Hope breeds in despair, but the process will not be achieved overnight.
Since 2022, affected by the resonance of internal and external adverse factors, the A-share market has opened a fierce adjustment. On March 15, the Shanghai stock index fell by 4.95% throughout the day. On March 16, the Shanghai stock index continued to bottom to 302330, a new low since the beginning of the year. The gem index hit a new low of 2462 points as early as March 9. So far, the Shanghai Composite Index and the gem index have decreased by 15.6% and 22.9% respectively from the high point to the lowest point at the beginning of the year.
On March 16, at the special meeting of the financial commission on “studying the current economic situation and capital market issues”, the high-level conveyed a very clear “policy bottom” signal, responding to the current market’s concerns about real estate, China concept shares, platform economy, Hong Kong service market and other issues, and the market also rose sharply. As of the close of the day, the Shanghai index rose 3.48% and the gem index rose 5.2%. Subsequently, the market entered shock again. So, how will the market interpret after the end of the policy?
China Merchants Securities Co.Ltd(600999) ‘s research shows that since 2005, A-Shares have experienced seven historical bottoms (a decline of more than 20%), almost every time in the environment of liquidity contraction, downward earnings and external liquidity pressure. Referring to historical experience, when the excess liquidity turns positive, the growth rate of new social finance accelerates and improves, the valuation drops to a historical low, the margin of external liquidity improves, the transaction downturn, the turnover rate decreases significantly, and the K line is a w combination, it is mostly the signal of the bottom of the market. At present, A-Shares have gradually seen multiple bottom signals. In the future, with the accelerated improvement of new social finance, the easing of external negative factors, and the significant decline of turnover rate and transaction amount, A-Shares are expected to usher in the starting point of a new round of upward cycle.
Anxin securities has also studied the characteristics of the six rounds of continuous decline of A-Shares since 2005. From the historical statistics, the average decline of the core index of A-Shares in the previous round of sharp decline is more than 25%. At the end of each round of A-share crash, there is an evolution process of “policy bottom – market bottom – economic bottom – profit bottom”. Generally speaking, the interval from policy bottom to market bottom is about 2.5 months, and the interval from market bottom to economic bottom is 4 months. The profit bottom is basically synchronized with the market bottom or lags behind by 3 months.
Sealand Securities Co.Ltd(000750) said that the cycle of “policy bottom – market bottom – economic bottom” of A-Shares is relatively clear, and the market bottom generally lags behind the policy bottom for about 1-3 months. The initial effect of the policy has led to the market’s expectation of the future economy from pessimism to optimism. The economic bottom generally lags behind the policy bottom for about 3-6 months, indicating that the negative factors that suppressed the market in the early stage have been fundamentally mitigated, and then A-Shares began to stabilize and recover from the bottom.
historical bottom
From the high point on December 12, 2021 to March 15, 2022, the decline of wind all a index has reached 19.2%, and to the intraday low on March 16, the maximum retreat is 21.2% China Merchants Securities Co.Ltd(600999) calls this point that bottoms out after substantial adjustment “historical bottom”. It is very important for investment to grasp a large-scale bottom – the decline before the bottom is often more than 20%, while the rebound after the bottom is more than 30%.
So, how is the bottom of history refined?
According to the statistics of China Merchants Securities Co.Ltd(600999) , historically, since 2005, there have been seven times in line with the previous decline of 20% into the bear market and the subsequent rebound of more than 30%. The seven v-days are July 18, 2005, November 4, 2008, April 16, 2010, November 1, 2012, September 15, 2015, January 28, 2016 and January 2, 2019 respectively. If we can significantly increase the stock position in this position, the yield will be very high in the next six months.
China Merchants Securities Co.Ltd(600999) believes that the historical sharp decline and bear market almost all occur in similar environments, including tight liquidity, declining profits and external or endogenous financial risks.
Among them, the internal cause of the round of decline that began in April 2004 was that the economy was overheated and the credit policy was contracted, and the profit growth rate of A-Shares was down. The internal cause was a landmark event: on April 25, 2004, the central bank raised the standard of 50bp and started tightening. Since then, the profit growth rate has decreased all the way, and began to turn to negative growth in the fourth quarter of 2004; The external cause is that the Federal Reserve began to raise interest rates. The external cause is a landmark event: on June 30, 2004, the Federal Reserve raised interest rates for the first time, five times in 2004 and eight times in 2005.
The decline since January 2008 is due to the overheating of the economy in 2007, the tightening of monetary policy and the decline of profit growth. The internal cause is a landmark event: the people’s Bank of China has raised interest rates six times since March 2007; The external cause is the US subprime mortgage crisis. The external cause is a landmark event: the collapse of Bear Stearns on March 16, 2008.
