Introduction: Although the research of historical recovery is often criticized for carving a boat and seeking a sword, and mechanical statistical review is of no great use, we believe that the response of capital market and investor behavior are historically dependent. Reason is not enough to explain history, but history is always repeating itself, so the perspective of resumption is very important. In this context, our strategy team launched a series of reports to provide a more pragmatic historical reference dimension.
Summary of historical laws: we have counted the five rounds of bottom experienced by A-Shares since 2002, and each time has experienced the reconstruction of market confidence. From the bottom of the market in the past five rounds, the time from the end of the policy to the end of the market ranges from 2 months to 9 months, and the grinding time is different. Fundamentally, whether the market can come out of the bottom or not, the first important thing is the policy signal, and the second important thing is the bottom recovery signal. The time to grind the bottom depends on the expectation of the time when the policy takes effect, that is, the prediction of the bottom growth of enterprise profits; Therefore, each round of market has experienced the process of policy bottom – market bottom – profit bottom. Of course, the valuation signal and capital signal are equally important, but they are more emotional tracking than decisive judgment. The extremely low valuation position can provide a safe boundary and odds for the layout at the bottom of the market, and the capital flow and structure can more effectively observe the market expectation and prompt the liquidity risk.
Back to the current round of market, let’s first look at the fundamental environment. At present, corporate profits are facing internal and external uncertainty and pressure. The background of overseas fundamentals is geopolitical conflict and the Federal Reserve, that is, high inflation and liquidity contraction, with great volatility; The general background of China’s fundamentals is economic transformation, policy correction and repeated epidemics, that is, weak demand and steady growth. It also takes longer for real estate to stabilize. From the current capital environment, there is no negative feedback from market funds. The pressure side is mainly the position adjustment of overseas funds and absolute income products. The stabilization of chips at the bottom of the market requires more signal judgment of transaction shrinkage. Recently, the transaction amount of the whole market has fallen to less than 900 billion, largely at the level of about January 2022.
Corresponding to the impact of the capital market, first, corporate profits are under pressure. The manufacturing and consumer industries may be the most affected, mainly due to the rising price of raw materials and the weakening demand under the epidemic. According to the profit data of industrial enterprises in February before the beginning of the year, the profit growth rate converged to 5%, and the upstream enterprises further squeezed the profit space of the middle and lower reaches. The proportion of profits in the mining industry reached a new high since 2012, while the middle and lower reaches of manufacturing enterprises also changed from positive to negative. Second, it takes more time to evaluate the effectiveness of policy hedging. The end of this round of policy was set from the meeting of the Political Bureau and the central economic work conference in December 21. In March 22, the financial commission further consolidated the end of the policy to maintain stability. Although the intention of steady growth is high, the effectiveness of policy stability needs more time. Different from the policy of maintaining stability in 2018, the liquidity relief of equity pledge at that time can focus on short-term results, and now the reform and development has entered a deep-water period, which needs more stability and long-term development. There were some macro and micro deviations in the economic operation data at the beginning of the year. The repeated epidemic in March lowered the expectation of economic growth, especially consumption. The market’s prediction of the bottom of the economy needs more data verification. Third, the liquidity environment is tight outside and loose inside, and the changes of overseas funds need to be paid attention to. The net outflow of funds from northbound in March was more than 60 billion, second only to the global liquidity crisis stage in March 2020.
On the whole, we believe that the bottom grinding situation of this round of market may be longer than that of 2018, and the formation of the bottom will be more tortuous; However, under the force of policy coordination and stability maintenance, the situation will be more optimistic than the bottom of 20122013. In the medium term, the market is still dominated by shocks, the style will be more balanced, and the structural opportunities of stable performance and prosperity will be the main.
Risk tips: 1) accelerated release of real estate credit risk; 2) The Fed’s accelerated pace of table contraction will disturb liquidity expectations; 3) Financial regulation and deleveraging policies were overweight than expected.
