[editor’s note]
2021 is an extraordinary year. Behind the twists and turns of the A-share market is the silence of the traditional white horse stocks represented by the “Mao index” and the sudden emergence of the “Ning combination” industrial chain.
Entering the new year of 2022, how will the capital market perform? Recently, surging news reporters interviewed a number of chief strategic analysts, chief economists and star fund managers of securities companies to grasp the new main line of investment, tap new market opportunities and look forward to the new trend of the market.
This journal is an exclusive interview with Liu mingdy, chief strategist of JPMorgan Chase China equities.
Liu Mingdi, chief strategist of China equities at JPMorgan Chase
In 2021, the structural market will become more and more intense. Liu mingdy believes that the A-share market will also be divided in 2022, because the growth rates of different industries vary greatly, but the degree of differentiation will be alleviated compared with 2021, because the overall liquidity, monetary policy and credit policy will be improved. Liu mingdy said that he was optimistic about the performance of A-Shares in 2022. For MSCI China Index, JPMorgan Chase saw 116 points; For the CSI 300 index, JPMorgan expects the target to be 5950 points. “After the central economic work conference, the policy direction of steady growth is quite obvious, which will have a positive impact on overseas investors’ investment layout in 2022.”
For the investment theme in 2022, Liu mingdy divides it into three categories, including “old giant” (real estate), “recent giant” (new economy and Internet) and “new giant” (new energy, carbon neutralization, Internet, 5g, hardware, software, semiconductor, etc.). Liu Mingdi pointed out that the “old giant” has gradually faded out, and China is also cultivating “new giants”. “Although the market is also very concerned and worried about the risk of the disappearance of the ‘old giant’ industry, more importantly, the era of the ‘new giant’ industry has come, and investors are still very interested in industries with high growth.” Liu Mingdi said.
Looking forward to 2022, Liu mingdy said that he is most optimistic about the “new giant” industries that need innovation, breakthrough and investment, including technology, software, semiconductor, new energy, automation, engineering machinery and other industrial stocks and chemical materials stocks.
“We are optimistic about e-commerce in the Internet field. After a period of low allocation, our simulation warehouse has been over allocated to the industry in early December 2021. From the perspective of valuation, investors are interested.” Liu Mingdi pointed out.
Liu Mingdi joined JPMorgan again in August 2021 as chief China stock strategist. Previously, she served as the China strategy director of UBS and won the first place in the portfolio strategy of China institutional investor Research (overseas part) and the third place in the stock strategy team of Asia Pacific institutional investor research in 2019 and 2020.
The following is an excerpt from the dialogue between surging journalists and Liu mingdy:
Surging news: looking back on the A-share market in 2021, what do you think caused the poor profit-making effect?
Liu mingdy: the market performance in 2021 is very differentiated. Without the allocation of appropriate industries and stocks, the return may not be ideal. On the contrary, it has obvious profit-making benefits. For example, electricity, materials, energy and industry all performed well, but optional consumption, health care, finance and other sectors performed poorly.
From a macroeconomic perspective, because the covid-19 epidemic was well controlled, China entered the stage of policy normalization earlier than the global market. Our macro team judged that China’s overall debt increased by 23% compared with GDP in 2020 and should decrease by 8% in 2021, which still has an impact on the credit pulse. From the positive 10.7% and 10.8% at the end of 2020 to the negative 3% in November 2021, the impact is not small. Therefore, it can be seen that the areas with particularly obvious growth are relatively concentrated, but the whole monetary environment and credit environment are still under pressure.
Surging news: what do you think of the current global macro environment? What impact will it have on the A-share market?
Liu mingdy: the global macro environment in 2022 is acceptable and in a strong recovery cycle. Although there are some latest variants of covid-19 virus, the global ability in treatment is also improving. Therefore, I expect to see the recovery of more optional consumption, such as the company starting to increase inventory and investment. In terms of policy, it is expected to see the withdrawal of the loose policy launched during the covid-19 epidemic, but this withdrawal is relatively early.
Overall, we are optimistic about the performance of stocks, commodities and emerging markets, and hold a relatively cautious view on the prospect of bonds.
Surging news: in 2021, the structural market will become more and more intense. Do you think this situation will continue until 2022?
Liu mingdy: it is expected that there will still be some differentiation, because the growth rates of different industries vary greatly, but the degree of difference will be alleviated compared with 2021, because the overall liquidity, monetary and credit policies will be more relaxed.