The decline that began in April 2010 was due to the tightening of monetary policy in the first quarter of 2010 and the decline of profit growth. The internal cause was a landmark event: from January to May 2010, the people’s Bank of China and the central bank raised the reserve for three consecutive times; The external cause is the outbreak of the European debt crisis. The external cause is a landmark event: on April 23, 2010, Greece applied for assistance from the EU and IMF, and the Greek sovereign debt crisis broke out.
The decline that began in April 2011 was due to rising inflation, continuous tightening of monetary policy and downward profit growth in 2011. Landmark events: since October 2010, the central bank raised the reserve requirement nine times and raised interest rates five times in a row; The external cause is the continued in-depth interpretation of the European debt crisis.
The decline that began in June 2015 was due to deleveraging of the stock market and the decline in profit growth. The internal cause was a landmark event: on June 12, 2015, the regulators required that securities companies should not facilitate any institution or individual’s OTC capital allocation activities and illegal securities business through the online securities trading interface; The external cause is that the Federal Reserve has entered the interest rate increase cycle, and the devaluation of the RMB exchange rate has triggered capital outflow. The external cause is a landmark event: the August 11 foreign exchange reform, and the exchange rate has depreciated sharply at one time.
The decline that began in January 2016 was due to the deleveraging of the stock market, the superposition of trading mechanisms, the decline in profit growth, and the landmark event: the implementation of the circuit breaker system; The external cause is the external liquidity pressure. The RMB exchange rate continues to depreciate. The landmark event: the US dollar index has exceeded 100.
The decline that began in January 2018 was due to financial deleveraging and the decline in profit growth; The external cause is that the Federal Reserve has entered the late stage of the interest rate hike cycle. The landmark event: the Federal Reserve continued to raise interest rates in March 2018.
China Merchants Securities Co.Ltd(600999) concluded that the sharp drop of 20% in A-Shares is basically a double kill of fundamentals and liquidity, which is often accompanied by overseas risk events or external liquidity pressure. Otherwise, A-Shares are basically very resilient.
In terms of China’s liquidity, during the past seven sharp declines, we have seen the phenomenon that the growth rate of excess liquidity accelerated downward to negative, and the growth rate of social finance accelerated downward to negative; In terms of profitability, the past seven sharp declines, regardless of the starting point of profitability, the final profit growth rate fell to negative growth.
From the perspective of DDM model, Anxin securities decomposes the factors affecting the stock price into fundamentals, liquidity and risk appetite. Looking back on the past six rounds of market switching in history, any one of the three factors can not independently dominate the market trend, and at least two of the three factors will deteriorate significantly, which will lead to the overall decline of the market.
Among them, the market continued to fall sharply in 2004, 2007 and 2011, mainly due to the monetary and credit crunch caused by economic overheating and upward inflation. The tightening of liquidity and the expectation of falling fundamentals suppress the numerator and denominator of stock price. After 2011, the potential growth rate of China’s economy showed a turning point, and policies faced trade-offs in the objectives of economic growth, industrial transformation and risk prevention. The policy shift or stricter supervision often directly led to the weakening of the market. Behind the market switching in 2013, 2015 and 2018 were risk events such as “money shortage”, clean-up and allocation, China US trade war and deleveraging.
20042005: split share structure reform + policy tightening + corporate profits peaked and fell. In 2004, heavy industry investment overheated, coal, electricity, oil transportation and other important means of production were in short supply, inflation was rising, and a number of policies to curb economic overheating were intensively introduced. With the approval of the credit cliff and strict restrictions on production capacity, the yield of 10-year Treasury bonds rose to an all-time high of 5.4%, and the economy cooled down after the second half of 2004. The decline in corporate profits and concerns about the substantial expansion of circulating shares caused by the “share reform” continued to spread market pessimism and panic. The Shanghai stock index fell all the way from 1780 in April 2004 to 1000 in mid-2005.
2008: subprime mortgage crisis + high valuation + high inflation. In 2007, the economy warmed up again, the huge trade surplus and the influx of hot money produced excess liquidity, the stock market and real estate market became overheated, and the policy continued to tighten. At the beginning of 2008, the overseas subprime mortgage crisis was fermenting, the global stock market weakened and the export fell precipitously. China’s economic situation took a sharp turn. A shares turned around and fell rapidly. The Shanghai stock index plunged from 6000 points at the end of 2007 to 1800 points in November 2008.
20112012: policy adjustment to curb inflation + economic momentum switching. As China’s economy has crossed the “Lewis turning point” and the “four trillion” stimulus has faded, the potential growth rate of China’s economy has turned a trend after 2010. The excess liquidity brought by the economic stimulus in the early stage of 2011 superimposed the resonance of “lard”. China adopted a tightening monetary policy to curb inflation, the GDP growth rate fell rapidly, and the economy entered the state of “quasi stagflation”. A shares fell in shock throughout the year, and the profit valuation deteriorated. The Shanghai Stock Index fluctuated all the way from 3050 points in April 2011 to 2000 points at the end of 2012.
