Core view
Since the outbreak of the epidemic, China has always adhered to the "zero dynamics" strategy and made unswerving achievements. However, with the increasing concealment and spread of the virus, the difficulty of accurate prevention and control is also increasing. Especially after the inflow of Omicron virus strain, many cities in China have adopted strict static management to prevent the spread of the epidemic, which has a certain impact on economic and social production and life.
How to achieve a balance between the two goals of dynamic clearing and economic growth? By summing up more than two years of anti epidemic experience and combined with the high-speed transmission characteristics of Omicron virus strain, China has explored a new epidemic prevention mode - normalized nucleic acid detection, that is, through high-frequency and saturated nucleic acid detection, the epidemic situation can be found and extinguished in time at the first time. Even if there are sporadic epidemics, it is difficult to form a large-scale rebound, and the probability of strict static management in the whole city is greatly reduced.
Normalized detection and normalized growth. For some time to come, China will neither choose to lay flat for epidemic prevention, nor excessively stimulate and stimulate aggregate demand. Once aggregate demand expands rapidly under policy stimulus, it is easy to lead to a spiral rise in inflation, and CPI is likely to rise higher than expected. Normalized nucleic acid detection was carried out in major cities and port cities across the country. By paying a certain time and financial cost, people and things could flow freely, avoid urban shutdown, and make the economy return to the recovery track again. The economy bottomed out in the second quarter and reborn in the second half of the year.
In terms of equity allocation, we believe that the biggest expected difference lies in the personnel flow brought by normalized nucleic acid testing, and focus on the related aviation, airport, tourism, hotel, catering and other consumer industry chains. In addition, continuing to look at the multi stable growth chain, such as finance, real estate, construction and building materials, also suggests paying attention to the stabilization and upward growth stocks after the US bond yield peaked. In terms of fixed income, it is expected that the monetary policy will continue the combination of "wide money + wide credit". The yield of 10-year Treasury bonds fluctuated widely in the range of 2.7% - 3%, reaching a high of 3% in the third quarter.
It is expected that the marginal improvement of consumption and service industry will be the largest in the second half of the year, and the resonance between investment and industry will be upward
With the implementation of normalized nucleic acid detection, the certainty of consumption bottoming out and recovery is very strong. The service industry shows a restorative growth trend at the same time, maintaining the Nike trend of the economy throughout the year. The actual growth rate of GDP is expected to be 4.3%. We believe that the normalized nucleic acid detection is conducive to the accelerated improvement of covid-19 epidemic prevention and control situation, the consumption continues to converge to the pre epidemic level, and the marginal improvement of final consumption is significant. At the same time, we suggest that the focus on the investment side will continue the high landscape of the early stage, in which more urban renewal drives real estate investment, supply shortage and structural transformation are the double main lines of manufacturing investment, and infrastructure investment highlights the strength of policy driving. On the whole, normalized nucleic acid testing helps to coordinate epidemic prevention and control and logistics supply. It is expected that the consumption probability will continue to recover, and the confidence and expectation of market players will be gradually boosted.
Price differentiation, PPI down, CPI up
Geopolitical conflicts have led to tight global supply chains, and energy and metal prices remain high. However, with the gradual withdrawal of the global countercyclical policy, the momentum of overseas economy is down, and the speed of demand expansion is slow. We expect the downward trend of PPI to remain unchanged, but the decline rate is slowing down, and it is expected that the center of the whole year will be 4.9%. In terms of CPI, pig prices ushered in an upward cycle, and the recovery of consumer demand led to the repair of core CPI. CPI maintained an upward trend, which is expected to increase by 2.3% in the whole year. PPI down and CPI up, the scissors difference between the two will gradually narrow, and is expected to reverse in September.
In the second half of 2022, the characteristics of discretionary monetary policy are obvious, and the RMB exchange rate is reversed
Combing the final objectives of monetary policy in the second half of the year, we believe that there are multiple uncertainties in the trend of various objectives, and there are some contradictions or conflicts. The decision-making of monetary policy is more difficult, which will show the characteristics of discretionary choice: in the short term, in order to hedge the impact of the epidemic, the central bank's monetary policy takes steady growth and employment as the primary goal, maintaining stability and slightly easing; However, the balance of payments in the second quarter has entered an important observation window period. Once it faces the risk of touching the warning line, it will curb the easing of monetary policy. In addition, with the large-scale monetary easing, the upward leverage ratio of bond market has also become a marginal variable; In the third quarter, pay attention to the July survey unemployment rate data released in mid August to judge whether the employment pressure is relieved. In the third quarter, focus on prices, especially the risk of CPI rising above 3% in September. If the unemployment pressure is relieved and the inflation pressure is rising, monetary policy may turn to marginal tightening. In addition, there are demands for maintaining stability before and after the 20th National Congress, and the policy environment tends to be mild and stable. Protecting market players and preventing major risks are still the focus of the policy. Monetary policy tools will still focus on structural regulation. In terms of data performance, it is expected that the annual new scale of credit and social finance will be 22 trillion and 36.2 trillion, with year-end growth rates of 11.4% and 11% respectively. It is expected that the growth rate of M2 will be 9.2% at the end of the year, and the growth rate of M2 and social finance will be slightly higher than the growth rate of nominal GDP to achieve basic matching. In terms of exchange rate, the US dollar is expected to peak and fall in the second half of the year. Combined with the strong recovery of China's economic fundamentals, the RMB exchange rate is expected to rise back to 6.3.
