Core view:
As the market gradually digested a series of interest rate hikes recently launched by the Federal Reserve to cool inflation, US bond yields began to fall this week. In our view, consumer prices will tend to be moderate this year. In addition, the economic momentum will gradually slow down with the Fed’s interest rate hike, and the hawkish position of the Fed is expected to change. After the gradual landing of overseas tightening boots, A-Shares will return to the logic of China’s economic fundamentals.
By comparing the data of real estate sales and construction during the two outbreaks, the year-on-year growth rate of corporate loans, the year-on-year growth rate of unemployment and exports, we find that in this round of recovery cycle, the economic environment outside China is worse than the recovery after Wuhan epidemic in 2020. This means that the trend recovery of this round of A-Shares may need more support from stable growth policies. Although there is room for oversold rebound in short-term A shares, the trend may not be like the V-shaped reversal in March 2020. The greater probability is to first return to the level before the current round of epidemic, and then gradually rise.
Since this year, regulators have frequently issued policies to protect the economy. With the gradual easing of the epidemic in China and the recovery of enterprise production and operation activities, the financing demand of the enterprise sector is expected to be boosted to a certain extent with the reduction of the five-year LPR. However, based on the fact that the economy was in a downward cycle before the current round of epidemic, we expect that the trend recovery of A-Shares may need more support from stable growth policies. After the improvement of the epidemic situation, the supply and demand of real estate may take longer to repair gradually.
When the current valuation is equally cheap, the growth rate of short-term performance will become the key factor to win. By combing the results of the first quarterly report, we found that due to the rise in commodity prices caused by the conflict between Russia and Ukraine, the profit growth of upstream resource products is faster, and the profit of the middle and downstream manufacturing industry is under pressure. In the short term, with the support of demand, the process of profit distribution to the upstream has not ended, and the profits of the upstream resource products industry still have a certain toughness. The profits of the middle and lower reaches of the manufacturing industry may still be under pressure under the influence of high costs.
Investment suggestions:
At present, the epidemic in China has been gradually controlled, the market’s expectation of the Fed’s interest rate increase is close to the peak, and the impact of Russia and Ukraine on the capital market is also passivating. With the sustained development of the steady growth policy, investors’ confidence in the repair of economic fundamentals has been boosted. Based on the fact that asset prices in most industries have fully taken into account adverse factors outside China and the valuation is at the bottom of history, the market has rebounded recently. However, the restoration of economic order will not be achieved overnight. The challenges faced in the post epidemic recovery stage of this round of Shanghai epidemic are more severe than those in 2020. The real estate has not improved significantly, which has dragged down the prosperity of upstream and downstream enterprises. The employment problem needs to be solved urgently. The overseas supply chain has not been restored, and the post epidemic recovery may require more patience. A shares may slowly rebound to the pre epidemic level. Therefore, in the short term, the value will continue to dominate until the steady growth policy is fulfilled. In the direction, it is suggested to pay attention to: 1 Transportation, energy, water conservancy, industrial infrastructure, urban infrastructure and other areas with the most definite steady growth. 2. Investment opportunities for the main line of epidemic recovery and resumption of work and production, such as leisure services, food and beverage, electrical equipment, etc. 3. Against the background of rising global inflation, the gap between supply and demand is in the corresponding material sectors such as coal and non-ferrous metals.