From 2013 to mid-2014: “money shortage” + industrial deflation + unclear policy expectation. Stimulated by the previous easing policies and the impact of the global economic downturn, structural problems such as overcapacity have gradually become prominent, and PPI has been negative year-on-year for three consecutive years. At the beginning of 2013, the shift of monetary policy was brewing, and the supervision of shadow banking was strengthened. The “money shortage” incident broke out in June. Liquidity contracted, risk-free interest rates soared, and policy expectations were unclear. A shares fell rapidly during the “money shortage”. From 2013 to 2014, the overall trend showed a volatile downward trend. The Shanghai Composite Index fluctuated from 2300 points in May 2013 to 2000 points in mid-2014.
From mid-2015 to early 2016: clean up capital allocation + high valuation. In May 2014, the “new national nine articles” marked the beginning of capital market reform, and the monetary policy was fully relaxed in the first half of 2015; Corporate profits continued to fall, but A-Shares came out of a bull market driven by abundant liquidity, leveraged funds and capital market reform. In June 2015, the CSRC required securities companies to check the external access of the information system and clean up the off-site capital allocation. The decline of share price and the outflow of leveraged funds formed a stampede. The Shanghai Stock Index fluctuated all the way down from 5150 in June 2015 to 2500 in August.
2018: Sino US trade friction + financial deleveraging. From 2017 to 2018, China experienced a round of “financial deleveraging”. Corporate financing difficulties superimposed high bulk prices and Sino US trade frictions, upstream and downstream profits were divided, private enterprises had difficulties in operation, and corporate profits fell rapidly. In March 2018, Sino US trade friction broke out, and the rapid deterioration of Sino US relations became an important factor to suppress market risk appetite throughout the year. At the same time, the financial and economic cycles of China and the United States are misplaced. The US interest rate hike has led to the continuous depreciation pressure on the RMB, and the space for further easing of monetary policy has been compressed. The Shanghai Composite Index fluctuated all the way down from 3580 points in February 2018 to 2500 points at the end of the year.
Anxin securities concluded that, generally speaking, the general trend of the A-share market index is basically positively related to corporate profits. The risk-free interest rate and A-share valuation fell simultaneously. The continuous decline of economic growth and corporate profits is the primary reason for the continuous sharp decline of the market, which is most obvious in the sharp decline from 2011 to 2012.
outsole signal
China Merchants Securities Co.Ltd(600999) summarizes the five signals of the historical bottom with a decline of more than 20% in the early stage and a subsequent rebound of more than 30% from 2005 to 2019.
Signal 1: inflection point of liquidity and profit expectation. The combination of excess liquidity and new social finance growth rate turned positive and rebounded. The transition from excess liquidity to positive and the accelerated improvement of new social finance are often the most critical signals for the bottom of a shares. If A-Shares want to enter the upward cycle, the improvement of profit expectation and liquidity expectation are indispensable.
Signal 2: the valuation level has dropped to an all-time low. The impact of China’s non-profit monetary policy is only about 20 times that of China’s static monetary policy due to the rapid deterioration of non-profit monetary environment. However, if there is a global external impact with great impact on China, the valuation level at the historical bottom will be less than 20 times.
Signal 3: marginal improvement in the external liquidity environment. US dollar liquidity has a great impact on global and emerging capital markets. When the adjusted US bond yield is higher than 1, it will often lead to risks. On the contrary, it will bring investment opportunities. For a shares, there are seven historical bottoms in history, six of which are below – 1 after the adjustment of the yield of U.S. 10-year Treasury bonds, which is the so-called or “opportunity period”. The only time it was not below – 1, at least it was out of danger.
Signal 4: low turnover, obvious decline in turnover rate and reduction in volume. Investors usually experience a process of “fluke anxiety panic despair” in the process of large-scale decline, and eventually the market trading activity will decline significantly. The turnover rate is greatly reduced, and the significant reduction is an important condition for reaching the bottom. The average turnover rate of the seven historical bottoms was 1.5%, and the average shrinkage rate was – 52%.
Signal 5: Classic K-line combination. K-line appears a combination similar to “W”. The double bottom is a more solid bottom.
For the current round of market bottom, China Merchants Securities Co.Ltd(600999) believes that five signals have appeared.