Fiscal policy adapts to economic development and epidemic prevention and control
The Politburo meeting set the tone of "epidemic prevention, stable economy and safe development". We believe that the operation and implementation of fiscal policies in the second half of the year should adapt to economic development and epidemic prevention and control, focus on epidemic prevention and control, stable growth and stable employment, accelerate the implementation of a series of fiscal and tax policies that have been issued, actively plan incremental policy tools on the basis of existing policy tools, and strengthen contingent regulation, Grasp the advance and redundancy of the policy under the goal orientation. From this perspective, we believe that the fiscal policy in the second half of the year will focus on three aspects: 1) do a good job in the financial guarantee of normalized nucleic acid testing, and there is room for the fiscal budget and medical insurance fund to issue a new round of special anti epidemic treasury bonds when necessary. 2) Give full play to the driving role of government investment and government consumption to serve the goal of steady growth. 3) Make good use of transfer payments, strengthen grass-roots financial resources, implement the three guarantees expenditure and a series of tax and fee reduction policies, and stabilize the main body of the market and ensure employment.
Overseas economic policies focused on dealing with stagflation. The US economy fell quarter by quarter. The Fed's Q3 was tighter than expected and Q4 gradually widened
In the United States, corporate capital expenditure and consumption momentum will gradually weaken. It is expected that the year-on-year growth rate of U.S. GDP will decline quarter by quarter, with an annual growth rate of 2.6%. The former comes from the weakening of the drive for private investment after the end of the current replenishment cycle; The latter comes from the overdraft of consumer demand for durable goods and the exhaustion of upward repair space in the service industry. In terms of employment, after the gradual normalization of the epidemic, the employment recovery in the United States is obvious. In the future, the labor supply will increase, the recruitment demand will decline, and the unemployment rate may bottom up in Q3 and return to around 3.8% at the end of the year. After the normalization of the Russian Ukrainian crisis, oil prices fell slightly, and the growth rate of US inflation is expected to return to the range of 5.5% - 6.5% by the end of the year. Focus on the two major upward risks of inflation proposed by the Federal Reserve's interest rate meeting in May, be vigilant against the intensification of tightening expectations caused by the deterioration of risks, and do not rule out the possibility of raising interest rates by 75bp before neutral interest rates; After touching the neutral interest rate, the interest rate increase may be gradually suspended, and the table contraction is expected to last for the whole year.
In Europe, under the normalization of the Russian Ukrainian crisis, the decoupling of Russian and European energy intensifies the pressure of stagflation in Europe (in addition to the current crude oil and coal, the possibility of further decoupling of natural gas is not ruled out). The single target value is that the European Central Bank will raise interest rates to deal with inflation.
In Japan, the sluggish demand makes it difficult for inflation to rise. The probability of the Bank of Japan turning to interest rate hike under inflationary pressure during the year is small, but we need to pay attention to the reflection of the Bank of Japan on the yen exchange rate.
The second half of the year is strategically optimistic about the A-share consumer sector, and the yield of 10-year Treasury bonds is expected to fluctuate after Q3 peaked
In terms of equity, it is expected that A-Shares will show a structured market in the second half of the year. With the large-scale promotion of normalized nucleic acid detection, the probability of people flow and logistics will be restored to the activity level from January to February this year. We will focus on the travel chain, including hotels, catering, aviation, etc.
In addition, we continue to focus on multi stable growth chains, such as finance, real estate, construction and building materials. We suggest paying attention to relevant defensive allocation opportunities. In addition, we once again emphasize our concern about the stabilization and upward trend of growth stocks after the US bond yield peaked. In terms of fixed income, we insist that credit bonds are superior to interest rate bonds, and the credit interest margin is generally in a narrowed range in the second half of the year. We judge that the monetary policy will continue the combination of "wide money + wide credit", superimposed on the subsequent rise of nominal GDP. The long-term yield is expected to reach a high of 3.0% in the third quarter. After that, the yield of 10-year Treasury bonds fluctuated widely in the range of 2.7% - 3.0%, and the yield curve returned to steepness.
US bond yields and US dollar Q3 turned, and US stocks Q4 rose
In terms of US bonds, the deterioration of inflation expectations leads to the increase of tightening expectations, which may further promote the yield of 10-year US bonds to rise to 3.5% in Q3, and may fall below 2.5% at the end of the year. The driving factors include the cooling of inflation expectations, the decline of US economic growth and the retreat of tightening expectations after the Federal Reserve adjusted its monetary policy position.
In terms of U.S. stocks, the overall trend of the Dow and NASDAQ is expected to fluctuate widely in Q3 (tightening and recession expectations are repeated), and the upward NASDAQ in Q4 is better (tightening expectations retreat). In terms of the US dollar index, before the Fed's policy interest rate hits a neutral level, tightening expectations may still further drive the US dollar up to around 105. At the end of the year, the US dollar index is expected to fall to around 98-100. In terms of commodities, the price center of oil distribution is expected to be around us $95 in the second half of the year; The focus of grain is on the varieties greatly affected by the Russian Ukrainian crisis, such as grain, corn, etc. In terms of gold, the overall price is expected to rise in the second half of the year, and London gold may hit the previous high of US $2070 again. Mainly benefited from the decline in the real yield of the US dollar and 10-year US bonds.
Risk tip: the difficulty of epidemic prevention and control exceeded expectations, and the geopolitics of China US game and Russia Ukraine conflict exceeded expectations
First, the epidemic prevention and control is more difficult than expected, which may increase the pressure of global stagflation and lower than expected economic growth in China in the second half of the year. Second, the intensity of the game between China and the United States is higher than expected. 2022 is the year when the United States wins the election. In order to improve the election situation, the United States may find it difficult for China before the election (November 8) and take it as the starting point to improve the election situation. Therefore, we should be vigilant against the risk of the periodic intensification of Sino US friction, affecting risk appetite and impacting asset prices. Third, the escalation of the conflict between Russia and Ukraine exceeds expectations, which may lead to more serious stagflation pressure around the world, and then impact asset prices.
