy is facing great negative pressure. Referring to the experience of the past two years, on the one hand, China’s consumption, especially the consumption of catering and tourism services, bears the brunt. In 2020, the social zero catering income increased negatively for eight consecutive months year-on-year, decreased by more than 30% for three consecutive months from February to April of that year, and the growth rate during the epidemic outbreak period in China in August, November and December 2021 was also negative; On the other hand, the epidemic prevention overweight led to the shutdown of some enterprises, and the prosperity of relevant manufacturing industries may be dragged down. During the period from January to March 2020, the industrial added value increased negatively for three consecutive months year-on-year, and the manufacturing investment in that year maintained a negative growth throughout the year. At present, enterprises in epidemic prone areas have successively issued shutdown notices. For example, Toyota Motor Changchun factory suspended production due to the epidemic, Foxconn Shenzhen parks suspended operations, etc. The impact of the current epidemic has been quite different from the expected situation at the beginning of the year, especially the industries greatly affected by the negative impact of the epidemic have been impacted by a new round.
Second, the decline of the real estate industry will become an important factor that will drag down the macroeconomic and investment growth in 2022. We maintained our previous judgment that the bottom grinding period of the current round of the real estate industry may be longer. The recently released real estate data showed that the real estate demand was still declining. In January and February, the sales area of the top 100 real estate enterprises of Kerui decreased by more than 40% year-on-year. In February, the medium and long-term net financing of residents ushered in the first negative increase in a single month in history, and the medium and long-term loans of new residents decreased by 45.9 billion yuan year-on-year. On the whole, the current industry is facing a downward trend in commercial housing sales – tightening of real estate enterprises’ Funds – downgrade / default – contraction of investment / reluctance of financial institutions to lend – pessimistic expectations of home buyers – the negative cycle dilemma of further downward sales has not been broken, real estate investment is facing further downward pressure, and relevant upstream raw materials, midstream construction Downstream consumption and other sectors will be dragged down to varying degrees. At the same time, the drag effect of the contraction of real estate development loans and personal mortgage loans on the credit expansion of the whole society will gradually appear. Looking back on the downturn stage of the real estate industry in 20142015, the growth rate of social financing stock decreased from 17.5% at the end of 2013 to 12.4% at the end of 2015. We believe that China’s real estate sales area will drop significantly from the high platform of nearly 1.8 billion square meters in 2022, which will not only drag down real estate investment, but also put pressure on the growth of overall fixed asset investment; Moreover, the current lack of credit expansion is also closely related to the slowdown of the real estate industry as an accelerator of credit expansion, which makes the effect of the current sustained loose monetary policy worse.
Third, overseas geopolitical conflicts tend to be repeated, and the market’s concerns about global stagflation and the uncertainty of big country game are heating up. At present, overseas geopolitical conflicts are moving towards a long-term and repeated process, which has a significant impact on the global economy, inflation, politics and other dimensions. On the one hand, the market’s concern about the risk of global stagflation has intensified. The CPI of the United States rose to 7.9% year-on-year in February, a new high in nearly 40 years. Since March, commodity prices have still risen rapidly and remained at a high level, further boosting future inflation expectations. The risk of stagflation has increased the pressure on fundamentals and the difficulty of monetary policy choice. As of March 11, the price of crude oil has increased by more than 15% in total. During this period, the price of oil distribution futures once exceeded the high point in 2008. Although the settlement price fell after rising to $128 / barrel, it still remained above $110; The spot price of London gold rose by 3.6% in March, with the highest fluctuation near us $2000 / oz Shenzhen Agricultural Products Group Co.Ltd(000061) prices also continued to rise. CBOT wheat, corn and soybean meal prices rose by 18.5%, 10.4% and 6.9% respectively in March. On the other hand, the geopolitical conflict has raised the market’s concern about the uncertainty of the big country game, and foreign capital tends to return to the developed markets represented by the United States. The dollar index rose to near 99 from 97 at the end of February. The northward capital in the A-share market flowed out for six consecutive trading days from March 7 to 14, with a total net purchase volume of about – 50.7 billion yuan. From the perspective of equity assets, the global geopolitical conflict mixed with the general rise of commodity prices and the sharp decline of overseas Chinese stock prices also have a negative effect on the A-share market as a whole.
We believe that the market’s expectation of fundamentals needs to be adjusted urgently, and the grinding time of this round may be further prolonged. In the medium term, China’s repeated epidemic, shrinking real estate demand and unstable overseas situation will further impact China’s fundamental expectations and capital risk appetite. Affected by this, the bottom grinding period of the A-share market may be further prolonged, and we still need to wait to observe the landing effect of more stable growth policies. Considering that the market has retreated by an average of about 20% – 30% since the peak in 2021, the current valuation level is in a more reasonable range as a whole, and the possibility of upward rebound cannot be ruled out in the short term. However, the medium and long-term effects of the above influencing factors deserve more vigilance. On the whole, the macroeconomic and capital markets are facing a difficult environment in 2022. It is necessary to reduce the expectation of investment return in 2022 to a certain extent, select industries and companies with relatively high prosperity, and prevent industries and companies with obvious deterioration of fundamentals. In terms of structure, it is suggested to pay attention to the allocation and cost performance of the medium-term profit boom and upward sectors. First, scientific and technological innovation and green upgrading industries corresponding to high-quality transformation, such as semiconductor, new energy, energy storage, new energy automobile industry chain, etc; Second, the inflation benefit sector. From the historical experience, the transmission of raw material prices and the characteristic background of this round of upward inflation, the petroleum and petrochemical, coal, non-ferrous metals, agriculture, forestry, animal husbandry and fishery sectors will benefit.
Risk tips: 1) covid-19 epidemic spread beyond expectations; 2) China’s economic downturn exceeded expectations; 3) The pace of policy promotion is less than expected; 4) The geopolitical environment has become more volatile.
