Wang Yi, chief strategist of Great Wall Securities
In the third quarter, the market continued to be weak and volatile. The market for stock funds and leading stocks may continue or spread. However, the scope of such proliferation and the market height of support are limited, and more represents a structural continuation. A clear rebound in the market and a large change in style will only occur when there is a significant change in the direction of the fund's interest rate or risk appetite. Until then, growth stocks may have an opportunity, and at the same time, it needs to be considered in conjunction with the policies introduced at that time. At this stage, attention must still be maintained on sectors and stocks with stable performance and reasonable valuation.
Before the fourth quarter, the market will continue to show a structural market with sharp differentiation and weak shocks, and this structural market is not easy to be broken in the short term, because market risk appetite has dropped to a lower position, and stock funds are in value stocks. And the leading stocks to warm up, and the group at this time is loyal, unless there are two extreme situations: A, risk appetite increased significantly; B, the economy slipped to a very serious degree, it is possible to be broken. Prior to this, this grouping phenomenon will continue to exist. At the same time, when the first-line blue-chip stocks rise too high, there will be a result of the spillover of funds to the second-tier blue-chip stocks, but the scope of the spillover and the supported market height are limited.
Under the tenet of insisting on the allocation of value industry, combined with the five dimensions of “two highs and three lows†(high prosperity, high industry concentration, low valuation, low interest rate sensitivity, low allocation), it is recommended to focus on the media industry in the second half of the year ( Low valuation, low interest rate sensitivity, low allocation), air transportation industry (high economy, high industry concentration), second-line liquor and meat products in food and beverage industry (high economy, high industry concentration, low interest rate sensitivity) , pharmaceutical bio-industry (low valuation, low interest rate sensitivity, low allocation), non-bank financial industry (low valuation, low allocation), household appliance industry (high industry concentration, low interest rate sensitivity), electronic components industry (low valuation, low interest rate sensitivity)
In the second half of the year, we believe that the overall theme should be diluted, emphasizing the balance between theme flexibility and company performance. When the market risk preference is low and the stock price is sluggish, the theme elasticity can be emphasized. When the market enters the normal or even excited state, the company should pay more attention to the company's fundamental characteristics and make a dynamic game adjustment accordingly. Xiong'an New District is the most important theme hotspot in the second half of the year. The supporting policies are expected to gradually fall. The imagination of infrastructure construction, municipal engineering and transportation network construction is small, and the investment space for environmental protection and smart cities is relatively large.
The market operation trend is determined by the profitability and valuation of listed companies. The growth rate of corporate earnings may continue to slow down in the second half of the year. Under the effect of financial deleveraging and the Fed’s interest rate hike, the probability of risk-free interest rates continuing to rise is greater. There are not many breakthroughs in risk appetite improvement in the second half of the year.
Corporate earnings will continue to decline in the second half of 2017
The economic growth rate from the second quarter to the fourth quarter of 2017 may show a quarterly downward trend. Under the neutral scenario, each quarter will fall by 0.1 percentage point, but this flat downward trend may be broken in the third quarter, the reason behind which is financial The impact of the upward trend of interest rates and the decline in M2 growth caused by de-leverage and central bank contraction is non-linear. The correlation between GDP growth rate and the growth rate of business revenue is relatively obvious, which will inevitably lead to further decline in the growth rate of business revenue. We conduct a structural analysis of corporate earnings from the income statement sub-items, and analyze their influencing factors and future trends item by item:
1. Gross profit margin: depends on income, cost, seasonal factors, etc. From the historical experience, the correlation between the gross profit margin level and the PPI-PPIRM scissors is higher. We think this reflects the difference between the internal price and the external price. If the domestic demand is relatively good, it will rise. Considering that domestic demand may decline further in the second half of the year, and the overseas economic recovery is still slow, PPI-PPIRM is likely to decline slowly, and the corresponding corporate gross margin will further decline slowly.
2. Financial expense ratio: In 2017, the monetary policy emphasized that “liquidity is basically stable and the monetary policy transmission mechanism is unblockedâ€. The pattern of “tight currency†will be formed and expected to continue, and the financial expense ratio will be difficult to make.
3. Management and sales expense ratio: Historical experience shows that the fluctuations of management and sales expense ratios are not very large. In the long run, there is a correlation between the economic cycle and the management and sales expense ratio corresponding to the economic down cycle. This overall estimate can be As smooth.
4. Other cost items: asset impairment losses, seasonal differences, usually more accurate throughout the year. When making full-year profit forecasts in early 2008, many institutions ignored the impact of this factor on corporate earnings in the year, but at present it is a slow economic decline, which can fully expect this piece to increase slightly in the second half of the year.
5. Other operating income: net gains from changes in fair value and net investment income. All A-shares (non-bank petroleum and petrochemicals) 2016 net income changes in fair value and net income from investment accounted for a lower than operating income ratio in 2015, reflecting a slight decline in the wealth effect of the capital market, and it is expected that the overall 2017 may be 2016. The year is flat.
The valuation of the company continues to be under pressure
The valuation level of an enterprise is determined by the market's overall risk-free interest rate and risk premium. The current risk-free interest rate (10-year government bond) remains stable, and risk-free interest rates are mainly affected by the following factors: 1. Economic fundamentals; 2. Inflation level; 3. Financial market; 4. Exchange rate factor. In the last three quarters, the risk-free interest rate experienced a rapid rise. From the perspective of several major influencing factors, the economic growth rate fell in line with expectations, but the decline was lower than expected. The inflation level was kept low due to economic downturn and consumption structure changes, and the PPI growth was negative. It also lowered inflation expectations. Financial market risk regulation and external market exchange rate shocks were the main influencing factors. The risk-free interest rate showed signs of short-term peaking and may remain stable in the second half of the year.
