A-Shares generally have a long bear market in history, but there have also been V-shaped reversals after a short bear market (decline 20% in the quarter), such as Q4 in 2009, the second half of 2010 and the second half of 2013. After major adjustment in the quarter, there are two conditions for V-shaped reversal: (1) the performance will continue to exceed expectations in the next six months; (2) Extremely low valuation + extremely loose policy. We believe that the first condition is difficult to appear within the year, and the second condition may appear at the end of the second quarter or the third quarter. If we refer to the experience of U.S. stocks, the V-shaped reversal only needs the easing of monetary policy again, which is an upward risk that needs to be highly valued, which is very different from the history of a shares. In the short term, the rebound in the previous two weeks has gone too fast in space and not yet in time, so it may be necessary to let space wait for time. The core driving force of the rebound is “oversold rebound + policy stability expectation + re correction of the matching degree of valuation and performance before and after the quarterly report”. The first and second driving forces have been fulfilled a lot, and there is still room for the third driving force. With the gradual disclosure of the first quarterly report in early April, it is possible to extend the rebound time to mid April. Strategically, 2022 will be a compressed version of 20182019, with the first half similar to 2018 and the second half similar to 2019
(1) in the history of a shares, the general bear market lasted for a long time, but there was also a V-shaped reversal after a short bear market (decline 20% in the quarter) due to the low proportion of long-term allocation funds in China’s stock market, the general bear market of A-Shares in history is difficult. For example, in 2001, 2 Yunnan Yuntou Ecology And Environment Technology Co.Ltd(002200) 3, 2008, 20112012, 2015q2-2016q1 and 2018, the bear market lasted for a long time, the overall index fell greatly and affected a wide range. However, there have been a few V-shaped reversals after a short bear market (a decline of 20% in the quarter). The most important three times are Q4 in 2009, the second half of 2010 and the second half of 2013.
The main reasons for the three adjustments are the tight regulation policies and the resulting periodic liquidity problems of the stock market. In terms of time, it all appears that after the economy has entered a relatively hot state, the macro policy is in the process of tightening. The range of the three adjustments was about 20%, followed by a V-shaped reversal, and returned to the previous high point in 1-2 quarters. In hindsight, the most important reason for the V-shaped reversal is that the profits of listed companies continue to exceed expectations. From the perspective of all a non-financial petroleum and petrochemical ROE (TTM) in Figure 3, roe continued to rise in the two quarters after drastic adjustment.
There were also two small-scale V-shaped reversals during the epidemic in early 2020. The adjustment range of Wande all a index was small, about 15%. Then, driven by the historical extreme value of valuation, the stable growth policy, the blowout of fund issuance, the effective control of the epidemic and other factors, the rapid V-shaped reversal was carried out. In the case of extremely low valuation, there have been extremely loose policies, extremely active residents’ funds and extremely rapid economic recovery.
From the above cases, we can see that there are two conditions for V-shaped reversal after major adjustment in the quarter: (1) the performance will continue to exceed expectations in the next six months; (2) Extremely low valuation + extremely loose policy. We believe that the first condition is difficult to appear within the year, and the second condition may appear at the end of the second quarter or the third quarter.
(2) U.S. stocks often have a V-shaped reversal after a 20% pullback due to the unstable investor structure in a shares, once an upward or downward trend is formed, it will take a long time to reverse, especially the end of the downward trend. However, V-shaped reversal is very common in US stocks. As can be seen from Figure 4, the U.S. stock market adjustment since 2009 has ended with a V-shaped reversal.
From February to March 2020, the largest decline of the S & P 500 index reached 35.41%. The outbreak of covid-19 epidemic caused great turmoil in global stock markets. US stocks witnessed four circuit breakers in just 10 days, until the Federal Reserve cut interest rates sharply on March 15 and promised to buy bonds, US stocks stabilized and reversed V-shaped
From September to December 2018, the largest decline of the S & P 500 index reached 20.06%. The trigger factors for the decline include: the hawkish remarks issued by the Federal Reserve, the soaring breakthrough of the US bond yield in October and the high point in May of the same year, and the upside down of the US bond yield curve in December, which triggered the market’s concern about the economic outlook US stocks stabilized because the Federal Reserve turned dove in early 2019 and the high US bond yield fell
From August 2015 to February 2016, U.S. stocks fluctuated and adjusted, mainly negative: 811 foreign exchange reform, significant adjustment of a shares, restart and fall of international oil prices, weakening of U.S. economic growth, etc. In February 2016, the V-shaped reversal and the catalyst for stabilization was the easing of tightening expectations. The Federal Reserve released a dove signal in March, and finally raised interest rates only once a year, significantly less than the four announced at the end of 2015
From April 2011 to October 2011, the largest decline of the S & P 500 index reached 19.82%. The reasons for this round of adjustment are: S & P lowered the US sovereign credit rating in August, the rise of inflation restricted the broad monetary operation space of the Federal Reserve, and the European debt crisis. In October 2011, the U.S. stock market reversed in a V-shape, and the catalysts for stabilization included: the Fed’s reversal operation in September and the European Central Bank‘s directional long-term refinancing operation (tltro)
we can see that behind the previous V-shaped reversals of U.S. stocks, there is the impact of the Federal Reserve’s policy easing again, which is much simpler than the condition of V-shaped reversals of A-Shares
(3) short term strategy: the rebound will last until mid April the current rebound will be stronger than that in February and may last until mid April. The rebound in the previous two weeks has gone too fast in space and not yet in time, so it may be necessary to make space and so on in the short term There are three main forces behind the rebound: ( 1) oversold rebound : : Wande’s maximum retreat in the whole a quarter has reached 20%, and the decline rate has exceeded the speed of the bear market in 2018. There is a need for technical oversold rebound (2) expectation of policy stability: on March 16, 2022, the financial stability and Development Commission of the State Council held a special meeting. This is a very positive and optimistic policy signal. According to historical experience, the end of the policy is enough to support the monthly rebound of the market (3) re correction of the matching degree of valuation and performance before and after the quarterly report: quarterly report is an important performance verification period and a time window for correcting the matching degree of expectation and valuation. It is easier to rebound well before and after the quarterly report in a bear market. The first and second forces have fulfilled a lot, and the third force has not been concentrated. With the gradual disclosure of the first quarterly report in early April, the third force is likely to extend the rebound time to mid April.
industry allocation suggestions: strategically, there are three core contradictions affecting allocation: the tight global interest rate environment, the overall profit center of A-share listed companies will decline compared with last year, and the economy is now between the bottom of policy and the bottom of credit. These three factors are conducive to value style, especially the style of absolute undervaluation. We believe that this style will continue in the first half of the year. It is suggested to pay strategic attention to finance, real estate and construction. Tactically, the market is still in the process of monthly rebound. It is recommended to pay attention to computer, media, military industry and medicine.
