Behind the adjustment: the plate with high growth rate and independent of the assumption of economic aggregate recovery led the decline. This week (20210104-20210107), there was a significant adjustment in the market, and the gem index led the market. An obvious feature is that the sectors with high expected profit growth and independent of the assumption of economic aggregate recovery led the decline, such as national defense and military industry, electronics, power equipment and new energy. We have previously warned investors of the risk of market adjustment in several reports and expressed caution about the cross year market and spring agitation. The steady-state structure of the market over the past year is being impacted. The disturbance will continue in the short term, but hope is brewing.
High growth rate does not mean everything. We should re-examine our ability to understand the future. As an important indicator of short-term prosperity, profit growth has been considered by most investors as the most important standard for stock selection in the past three years. The investment strategy of "growth determines everything" has helped some investors get rid of their concerns about valuation and obtain periodic excess returns. At present, the biggest confusion in the market is that the future "growth rate" is still very high, but why does it fall. We provide some thoughts: (1) historically, the higher the profit growth rate, the better the stock performance. From 2021 alone, the relationship between profit growth rate and rise and fall in secondary industries is very discrete. Biomedicine and computer software in secondary industries are counter examples of high growth rate but low rise; (2) From this point of view, the unexpected growth of some boom tracks in 2021 may be the source of this year's stock price excess return, not the high growth itself; In the power to lead the market, we found that to lead the market for three consecutive years, we still need to return to the effective improvement of roe level; (3) Historically, industry analysts\' expectations of the net profit of the growth sector deviate greatly and tend to overestimate for a long time. After a single company achieves high growth in one quarter, the probability of maintaining the growth advantage (becoming the top 30% stocks) in the next three quarters has been lower than 26%. Without valuation protection, the expected rate of return of "good can be better" may not be rich.
Historically, institutions have not always pursued high growth assets. Some investors attribute the recent market adjustment to the floating profit cashing of some insurance capital institutions. The implicit expectation is that they can survive the disturbance caused by the transaction by just sticking to it. However, the actual situation is that institutions do not always choose assets pursuing high growth rate. In the environment where the prosperity begins to spread, high growth rate is not the first appeal of institutional investors, More cost-effective assets are the allocation direction: Historically, when the prosperity of all a began to rise, both active partial equity funds and northbound investors will reduce the requirements for portfolio growth in exchange for more reasonable valuation. Now it is the expected deduction stage, not a simple "floating profit cashing". On the other hand, since September 2018, the synergy of Chinese and American stock market styles has increased. At present, overseas style switching is affecting A-Shares through investors going north. Considering that: (1) the financing cost of global transaction funds is linked to the real interest rate of the United States. Regardless of "true or false foreign capital", under the tightening trend of the Federal Reserve, the probability of significant fluctuation of the above funds is increasing, and the sectors greatly affected are mainly concentrated in the growth sector (food and beverage, electronics, computers, etc.); (2) U.S. stocks with continued recovery, rising inflation and rising interest rates are more likely to have a dominant value style, and the possibility of global value resonance is increasing. In fact, recently, the value style of the Chinese and American stock markets has begun to significantly outperform the growth style. In the funds going north, even the allocated funds have reversed. We believe that this change will continue in the future.
Correct and orderly switching: the probability of stabilization and recovery of future demand is increasing. In the long-term dimension, the value outperforms the growth with directional certainty. However, it is still in the "expected deduction" stage, and it will take time for the cohesion of new market consensus. Growth investors can wait for a good switching opportunity, and value investors should also grasp the most certain path in demand recovery. At present, in terms of reducing the cost of energy and carbon neutralization, China obviously has stronger execution and determination than overseas, which will benefit the varieties whose cost depends on China's energy and environment (such as electrolytic aluminum and coal chemical industry). The constraint of inflation in the recovery of demand should not be forgotten, which is an opportunity and greater challenge in the future. We recommend nonferrous metals (aluminum, copper), crude oil chain (oil service, oil transportation), real estate, banking, steel, coal and construction. The theme recommends Rural Revitalization (county consumption, agrochemical industry and seed industry).
Risk tip: carbon neutralization policy restrictions are relaxed; The implementation of steady growth policy is less than expected; Measurement error