First, the growth rate of new social finance, especially the growth rate of medium and long-term social finance, accelerated and improved. From January to February, the growth rate of new social finance has been marginally improved, and the growth rate of new social finance has become positive. However, the positive range is very weak. At the same time, structurally, the medium and long-term growth rate of social finance has not yet become positive. As a result, more data are needed to prove that the total amount and structure of social finance are indeed continuously improving. However, it is reasonable to believe that after the two sessions, the growth rate of new medium and long-term social finance is expected to rise further under the background of steady growth of the government and enterprise departments.
Second, the valuation has reached near the lowest level in history, and there is limited room for further decline.
From the perspective of valuation level, from the low point on March 15, 2022 to April 30, the corresponding all a non-financial petroleum and petrochemical is 22 times, which is very close to the pessimistic expectation in 2005 and 2012. Since there is no major global financial crisis, Sino US conflict and other key external shocks, theoretically, the A-share point on March 15, 2022 is already a pessimistic pricing.
Third, the US interest rate and US dollar index peaked and fell. At present, the market’s expected probability of the Fed raising interest rates seven times in 2022 has increased to 86.9%, but this depends on the inflation level and economic situation in the United States. If the CPI data peak and fall with the increase of inflation base, or the economic data in the United States is obviously lower than expected, the number of interest rate increases may be reduced. If the Fed makes any dovish statement at an interest rate meeting and reduces the market’s expectation of the number of subsequent interest rate increases, the US bond yield and US dollar index that have been fully included in the expectation of seven interest rate increases may peak and fall.
Fourth, in the future, as the geopolitical conflict eases and the regulatory communication between China and the United States, the derived financial risks will be gradually reduced.
Fifth, the turnover rate and transaction amount have shrunk significantly. On March 18, the transaction amount of A-Shares was 998.5 billion yuan, the corresponding shrinkage rate was – 5.4%, and the turnover rate was 2.7%. Referring to the historical average turnover rate, the corresponding transaction amount was 550 billion yuan, and referring to the historical average shrinkage rate was 507.1 billion yuan. In other words, if the transaction amount of this round is reduced to 500 billion-550 billion yuan, it is a very solid bottom signal.
Dongxing Securities Corporation Limited(601198) ‘s research shows that after the market has bottomed out sharply since 2008, there will be a bottom grinding period lasting for 1-2 months (an increase of no more than 5% compared with the bottom), during which the market range fluctuates. Since March 16, the market has rebounded slightly and is still at the bottom of history. The first reason is that the trend of the bottom grinding period is volatile and the increase is low. Second, the transaction amount and turnover rate in the bottom grinding period will not rise sharply or even decline.
Signs of going out of the bottom grinding period: first, at the end of the bottom grinding period, the change of transaction volume tends to be stable, and the standard deviation of month on month change will be significantly narrowed. Second, the issuance shares of public funds rose month on month. In contrast, the standard deviation of recent turnover fluctuated greatly, and the standard deviation of turnover on March 25 was still higher than that on March 15; Based on the starting date of subscription, the issuance shares of partial equity funds did not recover in the week from March 21 to 25, and the current market is still in the bottom grinding period.
YueKai securities selected 11 indicators at four levels, including trading level (decline, turnover, turnover rate), valuation level (PE, PS, PEG), capital level (New Development Fund, financing activity) and Fundamentals (gross profit margin, GDP and social finance growth rate). After observing, it is believed that the indicators at four levels show the “bottom” of current unspeakable history: the mood at the trading level has not reached the freezing point; The absolute value of valuation is low, but the higher value needs to be further digested; Incremental funds show a strong wait-and-see atmosphere; The market’s response to fundamentals is “from fast to slow”, and the logical deduction is “from slow to fast”.
At the transaction level, YueKai securities selects three indicators: decline, turnover and turnover rate to measure, and uses the relative value, that is, quantile, to describe the “temperature” of a relatively high indicator at present. Taking wandequan a index as the representative of the market, in the past 20 years of historical bottoms: the decline range is 30% – 70%, and this round of decline has been nearly 20%; There are many differences in turnover, but the turnover “thermometer” is about 30% – 50%, which is still more than 80% at present; The turnover rate “thermometer” is about 40% – 70%, which is still above 90%. Overall, the three indicators at the transaction level have not fallen to the above range, indicating that the sentiment at the transaction level has not reached the freezing point.
At the valuation level, YueKai securities selects three indicators of PE, PS and peg to measure, and also uses the relative value, i.e. quantile, to describe the “temperature” of a higher level of an indicator. Taking wandequan a index as the representative of the market, in the past 20 years of historical bottoms: the value of pe-ttm is in the range of 11.88-17.72 times, and the low point of this round is 16.39 times; The value of ps-ttm is in the range of 0.88-1.48 times, and the low point of this round is 1.29 times; At present, it is predicted that peg is only 0.59, which is better than the historical level. Overall, the three absolute value indicators at the valuation level are within the historical range, but the higher valuation points still need to be further digested.
