The trend improvement of local epidemic situation and the joint force of policies began to appear. The improvement of fundamentals is expected to drive the medium-term repair of A-Shares for several months. At present, it is still in the initial stage. The market rhythm is characterized by slow rise, and the four main lines of structure continue to rotate. In terms of trend, the impact of China’s local epidemic situation has improved. The resumption of work and production and the resumption of business and market will be gradual. The implementation of steady growth policies takes into account the density and intensity. The resultant force of policies begins to appear. After China’s economy has reached the low point in April, it is expected to return to the good trend month by month in May, and the growth rate of A-share earnings will also pick up after bottoming in the second quarter. In terms of rhythm, this round of repair market is characterized by slow rise. At present, it is still in the initial stage. Epidemic prevention and control and resumption of work and production are a gradual process, and external disturbances have not been completely eliminated. Although market sentiment has been repaired, it is still low, institutional positions are still low, and the inflow rate of incremental funds is relatively slow. Structurally, the four main lines continue to rotate. It is suggested to firmly lay out the two main lines of modern infrastructure and real estate throughout the year, continue to focus on the main line of resumption of work and production in the quarter, and pay attention to the main line of consumption restoration in the month.
fundamentals are expected to improve
drive interim repair of A-Shares lasting several months
1) the impact of the local epidemic situation in China has improved, and the resumption of work and production and the resumption of business and markets have been gradual as of May 21, the number of newly diagnosed cases (including asymptomatic infections) in China fell further from 2062 last week to 1060 this week; The number of provinces with newly confirmed cases fell from 25 to 20 in the past 14 days; The number of medium and high-risk areas in China fell from 100 to 64, and the impact of local epidemic in China has improved. The vast majority of regions in Shanghai have achieved relatively stable and continuous social clearance. The number of new local positive infection cases (excluding the outcome) on Sunday has decreased by 53% compared with last week. The process from resumption of work and production to resumption of business and market will be steadily promoted in stages; At the same time, the number of daily increasing Yang sexy infections in Beijing is stable at about 50 ~ 70, with strong overall controllability. In addition to Shanghai, the current freight logistics data of Zhejiang, Jiangsu and Anhui have been significantly repaired compared with the same period in 2021. It is expected that a large-scale resumption of work and production in the Yangtze River Delta can be expected after the end of May.
2) the implementation of the steady growth policy takes into account the density and intensity, and the policy synergy begins to appear 4 the meeting of the Political Bureau of the CPC Central Committee on April 29 marked the intensive implementation of this round of steady growth policy; On May 11, the national Standing Committee stressed that fiscal and monetary policies should be guided by the priority of employment. Tax rebates, deferred payment of social security fees and reduction of financing costs all focus on stabilizing market players and jobs. First of all, on May 20, the central bank lowered the five-year lpr15bps, marking the beginning of this round of intensive steady growth policy. The focus of monetary policy has shifted from loose currency to broad credit. It is expected that there will be room for reserve requirement reduction and LPR interest rate reduction in the rest of this year. Secondly, the real estate policy has also made further efforts. On the enterprise side, regulators encourage credit risk mitigation tools to be applied to the financing of private real estate enterprises. Longhu, country garden and Midea real estate announced the bond issuance plan this week; On the demand side, it is expected that the decline in mortgage interest rates will promote the recovery of real estate sales in the third quarter. Finally, the consumption stimulus in April was mainly consumption vouchers. Since May, the national Standing Committee and the central bank have stated on different occasions to promote the continuous recovery of consumption. It is expected that the targeted subsidies for the consumption of large durable goods are also the potential direction of the policy.
3) after China’s economy has crossed the low point in April, it is expected to return to the good trend month by month in May, and the profit growth rate of A-Shares will also rebound after bottoming in the second quarter on the one hand, the local epidemic relief and resumption of work and production have improved the conductivity of the policy. The national highway vehicle freight index has returned to the level before the global static management of Shanghai at the end of March. With the intensive implementation of the steady growth policy, the policy synergy begins to appear. The probability in April is the low point of the annual economic operation, and the subsequent macro-economy will return to the good trend month by month. On the other hand, the first quarterly report of A-Shares mainly reflects the suppression of high raw material prices on midstream profits and downstream demand, and has not yet reflected the negative factors of the epidemic blocking transportation. It is expected that A-Shares in the second quarter will focus on the negative impact of high raw material prices + decline in operating rate caused by local epidemic + weakening of demand side, superimposed with the high base effect. It is expected that the second quarter report disclosed from July to August this year will become the bottom of this round of profit cycle, and the structurally “stable growth” favorable industrial sector will still contribute to the main profit increment from 2022q2 to Q3 local epidemic trend improvement and policy synergy began to appear. It is expected that the improvement of fundamentals will drive the medium-term repair of A-Shares for several months
is still in the initial stage of the market
rhythm is characterized by slow rise
1) the trend of fundamental restoration is clear, but the epidemic prevention and control and resumption of work and production are a gradual process first of all, the mitigation of the epidemic and the resumption of work and production are not achieved overnight. Taking Jilin Province as an example, it took 28 days from the social clearance to the first absolute number of cases. From the perspective of vehicle freight index, the road freight index of Jilin was only 10% of the pre epidemic level at the lowest point, only 19% at the time of social clearance, and then 50% of the pre epidemic level after 24 days. Secondly, after the current round of local epidemic, the effect of the new combination of normalized nucleic acid detection and “multi code integration” and other epidemic prevention measures needs to be observed. At present, many cities require nucleic acid detection with a cycle of 2-7 days for entering public places, and “multi code integration” can also greatly improve the efficiency of flow reconciliation and control. Positive cases have been seen in Hangzhou, Shenzhen and Guangzhou. Finally, the improvement of fundamentals by the resumption of work and production and the implementation of policies ultimately need to be verified by financial reports and macro data. The medium-term repair track of A-Shares is expected to fluctuate and rise slowly with the mutual verification of fundamental expectations and data.
