One week market view
Last week, A-Shares ushered in a slight balanced repair, mainly benefiting from the short-term positive progress of overseas conflicts and China’s policies to continue to strengthen the expectation of stable growth. The overall market sentiment tended to be stable, with a net inflow of 22.9 billion yuan in a single week, ending the net outflow of the previous three consecutive weeks. In terms of industry, the real estate industry in the direction of game policy increased the most, at 10.8%, and relevant sectors such as building materials and banks were also boosted. On the whole, we believe that the current market has entered the bottom grinding stage, and the steady growth policy helps stabilize the market’s short-term expectations. The CSRC’s revision of the provisions on overseas listing of domestic enterprises will help stabilize the expectations of overseas Chinese stocks. However, under the economic and policy game, the market volatility may still be high. It is suggested to pay more attention to the industries and individual stocks with policy overweight support and good performance in the first quarter, such as the steady growth sector Inflation sector and subdivided high boom growth sector. Specifically, the signals released by recent fundamentals and policies:
First, the economic boom continued to decline in March, mainly reflected in the drag of the epidemic and weak real estate demand. In March, the PMI of manufacturing and service industries both fell below the boom and bust line, 49.5% and 46.7% respectively, indicating that the economy weakened again, and the spread of the epidemic was a drag on consumption, enterprise construction and construction. In fact, compared with the previous outbreaks in China, the current round of epidemic spread involves a wider range of regions, including super first tier cities such as Shenzhen and Shanghai. The overall prevention and control is more difficult, and the resulting negative impact on economic activities will be greater than ever. Specifically, first, the shutdown rate of enterprises increased significantly. In March, the PMI production index decreased by 0.9 percentage points to 49.5% compared with the previous value. The national average blast furnace operation rate in March was 75.7%, which was 5 percentage points lower than that in the same period in 2021; Second, the operation of the service industry was blocked. In March, the expected index of new orders and business activities in the service industry decreased to 44.7% and 53.6% respectively, which was about 10 percentage points lower than that in the same period last year, and the intensity of cargo transportation was also lower than that in the same period last year. The vehicle freight flow index in March in China, Shanghai and Jilin were 99.7 and 61.5 respectively, down 2.6%, 6.5% and 42.3% respectively compared with the same period last year; Third, the demand for real estate is still weak. In March, the sales volume and sales area of the top 100 real estate enterprises decreased by 52.6% and 57.2% respectively year-on-year, with a further increase of 6.1 and 14.6 percentage points compared with February. In the same period, the PMI index of the construction industry also decreased by 2.6 percentage points to 57.5% compared with the previous value.
Second, active policies continued to focus on steady growth, and the loosening of real estate regulation policies further expanded. On March 29, the national standing committee pointed out that the downward pressure on China’s economy has further increased. It is necessary to put steady growth in a more prominent position. Policies to stabilize the economy should be implemented early and quickly, and measures that are not conducive to stabilizing market expectations should not be taken. Plans should be formulated to deal with possible greater uncertainty. It is expected that the introduction of active policies in the future will be accelerated; At the same time, the meeting proposed to make good use of government bonds, expand effective investment, and promote the construction of water conservancy, transportation, energy, ecological environmental protection, affordable housing projects and other projects. Infrastructure construction is still the key direction. In addition, the number of cities that have recently loosened the real estate regulation policies has further increased, including the cancellation of some purchase restrictions in Fuzhou, Fujian, the simultaneous cancellation of purchase and sales restrictions in Quzhou, Zhejiang, the complete abolition of purchase restrictions in Qinhuangdao, Hebei, and the proposed full liberalization of settlement conditions in Dalian, Liaoning, which will help boost the trading sentiment of the A-share real estate sector as a whole.
Third, the growth center of corporate profits has moved down and the structure has not been improved. The performance of the upstream sector is expected to increase significantly in the first quarter. According to the enterprise profit data released last week, the profits of above designated industrial enterprises increased by 5% year-on-year from January to February, lower than the annual growth rate of 34.3% in 2021 and the two-year compound growth rate of 18.2%. Structurally, the profit proportion of the upstream mining industry rose to 20.2%, a new high since 2013, while the profits of the midstream industrial intermediate products and equipment manufacturing industry were further squeezed. Considering that most commodity prices fluctuated at a high level in March, the performance of coal, petrochemical and other industries in the first quarter is expected to increase.