At the capital level, YueKai securities selects two indicators: the scale of new development funds and financing activity. The share of equity + hybrid new development funds is used to observe the market entry intention of incremental funds. The activity of leveraged funds is measured by the proportion of financing purchase amount to A-share turnover. At the same time, the relative “temperature” is depicted by Quantile. Taking wandequan a index as the representative of the market, in the past 20 years of historical bottoms: the absolute value of the new development fund has changed greatly, and the share quantile of the new development fund (reduced from the previous high) ranges from 2% to 15%, which is currently 3%; The quantile level of financing activity is in the range of 50% – 80%, which is currently 60%. Overall, the two “thermometer” indicators at the capital level show that they have fallen within the range, and there is a strong wait-and-see atmosphere for incremental funds.
In terms of fundamentals, YueKai securities selects two indicators: macro GDP and social finance growth rate, and micro gross profit margin. In previous historical bottoms, credit indicators: the general market bottom is 1-2 months ahead of the social finance inflection point, and the credit indicators are forward-looking indicators; Fundamental indicators: the market’s response to fundamental indicators such as gross profit margin and GDP has changed from rushing ahead to paying attention to verification, that is, the market regains its upward trend only after confirming the inflection point of fundamentals, and fundamental indicators are synchronous indicators. Overall, the market’s response to fundamentals is “from fast to slow”, and the logical deduction is still “from slow to fast” in advance.
reverse condition
Corresponding to when the current market will reverse, Anxin Securities believes that the core of the judgment on the market direction in the future is the judgment on the inflection point of molecular fundamental expectations. Whether it is the reversal at the end of 2012 or 2018, there is the recovery of fundamental expectations and the improvement of entrepreneurs’ and investors’ confidence behind it.
According to the observation and statistics of Anxin securities, the market has fallen continuously or sharply, which means that there are often some deep-seated medium-term contradictions in the market during the continuous sharp decline, which have not been resolved for a long time. Only when these core contradictions show obvious improvement signals can the pattern of continuous decline be fundamentally reversed. If the continued sharp decline of A-Shares is accompanied by the deterioration of profits, the confidence from fundamentals is the most important for the reversal after the sharp decline of the stock market. This confidence can come from the profit growth trend of listed companies, or from the changes of important policies, economic data and peripheral relations. For example, it is very important to determine the inflection point of molecular fundamental profit expectation at the end of 2012 and 2018.
The core contradiction was resolved in 20042005: the implementation of share reform and the relaxation of policies after the overheated investment was controlled. From 2004 to 2005, the economy continued to overheat and the policy contracted sharply, while the split share structure reform failed to be implemented clearly and continued to suppress the risk preference. In 2005, the economic overheating was effectively controlled, and the share reform and foreign exchange reform were promoted in the middle of the year. With the landing of uncertainty, the market sentiment was significantly repaired, and the market started a rebound after August.
Resolution of core contradictions in 2008: digestion of early valuation, “four trillion” reversed fundamental expectations. A sudden turn for the worse in 2007, and a tightening of policy precautions. The subprime crisis in 2008 broke China’s economy and overturned share price bubbles in the early days, and the market plunged. With the introduction of the stability maintenance policy and the “four trillion” economic stimulus, as well as the rapid decline of valuation and the rapid recovery of the economy, the market reached a consensus on liquidity and economic growth and started a new round of rise.
The core contradiction was resolved in 20112012: inflation fell and infrastructure continued to drive weak economic recovery. In 2011, the economy digested the “four trillion” sequelae, and the overseas fed QE pushed up commodity prices, resulting in imported inflation. China’s inflation continued to rise, GDP growth continued to fall, and policies continued to tighten, and the economy entered “quasi stagflation”. At the end of 2011, with the decline of inflation, the policy was loosened rapidly and the infrastructure continued to develop. By the second half of 2012, the economy had stabilized and the profit of enterprises was conducive to the recovery at the beginning of 2013.
Resolution of core contradictions in 20132014: steady growth, structural transformation and promoting a “stable landing” of economic fundamentals. The market decline in 2013 began with the “money shortage”, but the deeper reasons are that the driving force of economic growth is still unclear, the market is highly dependent on loose policies and the immature financial system. After 2011, the economic growth showed an “L” decline with the investment growth. In order to achieve a “stable landing” of the economy, the government started a round of infrastructure frenzy, but at the same time, the shadow bank expanded rapidly and financial risks began to gather. In the second half of 2014, the policy was fully relaxed, and the real estate destocking and shed reform were implemented. After 2013, the government stressed that China’s economy has entered the “three-phase superposition” and “new normal”, policy ideas began to change more from aggregate to structure, and strongly supported the development of emerging industries. At the same time, the mobile Internet industry has developed rapidly, economic transformation has become the consensus of the whole market, and the reform of the capital market has accelerated to enhance market confidence.
