The expected spread of the epidemic and the strict control of key cities have limited the resumption of manufacturing production and work in key cities, and cut off the flow of logistics and people in the surrounding areas
We believe that at this stage, the epidemic control has the greatest impact on the operation of manufacturing enterprises mainly in two aspects: the limited resumption of production in the manufacturing industry and the stagnation of regional logistics and transportation caused by the inconsistency of local control policies. The control cycle of epidemic situation is delayed within 1 month; The medium cycle dimension of epidemic control for about 2-3 months will have an impact on enterprise operation mainly from the supply side; The long-term cycle dimension of epidemic control for 1-3 quarters will have an impact on enterprise operation mainly from the aspects of demand and finance.
Because Shanghai has core enterprises and key layout in automobile, semiconductor, medicine, energy manufacturing and aerospace military industry, as well as the Yangtze River Delta composed of surrounding Zhejiang and Jiangsu, it is the economic center of East China. Due to the strict control brought about by the spread of the epidemic in Shanghai, as well as the stricter control of the epidemic in surrounding cities brought about by the spread expectation and regional interests, and the actual regional isolation from Shanghai, there has been a de facto separation of people and logistics. The shutdown in Shanghai has begun to affect the supply of the manufacturing industry chain in the whole Yangtze River Delta. Some industries with low inventory, such as automobile, electronics and other advanced manufacturing industries, have the risk of overall shutdown. Shanghai is also an important aviation and maritime port in China. The export and shipment of many manufacturing industries, imported raw materials and parts, imported equipment, etc. are delayed in Shanghai, which also leads to the stagnation of real delivery and procurement of the manufacturing industry in the Yangtze River Delta and even the whole country. Even if some manufacturing industries do not shut down locally, it also greatly affects the procurement, production and delivery arrangement of factories. Therefore, the operation of key manufacturing and transit logistics cities represented by Shanghai is stagnant. If the duration is prolonged, the impact on China’s manufacturing industry chain will be rapidly amplified, and the manufacturing commencement and delivery in normal operation areas will be impacted in the later stage.
We believe that the recent attempts of the Shanghai government to dynamically resume work and production under strict epidemic control and the accelerated construction and implementation of the national unified market at the level of the central government are expected to alleviate the market’s concerns about the three pairs of contradictions between the separation of people and logistics and local interests, epidemic control and maintaining growth, and opening to the outside world under the difference of internal and external epidemic control
It is conducive to the government’s exploration of the normal and controllable flow of people, and is conducive to the resumption of work in the near future. The opinions on accelerating the construction of the national unified market issued by the CPC Central Committee and the State Council on March 25, 2022, and the active promotion and implementation of the national unified market are the breakthrough direction for ensuring the smooth flow of cross regional logistics and people and the stable operation of the manufacturing industry chain under the condition of normalization and dynamic epidemic control in the future.
Impact of strict epidemic control in Shanghai on A-share market and analysis of recent manufacturing investment opportunities
To sum up, we believe that the performance of key manufacturing industries in the current market has overreacted to the relevant contradictions in China’s economic operation in the past two months. With the clear choice of relevant policies and measures of governments at all levels and the implementation of experiments, the corresponding pessimistic expectations are expected to ease and market confidence is expected to gradually recover.
Recently, the market risk appetite remains low, maintaining the game situation of stock funds. From the perspective of structure, the market still shows a trend of rapid rotation of rise and fall, killing the fall over the rise and making up the rise over the fall. This trend is expected to continue.
The strict control of the epidemic and the spread of the epidemic have exacerbated the market’s concern about the possibility of maintaining growth. The speculation that the first quarter report exceeded the expectation has come to an end, and the market’s response to the low expectation of the operation of the manufacturing industry in the second quarter continues, even masking the positive effect of the first quarter exceeding the expectation. In the medium term, the Russian Ukrainian war and the European energy crisis have exacerbated the market’s concerns about the dual carbon landing. In the past, some leading stocks in strong sectors may still have room and time for adjustment, and may still continue to decline, driving lithium batteries, new energy vehicles, photovoltaic and wind power sectors to continue to decline. The market is still at the end of negative feedback of pessimistic expectations. Judging from the overall valuation level of the sector and most of the subject matter, it has entered a reasonable range. However, from the perspective of capital behavior and expectation, the adjustment of strong sectors after chip loosening is more likely to end with oversold. Therefore, on the whole, we believe that there may be a wave of adjustment for strong sectors such as new energy, electric vehicles and semiconductors, which have increased too much in the past few years. In the past two years, the stock prices of military industry, auto parts, 5g communication, Internet of things and other manufacturing sectors with limited growth and reasonable valuation range have reflected overly pessimistic expectations and are expected to bottom out. At present, the track sector is suppressed by loose chips, and the growth protection sector is suppressed by the strict control of the epidemic and the logic of epidemic spread. The capital risk appetite and liquidity expectation should not be optimistic. It is suggested to focus more on certainty in the current market environment, We can focus on the investment opportunities at the manufacturing industry’s stage inflection point after the national logistics combing, the effect of Shanghai’s resumption of work and production and the social operation and Governance Logic of China’s normalization of epidemic control. In the medium term, we should continue to pay appropriate attention to the inflation logic, deterministic new demand and the oversold and anti pumping band investment opportunities of some manufacturing sectors.
Risk tip: the recovery progress of logistics flow in manufacturing industry is lower than expected, the market liquidity is lower than expected, the implementation effect of policies and measures is lower than expected, and the geopolitical conflict is higher than expected.