The so-called “little giant” or leading enterprises in new industries, such as new energy, electric vehicles, etc., many enterprises focus on areas to be broken through, and it is expected that there will be differentiation, which is caused by large differences in the industry. In addition, for some enterprises, after the normalization of supervision, the relevant risks are relieved, and it is expected that the capital flow will tend to be stable and there will be some valuation repair. Overall, the number of stocks that can provide positive returns in 2022, or the rising participation of the whole stock, will be higher than that in 2021.
However, we still need to pay attention to several risk points. First, whether the overall process of China concept stocks listed in the United States from delisting to listing in Hong Kong can achieve a smooth transition is a matter of great concern to the market. Second, whether enterprises with high debt ratio in some industries can promote debt restructuring in an orderly and stable manner.
Surging news: the cumulative net inflow of northbound funds in 2021 was 432.2 billion yuan, a record high. How do you view the current willingness of foreign investment in the Chinese market?
Liu mingdy: at present, overseas investors hold a positive view on a shares, especially in 2021, the return of Hong Kong shares is lower than that of a shares, because most of the industries involved in the new industry regulations launched last year, including education and the Internet, are listed overseas, which has little impact on A shares.
Our overall judgment is that in 2021, the stock market of developing countries had a net inflow of US $107 billion of foreign capital, which was better than that in 2019 and 2020. Although the world is still in the uncertainty of the epidemic in 2021, it is clear that it is a recovery year of global growth as a whole, so it performs quite well in emerging markets other than China and Brazil.
However, if we look at the historical average proportion of emerging markets in global stock inflows, the current level is still low. If we pull back to the historical average, we still need a net inflow of $650 billion.
Generally speaking, we are more optimistic about a shares. According to the 54 large emerging market investment funds tracked by JPMorgan Chase, their positions in China have been low since July and August 2021. The reason is that the overall macro environment in the mainland was initially to reduce leverage, so these funds made a decision not to give priority to the allocation of A-Shares in 2021, but there is still a large allocation for industries with good growth.
The central economic work conference defined the policy direction of steady growth, which will have a positive impact on the investment layout of overseas investors in 2022.
We believe that China is learning and learning from the development experience and lessons of other markets. In order to avoid the risk of significant reduction in asset prices in the future, we exchange time for space and help enterprises with great growth potential and real efficiency through reform. According to this logic, we classify some industries, including “old giant” (real estate), “recent giant” (new economy and Internet) and “new giant” (new energy, carbon neutralization, Internet, 5g, hardware, software, semiconductor, etc.). The “old giant” has gradually faded out, and the “new giant” is being cultivated. Although the market is also very concerned about and worried about the risk of the disappearance of the “old giant” industry, more importantly, the era of the “new giant” industry has come, and investors are very interested in high growth industries.
Surging news: in your opinion, will international institutions continue to increase the weight of a shares? Why?
Liu mingdy: in terms of JPMorgan’s prediction of the returns of major global stock markets in 2022, we are most optimistic about China. In terms of U.S. stocks, the overall performance growth of the S & P 500 index in 2021 is strong. JPMorgan expects its performance growth to be 14% in 2022, higher than the consensus expectation of the market. However, given that the United States is expected to start raising interest rates in 2022, its valuation level is expected to narrow marginally for the stock index. The target level of S & P 500 index in 2022 is 5050, so there is some room for rise.
We are optimistic about China’s stock market this year. We see 116 points for the MSCI China Index and JPMorgan Chase target, that is, a return of 30%; For the CSI 300 index, JPMorgan expects the target level to be 5950 points, that is, an increase of more than 20%. The rate of return is expected to be at a high level in major global markets.
More specifically, we are optimistic about the overall Chinese stocks, including a shares, zhonggai shares, etc. From the perspective of foreign investment, both A-Shares and Hong Kong shares are just a place to choose the subject matter of individual stock investment. If the macro expectation is stable and good, it will be beneficial to A-Shares and offshore zhonggai shares.
Surging news: new energy vehicles and lithium batteries are the brightest sectors in 2021. From the perspective of fundamentals and valuation, has they been overestimated? What subdivision directions deserve more attention?