In 2015, the core contradiction of the market was resolved: the leveraged funds were cleared, the supply side reform resolved overcapacity, and the improvement of upstream profits in the second half of 2016 led to economic recovery. In 2015, the economy faced great downward pressure, industrial deflation and corporate profits continued to decline. The reform of the capital market and the desire for economic transformation gave birth to speculation. However, the development of emerging industries and market reform cannot be achieved overnight. The fast in and out of leveraged funds caused abnormal fluctuations in the stock market. In the second half of 2015, the leveraged funds were cleared and the valuation fell rapidly. In 2016, the supply side reform resolved overcapacity and the upstream profits led to economic recovery. At the same time, the logic of increasing the concentration of traditional industries was generated, which opened the “leading white horse” structural market for many years.
Resolution of core market contradictions in 2018: from deleveraging to stabilizing leverage at the end of 2018, from Sino US trade friction to the consensus reached between China and the United States at the end of the year, and the profit expectation at the end of 2018 is reversed. Under multiple rounds of economic stimulus, financial risks continued to expand. After 2017, the policy set the tone of “no speculation in housing and housing” and “fighting a tough battle to prevent and resolve major risks”. China opened a round of “deleveraging”. The traditional mode of economic growth and credit expansion was challenged, superimposed on the Sino US trade friction, credit continued to shrink, economic growth went down again, and the operation of the real economy was difficult. At the end of 2018, the policy shifted from deleveraging to stable leverage, the implementation of stability maintenance policies and the alleviation of trade frictions. The policy emphasizes supporting the development of private enterprises and the independent control of core technologies.
Through a retrospective study of history, Anxin Securities said that at the end of each round of A-share crash, there was an evolution process of “policy bottom – market bottom – economic bottom – profit bottom”. Most of the market bottom was between the policy bottom / credit bottom (the inflection point of social finance data) and the economic bottom (except for the “leveraged bull” in 2015), forming a positive relationship between social finance data and A-share valuation in history. Generally speaking, the evolution law from policy bottom to market bottom: policy bottom / credit bottom – market bottom (2.5 months away from the former) – economic bottom (4 months away from the former) – profit bottom (basically synchronized with or lagging behind the former for 3 months), that is, the current round of economic bottom is expected to appear in the second quarter.
Sealand Securities Co.Ltd(000750) believes that since 2022, the core factors of market adjustment have three aspects in turn: first, there are great doubts about the strength and grasp of China’s steady growth; second, there are concerns about the sharp tightening of the Federal Reserve; third, the disturbance of risk appetite caused by geographical conflict and the derivative risks caused by the protracted conflict, which are mainly reflected in the soaring oil price caused by sanctions and the expectation of global stagflation.
The meeting of the finance committee is a landmark event confirmed at the end of this round of policies. The high-level has reset the tone of hot topics such as macro-economy, monetary policy, real estate and platform economy. Some factors that trigger market adjustment have been positively responded by the regulators. Taking history as a mirror, after the confirmation of the bottom signal of the past few rounds of policies, there are traces to follow, whether it is the correction of too strict early regulatory policies or the overweight of stimulus policies in the monetary and fiscal fields. Therefore, under the background that the current economy has not yet stabilized, the subsequent regulators will still issue effective policy signals to improve expectations, such as the expansion of fiscal expenditure and the strengthening of quantitative monetary policy tools. On the whole, China’s economic rise and fall and policy advance and retreat generally show a “social dance” trend. When the economy is in a downward cycle, it is necessary for policies to increase care to achieve the bottom, but there is often a certain time lag from policy force to effect.
There is a high probability that the current market bottom will lag behind the policy bottom. At present, A-Shares are still at the bottom grinding stage. The confirmation of the market bottom signal needs to see the force of unconventional policies or the stabilization of the macroeconomic bottom, as well as the mitigation of overseas negative disturbances. So, what are the conditions for the formation of the market bottom?
Sealand Securities Co.Ltd(000750) believes that the first is the continuous development of unconventional policies, which has changed the direction of investors’ expectations and confidence, such as the continuous interest rate cut from February to March 2020, the unexpected reserve requirement cut in January 2019, and the launch of the “four trillion” fiscal stimulus in November 2008. Second, the macroeconomic bottomed out and stabilized, and the improvement in the certainty of profit expectation determines the reversal of the market, such as the phased recovery of the economy at the beginning of 2016 and the end of 2012.
