Main points:
Market changes
On March 15, the market fell sharply, of which the Shanghai index fell 4.95% and the gem index fell 2.55%. At the industry level, coal, real estate, steel, public utilities, building materials and other sectors with steady growth led the decline.
Concerns about the sustainability and strength of the steady growth policy, the still severe epidemic situation, the continued downturn and sharp decline in peripheral markets and other factors contributed to the sharp decline in the market
The main reasons for the sharp decline in the market on March 15 are as follows: ① the economic data from January to February greatly exceeded the market expectation, the expectation of reducing reserve requirements and interest rates failed, and the market was worried about whether the steady growth policy is still necessary to maintain the current strength. From January to February, the economic data were released, and the industrial added value, social zero and fixed asset investment data significantly exceeded the market expectations; The MLF continued to be slightly oversupplied, but the interest rate remained unchanged, and the expectation of reducing the reserve requirement and interest rate failed. Market concerns about the weakening of the strength and duration of follow-up policy support directly led to the decline of stable growth related sectors. ② Foreign capital continued to reduce its risk exposure in China. China concept stocks fell sharply, Hang Seng index broke new lows repeatedly, NASDAQ entered a technical bear market, and the bad external environment and mood continued to suppress the risk appetite of a shares. On the one hand, due to the mapping of financial sanctions and anti sanctions from Russia and the western world, foreign capital sold off assets in China, with China concept stocks and Hong Kong stocks bearing the brunt, and the northward capital of A-Shares also continued to flow out sharply. On the other hand, the performance of the peripheral markets was poor, and the three major indexes of US stocks continued to callback. Among them, the NASDAQ has fallen by 21.65% since the end of November 2021, entering a technical bear market, and the downturn of overseas risk appetite also restricted the sentiment of a shares. ③ The epidemic broke out in many places and the situation was grim. As of March 14, the number of confirmed cases of covid-19 pneumonia in Japan has reached a new high, many cities across the country have been upgraded to medium risk areas, local epidemic prevention and control policies have become stricter, and the recovery expectation of service consumption has weakened.
The market reaction is extremely pessimistic. After the extreme venting of sentiment, the medium and long-term investment cost performance is significant, so there is no need to be pessimistic
Since mid December 2021, the market has continued to retreat, the recent volatility has increased significantly and the decline rate has accelerated. We believe that the market has responded in advance to the pessimistic expectations of possible risk events in the future, and even the response to pessimism has been significantly amplified. So far, we believe that the risks that the market has responded include: on the one hand, The Fed's expectation of raising interest rates has been continuously strengthened and reached the extreme. At present, the market is expected to raise interest rates by 25bp in March, raise interest rates 6-7 times in the year and shrink the table in the middle of the year; On the other hand, it has reflected the unexpected outbreak and protracted war expectation of the conflict between Russia and Ukraine, and even responded to the possible risk of global stagflation to a certain extent; On the third hand, the financial sanctions and anti sanctions between Russia and the western world have also been mapped to China, which has made a very pessimistic expectation in advance; Fourth, the strength and sustainability of the steady growth policy are also expected to reverse. The recent market performance has obviously reflected extreme pessimism as a whole, and even amplified the bad and ignored the good, but this situation will not continue to deteriorate. The market valuation fell sharply to a low level, the safety margin was thickened, and the cost performance of medium and long-term investment was highlighted. As of March 15, the valuations of major market indexes such as wandequan a, Shanghai stock index and gem index have fallen to the quantile levels of 34%, 22% and 36% since 2010, significantly lower than the phased high at the end of 2021, and are now at an absolute low. For example, the current valuation of Shanghai stock index is 11.7x, which is lower than the valuation after circuit breaker in early 2016, equivalent to the valuation after the impact of the epidemic at the end of March 2020, and only slightly higher than the valuation at the end of 2018. The valuation of some industries has been significantly underestimated. For example, the current valuation of the electronic industry is 26.7x, which is in the historical quantile of less than 3%. The current valuation of the pharmaceutical industry is 29.1x, which is in the historical quantile of only 5%. The index and industry valuation level, which have fallen sharply and have been low, have thickened the safety margin and have medium and long-term investment value. There is no need to be overly pessimistic about the future market.
In the current short-term with fierce fluctuations and accelerated rotation, we should deal with it in a balanced manner, and pay attention to the valuation market in the third stage of growth and the opportunity of consumption recovery and price rise in the medium and long term
In the process of responding to extremely pessimistic expectations, the market has increased volatility and accelerated rotation. Institutional investors should respond with balanced allocation. After substantial adjustment, the valuation level of the market and some industries has returned to a historically low level, and the medium and long-term investment value has been very significant. We pay attention to the market in the third stage of growth and the price rise of consumption recovery, which are two investment lines with greater market rebound elasticity in the future.
Main line 1: look forward to the medium-term investment opportunities in the third stage of growth style and pull out the valuation market. At present, it is a good time for layout. Specifically, we can focus on the strong growth main line industries represented by new energy (vehicles) and electronics and the industries expected to benefit from valuation diffusion represented by national defense and military industry and computers. Main line 2: medium and long-term investment opportunities for the recovery of service consumption and the rise in the price of mandatory consumer goods, especially after the recent correction due to the impact of the epidemic. Pay attention to the pharmaceutical sector prepared in advance to realize the recovery of service consumption and the travel chains such as airport, catering, tourism and leisure services after the repeated impact of the recent epidemic. In addition, the medium and long-term investment opportunities of rising prices of necessities also deserve attention, including dairy products, planting industry, chemical fertilizer, etc. In terms of theme, we will continue to pay attention to the digital economy and the reform of state-owned enterprises.
Risk tips
The development of Omicron mutant strain exceeded expectations; Risk Spillover of geopolitical conflict between Russia and Ukraine; The Fed raised interest rates higher than expected or even reduced the table in advance; Sino US relations deteriorated beyond expectations.
