One week market view
Last week, Chinese assets fell first and then rose. The high-level meeting timely stabilized market expectations and resolved risk concerns. With the spread of the epidemic in China, the strict epidemic prevention policy has reduced the market’s expectations for short-term fundamentals, while the failure of MLF interest rate reduction and the higher than expected economic data have increased the market’s differences on whether the policy will increase and stabilize growth. Superimposed on the concerns about the game between China and the United States and the contraction of industrial supervision, A-Shares / Hong Kong shares / China concept shares have been adjusted synchronously. In this context, the tone set at the meeting of the Finance Committee on March 16 and the follow-up voice of many ministries and commissions since then have timely stabilized the market expectations. Affected by this, the equity market has ushered in an oversold rebound. The Wande zhonggai 100 index and Hang Seng technology index rose 29% and 6% respectively last week. In the A-share market, the real estate, non bank finance, pharmaceutical and biological industries took the lead.
In the short term, we believe that the China Finance Commission meeting and the China US dollar first dialogue have played a relatively positive role in stabilizing market expectations. The market’s previous concern that a rapid decline may lead to liquidity risk will also be alleviated, and A-Shares are expected to usher in the bottom grinding and repair stage in the short term; However, under the background that the spread of the epidemic has dragged down consumption / production / infrastructure construction and real estate demand is still weak, China’s fundamental pressure expectation has not reversed, and the pace of market participation still needs to be controlled. In terms of structure, it is suggested to select industries and companies with relatively high prosperity. Attention can be paid to high-end manufacturing, new infrastructure, pharmaceutical sector, inflation benefit sector, etc. at the same time, attention should also be paid to preventing industries and companies with obvious deterioration of fundamentals.
On the one hand, from the policy side, the high-level statement is expected to stabilize the market expectations, and the introduction of relevant policies is expected to accelerate. On March 16, the meeting of the finance committee released a relatively positive signal of stability expectation on key market concerns such as the continued efforts of the steady growth policy, the resolution of real estate risks, the strengthening of communication and cooperation with overseas capital markets, and the standardization of industry reform. It specifically proposed that “we should effectively revitalize the economy in the first quarter, take the initiative to respond to monetary policies, and maintain moderate growth in new loans”, “Actively introduce policies favorable to the market and prudently introduce contractionary policies”, and further expand the monetary, credit and real estate stability policies, which are expected to be further promoted in the follow-up. We believe that the expected stabilizing effect of vice premier Liu He’s speech this time is no less than his voice at the bottom of the market on October 19, 2018. The short-term market is expected to enter the stage of grinding the bottom and repairing. The rebound is not achieved overnight, and the reversal still needs to be improved in fundamentals. Recalling that the high-level statement continued to release positive signals after mid October 2018, within one month after Liu He spoke, the Shanghai stock index, which had fallen by nearly 30% in that year, ushered in a short-term upward repair of about 4%; However, against the background of repeated friction between China and the United States, the market still experienced a shock and bottom grinding period for more than two months. Finally, in early 2019, the bottom reversal was ushered in under the background of China’s continued loose policy, the bottom recovery of social finance and the release of peripheral risks, and the bottom rebound of European and American stock markets.
On the other hand, from the perspective of fundamentals, the boom of high-end manufacturing and infrastructure investment is relatively high. First, the economic data from January to February showed that the manufacturing industry rebounded significantly, especially the innovation driven effect. Among them, the added value and investment growth of high-tech manufacturing industry are significantly faster than that of the manufacturing industry as a whole. The year-on-year growth rate of fixed asset investment in electronic and communication equipment manufacturing industry, medical equipment and instrument manufacturing industry from January to February was more than 40%; Moreover, the output of scientific and technological green products increased rapidly. From January to February, the output of new energy vehicles, industrial Siasun Robot&Automation Co.Ltd(300024) , Cecep Solar Energy Co.Ltd(000591) batteries increased by about 151%, 30% and 26% year-on-year respectively. Second, we have made active financial efforts, and the growth rate of infrastructure investment has accelerated significantly. From January to February, the total public financial expenditure increased by 7% year-on-year. Accordingly, the growth rate of infrastructure investment rebounded significantly to 8.6% in the same period; Structurally, the year-on-year growth rate of fiscal expenditure on science and technology, transportation, energy conservation and environmental protection has exceeded 10%, which may correspond to the relatively faster promotion of investment in information and green new infrastructure.
Focus of the week
The Fed’s interest rate hike boots are on the ground and will shrink as soon as may. Both the US dollar and the RMB are expected to remain strong. In the early morning of March 17, Beijing time, the Federal Reserve announced an interest rate increase of 25bp as scheduled, raised the target range of the federal funds rate to 0.25-0.5%, and confirmed to open the contraction at the “upcoming meeting”. As can be seen from the Fed statement and Powell’s speech, fighting inflation has become the most important policy goal of the fed under the background of the current overall economic prosperity and the low unemployment rate in the labor market. Among them, in terms of the expectation of raising interest rates, according to the latest swap data, there is a high probability of raising interest rates by 50bp at the May meeting, but the evolution of inflation will also affect the above expectations. If inflation falls below expectations, it is not ruled out that the probability of raising interest rates by 25bp in May will increase; In terms of the reduction process, Powell said that the reduction plan may be announced as soon as may. The overall reduction principle and framework will be similar to the previous round of contraction (20182019), but the speed may be faster. However, the specific reduction speed will also depend on the evolution of inflation and the economic boom. We believe that the US dollar index will remain high when the market expects that the Fed may raise interest rates by 50bp and the path of table contraction is not fully clear; The RMB exchange rate is also expected to maintain a strong trend under the background of the stabilization of the short-term A-share market, a large trade surplus and the demand for foreign exchange settlement of enterprises has not been completely reversed.