Sealand Securities Co.Ltd(000750) said that the market bottom probability of this round will not coincide with the policy bottom. At present, A-Shares are still in the bottom grinding stage. First, China’s economic expectations are still uncertain, and the constraints that suppress economic stabilization, such as the decline of real estate stall, the spread of local epidemic and the risk of credit collapse, have not been substantially alleviated. Second, there is no sign of reversal or expected strong improvement of overseas shocks. Both geopolitical conflicts and the Fed’s interest rate increase and contraction tend to be long-term. Only when the full force of the policy leads to a consensus on the expectation of economic stabilization and the external negative disturbance is mitigated can the market be confirmed at the bottom.
rebound buy what
China Merchants Securities Co.Ltd(600999) the research on the historical bottom shows that after the market bottoms out, in terms of major indexes, the probability of excess returns from information technology, materials (cycle) and optional consumption is the highest in the three-month time dimension; The probability of obtaining excess information of science and technology in the last 6 months is the highest.
From the perspective of three months after the bottom, the industries with better performance are power equipment and new energy, agriculture, forestry, animal husbandry and fishery, building materials, computer, electronics, national defense and military industry, basic chemical industry and non-ferrous metals. These industries can be divided into three categories: power equipment, computer, electronics and military industry. These industries tend to grow, benefiting from the improvement of liquidity and risk preference; Construction materials, basic chemicals and non-ferrous metals, which are relatively cyclical, benefit from the economic improvement brought by steady growth; Agriculture, forestry, animal husbandry and fishery belong to a separate category, which benefits from the upward pig cycle after the improvement of demand.
The industries with poor performance are steel, transportation, public utilities, banking, architectural decoration, petroleum and petrochemical. The typical characteristics of these industries are undervalued and highly defensive. They often resist the decline in the stage of low market risk preference and have higher excess returns before the bottom. However, once the market bottoms out and enters the trend of attack, investors’ interest in these undervalued sectors will decline.
China Merchants Securities Co.Ltd(600999) believes that the operation of A-Shares has a cyclical law – every three to three and a half years, the growth rate of new social finance will turn positive, and A-Shares will enter the upward cycle within one quarter. The duration of the upward cycle is about two to two and a half years. With the decline of social finance growth and the deterioration of profits, A-Shares enter the downward cycle, which will fall for about half a year to one year.
The starting point of the last round of upward cycle is January 2019. CSI 300, CSI 500 and CSI 1000 peaked in February 2021, September 2021 and December 2021 respectively. The adjustment time of CSI 300 index has reached one year and one month, and the adjustment time of CSI 500 has reached half a year. The wandequan a index began to decline in December 2021, with a maximum decline of more than 20% for three months.
China Merchants Securities Co.Ltd(600999) believes that at present, A-Shares have begun to trigger the bottom signal again. From the perspective of credit cycle, it should be the starting point of another three-and-a-half-year upward cycle. At present, A-Shares are already the bottom area and are in the process of bottoming. Perhaps March 15 is the lowest point (the lowest point cannot be predicted). If the bottom signal mentioned above can be met at the same time, the bottom of A-Shares will be more solid, and A-Shares will usher in a more certain upward “perfect storm”, and the time window will be between mid April and mid May.
While A-Shares have bottomed out in the market, after the improvement of risk appetite, they will generally be arranged in two directions. Some investors focus on the attack areas of improving economic expectations and steady growth, including building materials with price elasticity, nonferrous metals and chemical industry; In addition, some investors are more likely to choose electronics, computers and military industry after bottoming out in the past seven times around the upward trend of science and technology after the improvement of liquidity. In addition, almost every agriculture, forestry, animal husbandry and fishery has obtained excess returns.
The government work report sets the GDP growth target of about 5.5% in 2022, which will rise significantly compared with the second half of 2021. Therefore, 2022 is likely to become a major year of steady growth (similar to 2007, 2012 and 2017). In the current situation, what can be determined is that the government expenditure has increased significantly. On the one hand, the steady growth force has led to the deterministic recovery of “real estate + infrastructure” investment. The growth rate of social finance is expected to rise significantly in the future, and the price of bulk commodities is expected to remain strong. Due to the existence of cost pressure, this round of steady growth is overweight, and the profits are more concentrated upstream, including petroleum and petrochemical, industrial metals, steel and cement Coal, etc. will have a stronger profit trend, and investors are advised to focus on it. In addition, the marginal relaxation of real estate policy will continue, the growth rate of social finance will continue to rise, and the undervalued combination of Bank + real estate will still be catalyzed by policy.
On the other hand, the increase of government expenditure will increase the demand for “new energy infrastructure” – Photovoltaic wind power energy storage and hydrogen energy, and the upstream of these new energy fields will benefit more. At the same time, the demand for digital infrastructure will also increase, forming demand support for IDC, big data cloud computing and other fields.
