Key investment points
I. why did the current round of market decline far exceed expectations?
1. From the perspective of fundamentals, the recent disturbance of geographical turmoil and the outbreak of the epidemic in China have exacerbated investors' concerns about economic stagflation.
(1) China's real estate downturn + outbreak has exacerbated the market's concerns about the economy. Since the second half of last year, the continuous decline of real estate has dragged down the economy, which is the most worrying factor in the market. The outbreak of a new round of Omicron epidemic has exacerbated the market's concerns about its drag on consumption, exports and real estate sales in core cities such as Shanghai, and the poor performance of value sectors such as consumption closely related to the economy.
(2) the overseas fed entered the currency tightening cycle, which suppressed the valuation of growth stocks. Hawks such as the Fed's interest rate hike and table contraction this year continued to exceed expectations, which has been the main reason for the adjustment of global growth stocks since January this year. Under the conflict between Russia and Ukraine, the rise in the price of raw materials has exacerbated global inflation, and the market may worry that the Fed's interest rate increase and table contraction process is more than expected. Since the liquidity of the Federal Reserve is actually the "anchor" of global growth stocks, the valuation of growth stocks related to liquidity is also restrained.
The intensification of the expectation of market "stagflation" under the geographical conflict and epidemic "black swan" makes the "anchor" of A-share Valuation: the valuation of core assets represented by consumption and growth continues to decline, and the market lacks the main line that can agglutinate consensus.
2. From the perspective of capital, the large outflow of short-term foreign capital has driven the passive sale of absolute return funds with strict stop loss requirements such as bank financial management, insurance and fixed income +.
(1) foreign capital outflow is the core driving factor of this round of market decline. China concept stocks and Hong Kong stocks are the "epicenter" of this round of decline. In March, the net outflow of funds going north was 64.6 billion yuan (as of March 16). Foreign heavy positions such as Maotai and Ningde have become an important factor dragging down the index.
The deep-seated reason is that after the outbreak of the conflict between Russia and Ukraine, Western sanctions have been increasing, which in a sense marks that the "old globalization system" of the past 40 years is difficult to maintain. For fund managers managing global portfolios, funds have withdrawn under the risk aversion factor.
(2) when foreign capital is sold, there is a significant withdrawal of heavy positions of institutions, and the net value of absolute income capital accounts such as bank financial management, insurance and fixed income + is also significantly withdrawn. Due to the strict requirements on the contract suspension loss line of relevant products (often about 5%), the above funds are facing the pressure of continuous passive redemption.
3. At a deeper level, the fundamental reason for the sharp decline in the A-share market in the short term lies in the weakening of investors' expectations. The essence of the capital market is the discount of investors' expectations for the future. It is precisely because of the weakening of investors' expectations that the overall risk appetite of the market has always been relatively low, resulting in the systematic downward shift of market valuation. With the increase of long-term expected uncertainty and the downward movement of valuation, the market volatility is amplified and the profit-making effect is reduced, which makes the long-term funds that pursue stable income and have strict requirements on withdrawal control, such as medium and long-term funds such as Chinese and overseas pension and social security, have weak willingness to enter the market.
II. Has the market bottomed out?
Spatial dimension: policy stability is maintained, and the market may enter the left strategic allocation period. The meeting of the financial committee of the State Council held on March 16 greatly boosted market confidence and highlighted the bottom line thinking. At present, the valuation level of the main indexes is close to the historical bottom range, the risk premium of the index has also reached a historical high, and the market may have entered the left range of strategic layout.
Time dimension: the policy bottom is clear, waiting for the market bottom. Historical experience shows that the market bottom lags behind the policy bottom. From a fundamental point of view, under the "trust but not action" of the economy, we believe that the epidemic exceeds expectations, or provides an opportunity for the capital market to introduce greater policy support. When China's "dynamic clearing" policy will not be abandoned, or the policy will be guided to increase support for steady growth, when the market or the trend will reverse.
III. how to layout on the left?
In terms of style, the investment opportunity of undervalued blue chip is still the most stable main line of the market. The Federal Reserve announced its interest rate resolution in March. The Federal Reserve raised interest rates by 25 basis points to 0.25-0.5% as scheduled, which is in line with market expectations, but the time and rate of table reduction will probably be advanced, which does not rule out the possibility of starting "table reduction" in the second quarter. It may restrict the valuation of growth stocks. Superimposed on the background of global capital market shocks caused by geographical conflicts and the spread momentum of China's epidemic has not been curbed, the investment opportunities of undervalued blue chips are still the most stable main line of the market. In terms of specific configuration, the following subdivisions deserve attention:
1. The blue chip main line of central enterprises with undervalued value and high dividends, focusing on 1) central enterprises and real estate leaders; 2) Green power generated by the central finance; 3) Finance.
2. Main line of anti inflation: risk aversion affects the market, overseas inflation remains high, geographical conflicts are superimposed, and the global economy is down. It is suggested to pay attention to the allocation value of the gold sector and the chemical targets related to crude oil.
3. Growth stocks are optimistic about structural opportunities:
1) epidemic prevention items in medicine: the epidemic situation is repeated, and pay attention to covid-19 antigen detection, as well as the upstream of relevant reagents and consumables, oral drugs and vaccines.
2) for the domestic substitution demand of the whole west: this crisis has completely turned the EU, Japan and South Korea to and bound the UK and the United States. From the perspective of supply chain security, the domestic substitution of other key parts from the whole western alliance, except the United States and foreign countries, may be accelerated in the future. It is suggested to pay attention to: semiconductor upstream materials, software ecology related to Huawei chips, etc.
3) with the display of western modern equipment during the war, the increasing nuclear deterrence and military industry of both sides, especially the main engine plant that benefited from the three-year pilot end of state-owned enterprise reform this year, deserve special attention.
IV. from the bottom up, which stocks have been "wrongly killed"?
See the text for the individual stocks and logic concerned by analysts in various industries of China and Thailand (Figure 7).
Risk tip: the outbreak of Omicron epidemic in China exceeded expectations or the prevention and control was less than expected, the liquidity of the Federal Reserve's monetary policy and China's monetary policy tightened more than expected, and the public information used in the research report may lag behind or not be updated in time.
