Strategy review: the market should regain confidence

Matters:

On March 16, the financial stability and Development Commission of the State Council held a special meeting to study the current economic situation and capital market problems. The meeting was presided over by Liu He, member of the Political Bureau of the CPC Central Committee, vice premier of the State Council and director of the finance committee, and comrades in charge of relevant departments attended the meeting.

Ping An View:

Affected by many negative factors, the capital market has ushered in rapid and substantial adjustments since March, especially China concept stocks and Hong Kong stocks. The meeting of the Finance Committee of the State Council coincides with this background. During the meeting, vice premier Liu He timely responded to the market's concerns in four aspects: macro-economy, real estate, China concept shares, Hong Kong shares and industry supervision, so as to resolve the market's excessive concerns about risks. Market confidence has regained, and follow-up policies are also worth looking forward to.

First, stabilize economic expectations, and the steady growth policy will continue to be promoted. Although the macro data recovered more than expected at the beginning of the year, the corresponding financial data and micro data were not satisfactory. The medium and long-term loans of residents had a negative growth in a single month in history, and the macro and micro data deviated to some extent. Therefore, the market is also worried about the prospects of macroeconomic growth and the introduction of stable growth policies. In this context, vice premier Liu he proposed that "effectively invigorate the economy in the first quarter, take the initiative to respond to monetary policy, and maintain moderate growth in new loans", so as to effectively resolve the excessive concerns of the market about economic growth.

Second, stabilize real estate expectations, and the scheme to resolve real estate risks will be overweight. Stabilizing real estate is an important part of stabilizing the economy and is also closely related to the people's livelihood. At present, it is difficult to be optimistic about real estate sales, new construction, completion and capital. Real estate risks are also fermenting. In March, there were also capital flow problems of some high-quality real estate companies. In this context, vice premier Liu He put forward the central tone on real estate enterprises, "as for real estate enterprises, we should timely study and put forward strong and effective risk prevention and resolution solutions, and put forward supporting measures for transformation to a new development model", which strengthened our confidence in resolving real estate risks.

Third, it is expected that the cooperation with overseas capital markets will continue. Recently, under the influence of many overseas risks, China concept stock market and Hong Kong stock market have significantly accelerated the downward trend. The adjustment range of wind Zhongyu 100 index since March is more than 30%; The Hang Seng technology index fell by nearly 20%. At the same time, overseas funds in the A-share market are also accelerating to leave the market. Last week, the net outflow of funds from Beishang reached 36.3 billion yuan, second only to March 2020 (the period of overseas liquidity risk in the early stage of the epidemic) and July 2015 (market crash). Even after the gradual easing of geopolitics, overseas funds and some domestic funds are worried about the impact of the political game behavior of major powers, and are still accelerating the outflow. In this context, vice premier Liu he proposed that "with regard to China concept shares, the regulatory authorities of China and the United States have maintained good communication, have made positive progress, and are committed to forming specific cooperation plans. The Chinese government continues to support all kinds of enterprises to list abroad"; "On the stability of Hong Kong's financial market, the mainland and Hong Kong regulators should strengthen communication and cooperation.".

Fourth, stabilize the expectation of industry reform, especially the rectification of the platform economy represented by Internet enterprises. The coordination of various ministries and commissions will be strengthened and contraction policies will be carefully introduced. China is in a critical period of economic transformation and the initial stage of the promotion of the common prosperity policy. Some industries represented by the Internet industry, education industry and pharmaceutical industry have accelerated capital expansion, so a series of regulatory adjustments have been ushered in. The asset prices of corresponding market sectors have been continuously adjusted since last year, and the wind zhonggai 100 index has fallen by nearly 70% since its peak last year. In this context, vice premier Liu he proposed that "with regard to the governance of platform economy, relevant departments should improve the established plan in accordance with the principles of marketization, legalization and internationalization, adhere to seeking progress while maintaining stability, steadily promote and complete the rectification of large platform companies as soon as possible through standardized, transparent and predictable supervision, and set up red lights and green lights to promote the stable and healthy development of platform economy and improve international competitiveness." Not just the Internet industry, in the reform of other industries, Vice Premier Liu He made it clear "Relevant departments should earnestly shoulder their responsibilities, actively introduce policies that are beneficial to the market and prudently introduce contractionary policies. They should respond to hot issues concerned by the market in a timely manner. All policies that have a significant impact on the capital market should be coordinated with the financial management department in advance to maintain the stability and consistency of policy expectations. The financial commission of the State Council will strengthen coordination and communication in accordance with the requirements of the Party Central Committee and the State Council, and make progress when necessary Line accountability. "

In addition to the above expected stability, vice premier Liu He also proposed to strengthen the self construction of the long-term and stable development of the capital market. First, financial institutions should increase their support for the real economy, and second, they should increase the shareholding ratio of long-term institutional investors. "Financial institutions must proceed from the overall situation and firmly support the development of the real economy. Long term institutional investors are welcome to increase their shareholding ratio. All parties must deeply understand the significance of the" two establishment ", resolutely achieve the" two maintenance ", maintain the long-term trend of China's healthy economic development and jointly maintain the stable development of the capital market."

On the whole, we believe that Vice Premier Liu He's speech will help to stabilize the market expectations and effectively alleviate the continuous downward market concerns, which is no less effective than his speech at the bottom of the market on October 19, 2018. It is also effective to alleviate the market's concerns about liquidity and equity pledge risks, and release policies one after another within a week. At present, the downward range of A-share market since the high point in 2021 is 20% - 30%, the valuation of important market indexes is in the low range of 30% - 40%, and the stock bond return ratio is also at a high level of more than 80%. The overall valuation is within a relatively reasonable range. With the recovery of confidence, the market will rebound in the previous oversold state. In the rebound, it is suggested to give priority to the growth sectors with both prosperity and elasticity, especially the hard science and technology sectors, such as semiconductor, new energy, energy storage, new energy automobile industry chain, etc.

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.

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