Liu mingdy: we have observed that overseas investors are very concerned about the policy trend of the mainland and have also improved the configuration of new energy and electric vehicles. This is particularly obvious in 2021. They have configured the entire industrial chain of electric vehicles and renewable energy, including lithium battery and energy accessories, diaphragms, batteries, etc.
From the perspective of JPMorgan Chase, we continue to be optimistic about new energy vehicles, lithium batteries, etc. The new energy vehicle industry development plan (2021-2035) issued by the State Council stipulates that by 2025, the sales of new energy vehicles will reach about 20% of the total sales of new vehicles, which means that there is still a lot of room for increase in penetration in the future.
JPMorgan Chase has issued buy ratings in vehicle, battery and related upstream industries; In terms of complete machine, we are more optimistic about materials.
We also have some configurations in the new energy field. The new energy field has a long growth track, and it also has more overseas export opportunities. According to the research and analysis we conducted in cooperation with our American colleagues in November 2020, if China and the United States can reach an agreement on tariff reduction, the Cecep Solar Energy Co.Ltd(000591) , photovoltaic and equipment sectors are expected to benefit from it.
Compared with the electric vehicle industry chain, we will exceed the photovoltaic industry chain in 2022. In the future, the installed capacity of photovoltaic will continue to increase. At present, modules, inverters and wind power plants are added in the simulation warehouse, but the upstream silicon material is not provided. If we refer to the development process from 3G to 5g, we can find that when the industry penetration is in the early stage, that is, when Telecom has just begun to lay the network, the equipment performs best. Therefore, at present, we are also optimistic about new energy equipment.
Surging news: looking forward to 2022, what industries and directions are you optimistic about? Why?
Liu mingdy: JPMorgan Chase is most optimistic about the “new giant” industries that need innovation, breakthrough and investment in 2022, including industrial stocks and chemical materials stocks such as science and technology, software, semiconductor, new energy, automation, engineering machinery and so on.
In terms of semiconductors and software, it is mainly the demand for green and upgrading, including some new lending arrangements. It can be seen from the more accurate re lending mechanism that the government guides lending resources to the industries most likely to make breakthroughs. If we compare the proportion of software expenditure in GDP horizontally, according to the data in 2020, the proportion of the mainland is only 0.1%, which is 0.3% in India and 0.1% in the United States. In addition, from the perspective of individual stocks, we find that in the industries covered by JPMorgan Chase, the overall capital investment in software and it industries has increased in 2020. Several growing industries are software, hardware, electric power (new energy and oil and gas), automobile and automobile parts (electric vehicles), which are industries with low penetration and large growth space. From the perspective of software, the popularity of digitization needs to be improved, including cloud and data center, which will be positively affected by the trend of digital economy.
We are also optimistic about the optional consumption sector in 2022. On the one hand, the quality of products continues to improve, such as the garment industry; Looking at the home appliance industry, the replacement demand, new product R & D and overseas expansion are all in progress. With the upgrading of products and the improvement of operation efficiency and export scale, the economic benefits of the home appliance industry will also rise. Looking at the home decoration industry, there will also be some improvement needs in 2022, such as product upgrading and replacement of furniture.
In addition, looking forward to 2022, the overall economy is in a new recovery period. When growth, employment and income recover as a whole, it will be good for the performance of optional consumption sectors. In addition, optional consumption is one of the worst performing sectors in 2021, so we are more optimistic about the relevant sectors in 2022 from the perspective of valuation and growth.
We are more optimistic about e-commerce in the Internet field. After a period of low allocation, our simulation warehouse has been over allocated to the industry in early December 2021. In terms of margin, the demand for user growth has decreased, but the attention to profit has begun to increase, and more attention has been paid to R & D. in such a competitive environment, relevant companies can use their own cycle to support the growth prospect, and this growth is sustainable.
In addition, relevant data show that the revenue of e-commerce industry is about 11 trillion yuan, Gmv (total turnover) accounts for 25% of the total social retail sales, and the market share of the revenue of the top three giants is 90%. The strong social influence means that tightening supervision is an inevitable trend. Due to the impact of regulatory tightening, the valuation of relevant companies has shrunk significantly in 2021. Therefore, from the perspective of valuation, it is still very attractive to investors. However, the policy orientation in 2022 remains to be clarified. Once the regulatory direction is clear, it will improve the confidence of overseas investors in relevant industries. However, we still hold a more cautious view on the prospect of the game sector.