2) the impact of RMB devaluation and US dollar tightening on A-Shares has declined significantly, but has not been completely eliminated recently, the exchange rate of RMB against the US dollar has risen with the improvement of China’s fundamental expectations, cross-border capital flows have remained stable, and the impact of the tightening of the US dollar on A-Shares has been significantly attenuated. The correlation between the Fed’s interest rate hike and the rise of US bond yield and A-Shares comes more from the game behavior of Chinese investors based on macro logic. Some speculative funds sold stocks because they were worried that the rise of US bond yield would lead to the outflow of foreign capital and the “killing valuation” of growth stocks. Therefore, the correlation between the rise of US bond yield and the decline of A-Shares appeared during the downturn of specific market sentiment. This game behavior weakened significantly after entering may, This is also an important reason why A-Shares have risen independently of overseas markets since May. At the same time, the Federal Reserve’s expectation of extreme tightening basically fell, and the impact of dollar tightening on A-Shares decreased significantly, but it was not completely eliminated.
The market expects that the five fed interest rate meetings to be held this year will increase the interest rate by about 175bps, and the federal fund target interest rate may increase the interest rate to about 2.75% this year. The meeting rate in June and July will increase the interest rate by 50bps, and the table contraction will start in June. It is expected that the tightening of the US dollar will not change the medium-term repair trend of a shares, but the intensive landing period of its tightening policy will increase the capital game, thus affecting the pace of repair.
3) although the market sentiment has been repaired, it is still low, the institutional position is still low, and the incremental capital inflow rate is relatively slow first of all, the net inflow of allocated foreign capital in April and may (as of May 20) was 7.8 billion yuan and 10 billion yuan respectively, which has fully “made up” the scale of phased net outflow in March. With the RMB exchange rate passing through the window with the greatest depreciation pressure and rebounding in the short term, the outflow of transactional foreign capital has also improved significantly recently, with a significant inflow of 11.4 billion yuan on May 20 alone. Secondly, the issuance of equity public offering products continues to maintain a low level, but the net application and redemption of stock products has gradually stabilized in the past few weeks. Even 6% of the net subscription has occurred under the rising market this week, and the overall capital flow of public offering funds has remained stable. Thirdly, in terms of institutional positions, the positions of small and medium-sized private placement have rebounded to 67% from 65% after rapid position reduction, while the positions of active public offering products have declined slightly month on month in the past week. Finally, the transaction proportion of two financial transactions sensitive to risk appetite is still at a low level of 7.2%, and the financing balance is very stable. The last Sunday has not changed by more than two thousandths. In terms of market temperature indicators, the CSI 300 / gem index has recovered from the low point of 4.2/0.8 on April 26 to 18.7/9.4 on May 20. Market sentiment has recovered in the short term, but it is still in a historically low position.
market structure: four main lines continue to rotate
1) focus on the two main lines of modern infrastructure and real estate throughout the year infrastructure and real estate determine the “overall market” of China’s economy and are also the main direction of the steady growth policy. The flexibility of the former and the repair of the latter are the basis for China to achieve the set economic goals this year. The performance of these two main lines has been relatively weak since April, and the cumulative performance has been ahead since the beginning of the year. The main reason is that the repeated epidemic has delayed the pace of commencement and sales. Under the mutual verification of policy implementation and data improvement, it is expected that the main line of modern infrastructure and real estate completion is the most deterministic, and there is bottom warehouse allocation value throughout the year. In terms of variety, recommendations from the infrastructure sector focus on the undervaluation of the undervaluation of the undervaluation .
2) quarterly dimension focuses on the main line of resumption of work and production the main line performs best in the initial stage of the market, with high market consensus, and the core logic is oversold rebound. First of all, the main line of manufacturing industry related to the resumption of work and production, especially the growth manufacturing, is negatively affected by the resonance of internal and external risks. The cumulative decline before this round of rebound is very large, and the characteristics of this round of oversold rebound are obvious. Secondly, the market has strengthened the confidence that Omicron can be effectively controlled, and the data of local epidemic and resumption of work and production are more timely. Thirdly, the export manufacturing in the main line avoids the shortcomings of insufficient demand in China and insufficient overseas supply, and the short-term profits also benefit from the depreciation of the RMB. Finally, in terms of specific varieties, it is suggested to focus on smart cars and parts, semiconductors, photovoltaic wind power equipment etc.
3) monthly dimension focuses on the main line of consumption repair optional consumption and service consumption are directly affected by the epidemic, and the downward revision of fundamentals is the most obvious. The data verifiability of this main line ranks behind the resumption of work and production and infrastructure real estate. There are still differences in the market in the short term. In terms of timing, we need to pay close attention to the progress of resumption of business and rehabilitation and the effect of normalized epidemic prevention and control. It is suggested to pay attention to airlines, hotels, duty-free, food and beverage, department store super , and these varieties are expected to usher in a phased recovery at the monthly level under a package of policies such as the elimination of large-scale epidemic in some areas, the relief of market players and consumption stimulation.
risk factors
Repeated local outbreaks in China; The friction between China and the United States in the field of science and technology trade has intensified; The progress of China’s policy and economic recovery is less than expected; Macro liquidity at home and abroad has tightened more than expected; The conflict between Russia and Ukraine further escalated.
