On January 10, at the media meeting of the 22nd UBS Greater China seminar, Fang Dongming, China director of UBS’s global financial markets department, said that despite great uncertainty in geopolitics and some industry policies in the past year, the direction of foreign capital’s layout of A-Shares and taking root in China has not changed. Moreover, some foreign investment in A-Shares has increased significantly in China. He believes that this trend will continue in the future. Meng Lei, China strategy analyst at UBS Securities, estimates that the inflow of foreign capital into A-Shares will reach 300 billion yuan in 2022. After the adjustment in 2021, he believes that consumer stocks will turn for the better in 2022. Under many uncertainties, this is a relatively certain opportunity in the medium-term of the A-share market. In the second quarter, the large consumption sector may outshine others.
in 2022, China’s real GDP growth is expected to be 5.4%
UBS estimates that China’s real GDP growth in 2022 will be about 5.4%, slightly higher than the consensus expectation of the market. The reason is that UBS expects that after the second quarter, under the premise of effective control of covid-19 epidemic, China’s travel restrictions will be slightly relaxed.
The real GDP growth rate of 5.4% takes into account the drag on the economy in the real estate industry. This is the most concerned variable of China’s economy in 2022. According to Meng Lei, real estate sales will decline by about 10% year-on-year in 2022, and real estate investment will decline by about 5 points. This forecast has included the relaxation of real estate policy. Changes in the real estate and home appliance industries will bring higher relevance to the real estate industry.
Meng Lei added that the slowdown in economic growth will not have a particularly big impact on corporate profits. Taking the CSI 300 index, one of the A-share indexes most concerned by foreign institutions, as an example, he expects that there will be 10% upward space for the CSI 300 index in 2022, of which 8% will come from the growth of corporate profits and 2% from valuation expansion.
consumer stocks “return of the king”
Meng Lei believes that the market style will change in 2022, and consumer stocks will usher in performance opportunities. On the one hand, steady growth and policy promotion bring growth opportunities to consumer enterprises; Second, in the context of economic slowdown, consumption still has a certain stability and certainty of profitability.
Will the uncertainty of the epidemic suppress the performance of consumer stocks? Meng Lei doesn\’t think so. He explained, “in the first half of 2020, consumption is the best performing sector. In my opinion, the outbreak and rebound of the epidemic are not the core factors that completely drive the stock price trend of consumer stocks, but the difference between the profitability of the consumer sector and the overall market.”
outstanding performance growth or driving force for style switching
Source: Meng Lei ppt
Meng Lei believes that the performance growth of the consumer sector in 2022 will significantly exceed the overall market, which provides a driving force for the style switching of the A-share market.
He believes that in the past two years, the style transformation of the A-share market has repeatedly verified the above logic.
In the environment of almost zero overall market profit growth in 2020, the food and beverage industry achieved a profit growth of 16%, which explains the excellent performance of consumer stocks in 2020. The story reversed in the first half of 2021. Due to the impact of low base, the overall profit of all A-Shares increased by 44% in the first half of 2021. Under this background, the profit of food and beverage increased by 17% in the first half of 2021. Compared with the 200% and 300% growth of some cyclical stocks, this profit growth is unattractive. This also explains why investors prefer cyclical or strong growth new energy companies in the second quarter.
Based on the above logic, the profit growth of all A-Shares in 2022 is expected to be 8%. If consumer stocks have more than 15% profit, investors will pay attention to it again under its outstanding performance.
China Merchants Securities Co.Ltd(600999) Zhang Xia, chief strategic analyst, has also analyzed A-Shares with similar logic. He once pointed out in a widely circulated report that the root cause of the collapse of the group is the emergence of sectors with better performance.
Source: China Merchants Securities Co.Ltd(600999) Research Report
When the A-share market moved from finance to consumption in 2009, Zhang Xia explained that since 2009, although there has been a huge amount of credit, which makes people habitually increase their positions in finance, the situation seems to have changed from quarter to quarter. This time, the performance of the financial sector has not risen sharply as expected, but the performance of the consumer sector has warmed up rapidly, It has become the fastest growing sector after 2009.
Moreover, for about four years from 2009 to 2012, the performance growth ranking of consumption has always been the top two, and the expected performance explosion of the financial sector is only a flash in the pan. Consumption is still the fast-growing consumption, but finance is no longer the high-growth finance. Therefore, looking back, the third quarter of 2009 became the starting point of the excess return of the consumer sector.
position adjustment of public funds or trigger market style switching
Meng Lei believes that the position adjustment of public funds may trigger the above style switching. He believes that there is room for public funds to increase their positions, whether in food, beverage or household appliances.
First, public funds have significantly reduced their positions in consumer stocks in the past three quarters. Secondly, public funds have significantly increased their positions in the past three quarters, favoring cyclical material stocks, including steel, coal and nonferrous metals, chemical industry, etc. However, it is expected that there will be different degrees of fine-tuning in materials stocks this year. In this context, foundations that prefer materials began to slowly switch styles, looking for transactions that have profit stability and benefit from steady economic growth, or accord with the most clear one of multiple main lines. In the short term, real estate and infrastructure may be repaired in terms of valuation. UBS recommended balanced allocation in the first quarter. After the second quarter, the plate of large consumption may stand out.
“We predict that about 300 billion yuan of foreign capital will enter A-Shares this year. A shares have a lot of assets that benefit from China’s stable growth policies, including high-end manufacturing, new energy and some traditional consumer goods industries. Foreign capital has been actively flowing into A-Shares in the past three to five years. Generally speaking, we are quite confident in foreign capital inflow.” Meng Lei introduced.
In terms of industry configuration, in addition to over allocation of food and beverage and household appliances, Meng Lei also suggests over allocation of auto parts, power batteries, renewable energy / ubiquitous power Internet of things and other related industries; Low allocation basic materials, coal, building materials / furniture, textile and garment, real estate and other industries.
Source: Meng Lei ppt
(source: China Fund News)
