Style switching, hair trigger. Since 2019, the “recession” loose thinking has dominated, and the investment of shorting economic elasticity and inflation has become the mainstream. The extreme of style interpretation is that value style not only spits out all relative benefits since 2016, but also exceeds 14% by growth style. Although this difference seems not excessive, you should know that during this period, listed companies with value style are still contributing to significant performance growth, and their valuation differentiation has quietly reached twice the historical standard deviation. Of course, this behavioral logic basically conforms to the weak domestic demand fundamentals since 2019. It should be noted that since the central economic work conference last December, this differentiation began to show a trend of further mean return.
The stability of the traditional economy is the basis of a relaxed environment. The main definition standard of value style is to maintain undervalued value while maintaining good cash flow and shareholders’ current return (dividend rate). In the narrative sense, it should be understood that at that time, investors continuously lowered the importance of representing traditional economic assets. This undervaluation was based on the overall low inflation and inelastic economic environment after 2018. From the high-speed growth style since 2019 to the stable growth since 2020 and the energy transformation growth since 2021, the market has always been full of doubts about the recovery of the traditional economy, no longer believes in the profit elasticity of the traditional industries, and is also full of doubts about the stable development of the old economy in the future Shanghai New World Co.Ltd(600628) . But at present, it is the relative stability of the traditional economy that creates a relatively stable environment for Chinese investors: the courage of the Central Bank of China to deviate from the monetary policy of the Federal Reserve may not lie in “before the interest rate hike”, but in the difference between the highest real interest rates in the history of the two countries. The lower inflation brought about by the stability of the traditional economy is the cornerstone of the whole policy space. However, we have pointed out that the “recession type” easing of 2014-2015 is not feasible at present because it does not have the conditions for leveraged funds to enter the stock market through channels, and the “learning effect” of supervision makes the above path unforgettable. At this time, the micro liquidity level of the whole stock market depends more on the issuance of public and private funds themselves, but in the short term, it depends on the expansion of residents’ balance sheet (it is estimated that the issuance of public funds is positively related to the sales area of real estate). Investors will find that even for mainstream growth stocks, the driving factor of China’s valuation and pricing is still wide credit, not wide currency (but the elasticity of profit change in the period of wide credit is not as flexible as that of value stocks). At the same time, the rising cost of the liability side of overseas investors also makes them start to pay attention to assets with shorter duration.
Focus on the pricing logic with inflation as the anchor rather than nominal interest rate as the anchor. Under the classical demand cycle driven framework, interest rate is the cause of inflation; However, under the background of the change of labor structure, the long-term lack of capital expenditure in traditional industries and the reduction of short-term energy efficiency caused by carbon neutralization, overseas will show the characteristics of supply driving inflation as a whole. Inflation is becoming the cause of interest rate, and the impact of interest rate on inflation may be verified and weakened. At this time, the difference of inflation elasticity between the two economies will become a more important factor affecting the direction of monetary policies of the two countries, rather than the nominal interest rate spread itself. In the process of forming the new pricing anchor, the value sector representing the traditional economy is expected to be systematically improved. It should be noted that the transmission of overseas inflationary pressure to China will also change: the outbreak of overseas demand – made in China – pushes up the price of upstream raw materials, switching to the continued recovery of overseas demand – pushes up the upstream price – the price difference of environmental costs – affects China’s inflation. In the above process, China’s broad credit is the support of internal demand after the marginal weakening of external demand. At this time, the overall inflation elasticity will be stronger than the economy.
Style switching, don’t hesitate. At present, the year-on-year growth rate of M2 social finance has rebounded for 9 months (historically, the growth rate of social finance has stabilized and rebounded after 10-19 months), and the absolute value of the difference is close to the level in April 2020. According to the historical law, in the stage of social finance rebounding again, from the median rate of return, the value style will prevail in an all-round way. Of course, wide credit is not the whole problem, but the next marginal change in the market. We recognize that the rhythm is uncertain, but investors who need to stay in the market do not have a better choice. There is no difference between long inflation and long demand at present. Don’t hesitate, the prelude to the market switching from growth style to value is about to open. Recommended: nonferrous metals (copper, aluminum, gold), banking, coal, real estate, steel and electricity. In terms of style index, dividend and value style still need to be switched quickly. At the level of broad-based index, Shanghai Stock Exchange 50 and China Stock Exchange 500 are more dominant. In particular, the weight of small and medium-sized value style is the leading factor of CSI 500, and the profit contribution of the cycle is the reason for its “undervaluation”, in which investors need to select the right structure.
Risk tip: the economic recovery is less than expected, that is, the letter of credit is falsified.
