Core view
Relative return of construction stocks from the perspective of cycle: through combing the trend of construction stocks and macro and industrial environment in each stage from 2000 to 2022, we find that both the output value of construction industry and the periodic fluctuation of construction stocks are basically consistent with China’s investment cycle. The output value index of construction industry is cyclical, but it is not consistent with the relative return trend of construction stocks. Comparing the relative return and macroeconomic cycle of construction stocks after 2000, it is observed that the absolute return of construction stocks has a significant periodicity, but the relative return reflects a certain counter periodicity and independence in some periods.
The government’s investment willingness and investment ability are the key indicators affecting the relative return of construction stocks: the construction industry is an industry that materializes the investment in fixed assets into physical assets, and the government’s investment willingness and investment ability play a leading role in the development of the construction industry. We believe that at present, fixed asset investment is still the main driving force driving China’s economic growth and the most direct and effective means to maintain economic growth within a reasonable range. Investment recovery will become an inevitable trend and the construction industry is expected to continue to benefit.
There is still enough potential space for infrastructure investment: on April 26, 2022, when Xi Jinping presided over the meeting of the central financial and Economic Commission, he stressed that it must be recognized that China’s infrastructure is not adapted to the needs of national development and security, which once again shows that China’s infrastructure task is far from being completed. Although the total amount of infrastructure in China leads the world, there is still a shortage of per capita. At the same time, the regional distribution and structural distribution are uneven, which means that the demand for “making up for weaknesses” is still strong.
The central government has a strong willingness to invest in infrastructure and awaits the introduction of follow-up policies: investment willingness refers to the government’s willingness to promote economic growth through infrastructure investment. From the recent statements, the government’s willingness to invest in infrastructure is very strong.
However, when implemented locally, the supervision of local financing platforms is still strict, and the willingness of local governments to carry out infrastructure investment is relatively low from the perspective of avoiding risks. Subsequent relevant policies are expected to accelerate the introduction, appropriately encourage local reasonable financing and support local governments to carry out infrastructure investment.
The supporting role of special bonds has been significantly enhanced: in terms of special bond issuance, the issuance and use of special bonds this year started early, moved quickly, and the progress is significantly faster than that in previous years. By the end of March 2022, all provinces had issued about 1.25 trillion yuan, accounting for 86% of the amount issued in advance; Financial departments at all levels have allocated 852.8 billion yuan of bond funds to project units, accounting for 68% of the newly issued special bonds. In terms of the use of special bonds, with the policy support of accelerating the issuance, simplifying procedures and ensuring the use of energy, it is expected to drive the recovery of infrastructure investment.
Risk tips: 1. The introduction of policies is not as expected; 2. Repeated outbreaks have led to the deterioration of local finance; 3. The macro economy continued to decline.
Investment suggestion: the “steady growth” of infrastructure is far from over. Pay attention to the leaders of central enterprises. In the medium and long term, we may stand at the starting point of a new round of construction cycle; In the short term, “steady growth” will continue to promote the implementation of a series of major projects. State owned and central construction enterprises have strong financial strength and rich construction experience. They have the advantages of fast start-up of projects and high project quality. They are expected to benefit from the current round of infrastructure cycle to the greatest extent. Highlight China Communications Construction Company Limited(601800) , China Railway Group Limited(601390) , China State Construction Engineering Corporation Limited(601668) .