Generally speaking, the current trend of “demand comes from stable growth and profits go upstream” is very obvious. China Merchants Securities Co.Ltd(600999) it is suggested that investors layout all upstream links that benefit from the power of stable growth policy. There will be even better performance in the coming quarterly report season.
Sealand Securities Co.Ltd(000750) also believes that there are not no opportunities for A-Shares from the bottom of the policy to the bottom of the market. The sectors with the most logical fundamentals and the most deterministic performance are often the main line of the rise in this period, while the rebound of the oversold industry in the early stage is often unsustainable.
In the A-share market from the bottom of the policy to the bottom of the market in the past few rounds, although the yield of the broad-based index is still negative in most cases, and accompanied by the compensatory decline of strong industries, the stage with the largest decline slope of the market has passed, structural opportunities have begun to appear gradually, and there are not no investment opportunities in the whole market. The main line leading the rise in this period is often the sector with the most logical fundamentals and the most deterministic performance, rather than the industry with the largest decline in the early stage.
Sealand Securities Co.Ltd(000750) said that the main reason was that when the market was at the bottom grinding stage, investors’ sentiment and risk appetite were also at the absolute bottom. At the same time, funds favored the sectors with the clearest fundamentals and the least upward resistance. However, the early oversold industry needed repeated verification of data and more information to confirm the fundamental mitigation of early repression factors, so the rebound often did not have sustainability. For example, from February to March 2020, the TMT sector with the least negative impact of the epidemic led the market. From October to December 2018, small cap stocks benefiting from the “private enterprise rescue” of the policy were confirmed at the bottom before the whole a.
In terms of industry allocation, we focus on three investment opportunities from the end of this round of policies to the end of the market. First, post cyclical varieties that lag behind the changes of the economic cycle and can reflect inflation, including coal, petroleum and petrochemical, agriculture, forestry, animal husbandry and fishery, etc. Second, large financial sectors such as real estate with strong expectation of policy marginal relaxation and banks benefiting from the stabilization of the real estate chain. Third, the undervalued growth sector with sufficient early adjustment and current cost performance has begun to appear, including TMT, medicine and biology, etc.
YueKai Securities said that the market shock repair market is expected to continue, but the current window suggests emphasizing individual stocks over the index, the first quarterly performance window period, paying attention to the verification of fundamentals and the layout of the future market.
First, the main line of steady growth: select the targets with low value and high dividend cash flow. From the current economic operation, the effect of wide currency and wide credit is gradually emerging. The data show that the economy has achieved a good start from January to February, but the demand side is still weak, and the recent repeated epidemic has also had a certain impact on the economy in March. Therefore, in 2022, gdp5 Under the steady growth target of about 5%, the space for follow-up policies is expected to be improved, including monetary policy, fiscal policy and industrial policy. In the sector direction, the infrastructure real estate chain driven by the “old economy” and the new energy, integrated circuit, artificial intelligence and 5g driven by the “new economy” deserve attention. Light index and heavy individual stocks, and screen targets with low value, high dividends and good cash flow.
Second, the main line of inflation: under the pattern of global stagflation, it is expected that energy and other commodities will remain at a high level. From the perspective of the transmission mechanism of oil price rise, we can pay attention to the investment opportunities of three chains: first, crude oil and directly related products, second, middle and downstream chemicals, and third, it can boost the whole resource products. Under the demand of fat tail in developed countries + China’s demand for steady growth, the upstream resource products are expected to benefit from the support of the demand side. From the operating express of A-share listed companies from January to February, the profitability of resource products and industries in the industrial chain is excellent, far higher than that of consumer industries, and not inferior to the growth sector known for its high prosperity.
Third, the main line of cost performance: select the growth targets with PEG 1. The adjustment of track stocks in the early stage is relatively sufficient, and the market outlook reproduces the scarcity and high growth of cost performance, and long-term layout of advantageous industries. Recently, the national development and Reform Commission and the National Energy Administration jointly issued the medium and long term plan for the development of hydrogen energy industry (20212035). The document shows that by 2025, the number of fuel cell vehicles will be about 50000, a number of hydrogen refueling stations will be deployed and built, and the hydrogen production capacity of renewable energy will reach 1 China Vanke Co.Ltd(000002) 00000 tons / year. At present, many cities have passed the pilot and promoted the development of hydrogen energy track, and it is expected that wind power, photovoltaic The new energy industry will be planned to land on Changpo in succession. Advantageous industries with core competitiveness have better ability to resist risks and fluctuations. At present, it is suggested that investors pay attention to the verification of fundamentals, focus on the annual report and the first quarterly report, beware of poor performance expectations, and select some cost-effective growth targets with PEG 1.
