In the 2021 annual strategy outlook, we suggested that in 2020 or the end of the high volatility of a shares, the volatility of China's equity market decreased significantly in 2021, which verified our view of the 2021 annual strategy. The main reasons for the decline in the volatility of A-Shares in 2021 are the real exit of extensive counter cyclical regulation, the deepening of the institutionalization and internationalization of A-share investors, and the active tightening of the credit cycle (the simultaneous decline of social finance and credit spread).
For a long time, the equity market is a barometer of economic development, and its income is directly related to the growth rate of nominal GDP. In the case of stable volatility, the compound annualized rate of return of A-Shares may match the compound annualized growth rate of nominal GDP. The compound annualized rate of return from 2021 to 2030 is about 7.53%, which is a reasonable range for the annual rise of the A-share center.
There are three core factors of A-Shares around 2022. Under the combined action of these three factors, A-Shares may rise and fall and maintain low volatility.
The first is the process of counter cyclical regulation of force and wide credit. The bottom of the policy is often ahead of the bottom of the economy. Historically, the policy bottom generally corresponds to the bottom of a shares. At present, the downward pressure on the economy is increasing. RRR reduction is only the beginning of the counter cyclical adjustment policy. In the first quarter or the window of interest rate reduction and other policies, it supports the overall expansion of equity asset valuation and gives birth to the expectation of bottom profit.
The second variable is the periodic depreciation pressure of RMB. Foreign capital is an important incremental capital of a shares. Since the acceleration of internationalization of a shares, the RMB exchange rate is highly related to a shares. At present, the RMB remains strong, dominated by the purchasing power parity theory (high inflation in the United States and low inflation in China) and the equilibrium exchange rate theory (strong Chinese exports). However, as the interest rate increase and contraction table becomes clearer and the US shadow interest rate continues to rise, the influence of interest rate parity theory may become greater and greater (compression of interest rate difference between China and the United States).
The third variable is the change of residents' wealth structure and the issuance rhythm of public funds. The introduction of real estate tax will accelerate the tilt of Chinese residents' wealth structure to financial assets, especially equity assets. It is expected that the issuance of public funds will still maintain a high issuance scale in 2022 to provide more incremental funds for the capital market.? In terms of investment strategy, we believe that the value style in 2022 may have the basis of phased outperformance. The high-pressure real estate policy leads to pressure on the real estate sector, the financial sector holding real estate and the upstream and downstream sectors of real estate, which are highly consistent with the value style. The weakness of real estate related assets has led to the extremes of the income difference between growth and value in the past three years. At present, it is an important time point for marginal relaxation of real estate policy. With the possible upward interest rate under broad credit expectation, the value style has the opportunity to repair. We recommend over allocation value.
In terms of industry allocation, it is suggested to focus on four main investment lines: the first is the mandatory consumption sectors such as food, beverage, medicine, agriculture, forestry, animal husbandry and fishery with better performance in the period of economic downturn; the second is the banking, real estate and infrastructure sectors with reversed difficulties and serious oversold; the third is the national defense and military industry with high growth rate and strong certainty and an important direction of national development; the fourth is the new energy vehicles under the carbon neutralization sector, Photovoltaic and new materials track.
Relevant tracks in the fields of national defense, military industry and carbon neutralization have high growth and strong performance release ability, or usher in a structural market from the molecular end. But at the same time, its high growth may be suppressed by the upward interest rate. We should grasp the rhythm of interest rate and pay attention to the margin of safety.
