2022 style: large or small?
Under the influence of "institutionalization", "leading effect" and "money making effect", the market's preference for large cap blue chips has increased significantly, so are large cap stocks dominant for a long time?
According to the market value, we select CSI 300 as the representative of the style of large cap stocks and CSI 1000 as the representative of the style of small and medium cap stocks. Since the resumption of trading in 2005, A-Shares have undergone two complete rounds of size and style switching, and are currently in the third round of large and small trend.
The third cycle of the current round of A-share market switching to medium and small cap has lasted for nearly one year. We judge that the current round of switching cycle should have been started, so the performance of small cap stocks may be relatively dominant in the next few years. However, according to the historical situation, there is also a phased demand for reverse switching of large cap stocks in the near future.
Referring to the performance of the US stock market, we select S & P 500 as the representative of the style of large cap stocks and Russell 2000 as the representative of the style of small and medium cap stocks. Since 1980, US stocks have carried out multiple rounds of large and small style switching rotation: since 1980, US stocks have also had the trend of large and small cycle rotation, At present, there are five clear and complete trends: 1983q2 → 1990q4 → 1994q2 → 1999q2 → 2014q1 → 2018q3 → 2020q3. The dominant style of US stocks in the last round was large cap stocks, and the time node and cycle length were more consistent with the performance of a shares.
Under the background of the trend of accelerated global capital flow, there is a certain resonance between A-Shares and US stocks. Then, referring to the recent trend of relatively dominant market of US stocks and the demand for reverse switching at the initial stage of small cap cycle switching of a shares, we believe that the style rotation cycle of the market this year has reached the stage of annual small cap dominance, But at the same time, there is a demand for reverse switching in large cap stocks.
Therefore, in judging the rhythm of the general trend, we expect to take the lead in opening a wave of market dominated by large cap stocks in the first quarter under the expectation of steady growth, and gradually return to the cycle dominated by small cap stocks in the second half of the year.
We try to analyze the logic behind the DDM framework model:
In DDM model, the numerator side corresponds to the change of profit level and the denominator side corresponds to the change of discount rate, which is mainly affected by risk-free interest rate and risk preference.
The change of the profit level at the molecular end is the underlying logic that determines the style rotation switching, that is, the marginal change of the relative profit growth rate of the industry sector behind it. We see that each relative dominance of the profit end brings the switching market of large and small sectors, but the duration and intensity are slightly different.
The change of discount rate at the denominator is the driving factor of style switching, which is affected by risk-free interest rate and risk preference. The impact of economic growth, liquidity tightness, risk-free interest rate, risk appetite and other factors on the valuation is gradually increasing. In the liquidity easing stage, the risk appetite is upward, and the small cap growth stocks are in relatively favorable conditions, which can also explain the switching logic of large and small caps.
Study and judgment of the general trend: first big and then small
As a whole, we maintain the view in our report on January 9, "the market is expected to gradually stabilize in late January. From the perspective of high winning rate and high odds, it is suggested to pay attention to large cap stocks in the near future and medium and small cap stocks after the festival."
Among the major categories of assets in the market this week, A-Shares rose first and then declined, Hong Kong stocks rebounded strongly, and there was a comprehensive rebound in bulk. On Monday, the broad money came into force again. The central bank lowered the one-year medium-term lending facility (MLF), and both MLF and Omo lowered 10bp, which exceeded the market expectation. On Thursday, the market expected that the LPR would follow suit. However, in the end, the one-year LPR was reduced by 10bp, and the five-year LPR was only reduced by 5bp, which was less than the market expectation. The policy on the real estate sector was not relaxed as expected, The market corrected sharply again.
At present, the economy is still facing triple pressure, and the expectation of steady growth is rising. There are few basic data superimposed in January and February, which is in a vacuum period. The catalytic market remains highly concerned about wide currency and wide credit. From the total situation, the downward situation of this year's dual cycle economy is similar to that in 2012, and the downward pressure of the economy may exceed that in 2012. Therefore, the strength of policy steady growth should also be stronger than that in 2012. In 2012, a total of 150bp RRR reduction and two interest rate cuts were carried out for three times. In contrast, there is still room for further development of wide currency this year, and the effect of wide credit has yet to be shown.
According to our calculation, in terms of the winning rate in recent 10 years, there is little difference between the week before and after the festival. The winning rates of Shanghai Stock Exchange Index and gem index are 70% and 80% respectively in the week before and after the Spring Festival; In terms of rise and fall, the average increase of Shanghai Stock Exchange / gem before the festival was 0.76% / 2.85%, and the average increase of Shanghai Stock Exchange / gem after the festival was 0.21% / 2.28%. The performance in the 15 trading days after the festival is significantly superior. Affected by the policy expectations of the two sessions and event driven, the performance after the festival is significantly better than that before the festival. A shares have a calendar effect of "spring agitation".
Since the first quarter of 2021, A-Shares have started the market of switching from large market to medium and small market. Under the background of the trend of accelerated global capital flow, there is a certain resonance between A-Shares and US stocks. Referring to the trend of US stocks and the historical trend of resumed a shares, although small cap stocks may be relatively dominant in the next few years, there is a strong demand for phased reverse switching in large cap stocks in the near future.
We believe that the current market adjustment is coming to an end, and A-Shares are ready to go. It is expected that in the first quarter, under the expectation of steady growth, it will take the lead in opening a wave of market dominated by large cap stocks, and gradually return to the cycle dominated by small cap stocks in the second half of the year. Before the festival, the market pursues certainty, and the performance of blue chip in the market is better than that of small and medium-sized stocks. After the festival, policy expectations rise again, and the market turns to pursue high elasticity. Configuration ideas:
1) pay attention to the performance of large cap stocks recently. There is a strong demand for phased reverse switching in large cap stocks. Focus on the main line of steady growth and undervalued value, real estate, building materials, household appliances in the infrastructure and real estate chain, as well as leisure services, food and beverage and other consumer industries that expand domestic demand.
2) pay attention to the performance of medium and small cap throughout the year. This year's marginal change at the denominator end has supported the trend of small and medium-sized stocks. In the stage of steady growth, we pay attention to the investment direction dominated by expected improvement and relative profit growth, and the energy transformation, high-end manufacturing, digital economy and other directions supported by high-quality transformation and development.
Risk tips: policy implementation is not as expected, economic recovery is not as expected, and epidemic prevention and control is not as expected