Judging from the risk premium, historically, the stock risk premium generally leads or is synchronized with the credit spread of corporate bonds. From the last ten years, the credit spread of corporate bonds is still lower than the historical average of about 20bp, and the risk premium of the stock market is still lower than the historical average of about 50bp. That is to say, if the return to the mean returns, there is a certain upward pressure on the risk premium. .
Another reference indicator for observing the market risk premium is to use the reciprocal of PE minus the 10-year bond yield. This is more of a synchronous indicator. It is currently in the middle position, but the overall market structure is very different. A number of stocks fell below the low of 2638 in early 2016. Due to a series of non-market factors, the overall risk premium of the future market may continue to rise.
According to the three factors of comprehensive profit, risk-free interest rate and risk premium, the time window for policy to stabilize growth must wait at least until the end of the fourth quarter of this year to the beginning of next year, so the market in the second and third quarters is still not optimistic.
Before the fourth quarter, the market will continue to show a structural market with sharp differentiation and weak shocks, and this structural market is not easy to be broken in the short term, because market risk appetite has dropped to a lower position, and stock funds are in value stocks. And the leading stocks to warm up, and the group at this time is loyal, unless there are two extreme cases: 1. Risk appetite increased significantly; 2. The economy will slide to a more serious level before it can be broken. Prior to this, this grouping phenomenon will continue to exist. At the same time, when the rise of first-line blue-chip stocks is too high, there will be a result of the spillover of funds to second-tier blue-chip stocks, but the scope of such spillovers and the market height of support are limited. When the economy begins to accelerate the downturn due to interest rate shocks, expectations from financial regulation and liquidity tightening will change, followed by a significant increase in market risk appetite, when the valuation of growth stocks is expected to be repaired. At the same time, the series of directions provided by policy relaxation may be an important consideration for the layout of structured prices. We believe that the probability of this happening in the fourth quarter will be relatively large.
At present, the CSI 300 trend is significantly better than the CSI 500 Index. According to the Bollinger line principle, the CSI 500 is obviously oversold and has a rebound demand in the short term, but it is subject to the inertia of the market style and needs to wait for the emergence of catalysts.
This year, the market experienced the rise of mid-stream cyclical stocks in the first quarter to the recovery of consumer stocks in the second quarter, and then to the leading white horse stocks to warm up the market. There are two main reasons for this: on the one hand, the rise of the Chinese version of “Pretty 50†is closely related to the policy environment of strict supervision. The market has gradually focused on value from the investment style of the previous speculation and speculation. At present, it has not been clearly seen that the factors causing the collapse of the group have appeared. The Chinese version of the “beautiful 50†profit valuation is still relatively reasonable, and the follow-up is more of a trend investment process, and should not be excessively pessimistic. On the other hand, the current environment has made the overall valuation of the market low and the companies with stable endogenous growth have high investment value. Follow-up recommendations are to tap the leading companies in the industry that match the other valuations.
Combined with the above analysis results, we recommend focusing on the following industries and sectors:
Consumer segment: Focus on the consumer staples industry with low interest rate sensitivity and high industry concentration, such as the liquor industry in food and beverage, the meat industry in the down price of pigs, and the industry leader in medicine.
Among the consumer products, attention is paid to the leader in the home appliance sector (which benefits from the further increase in industry concentration, leading companies are expected to present a process of continuous light foaming), as well as the air transport industry benefiting from the peak season and the elimination of peripheral uncertainties. .
Cycle-type sector: The construction industry and construction machinery industry are affected by the “One Belt, One Road†policy. The orders of leading companies will be guaranteed. At present, many companies’ annual growth rate is relatively certain and can still be held, but it needs to be grasped. More time to cash in, grasp the band operation rhythm.
Growth industry: Focus on the media sector. The overall valuation of the sector is still low, growth is still the same, the security of the current location is gradually reflected. In addition, you can pay attention to the electronic sector. With the launch of new Apple mobile phones, there may be a chance from the perspective of the theme or order. In addition, you can also pay attention to the environmental protection sector, especially those companies associated with Xiong'an New District.
Financial stocks: Focus on brokers, insurance and banking stocks. Brokerage is currently the industry with the lowest valuation in the big financial sector. From the perspective of performance, it is the bottom position, and the expectation is also very low. It has a certain expected difference. From the perspective of sector rotation, there are opportunities for performance. The fundamentals of insurance stocks are relatively good, benefiting from factors such as rising interest rates, and have recently taken the lead in strengthening. Bank stocks have certain allocation value in market fluctuations, especially for large banks, which are relatively less affected by regulatory policies.
In the second half of the year, we believe that the overall theme should be diluted, emphasizing the balance between theme flexibility and company performance. When the market risk preference is low and the stock price is sluggish, the theme elasticity can be emphasized. When the market enters the normal or even excited state, it should pay attention to the company's fundamental characteristics and make dynamic game adjustment accordingly. We believe that Xiong'an New District is the most important theme hot spot in the second half of the year. It is expected that the supporting policies of the new district will gradually land. The imagination of infrastructure construction, municipal engineering and transportation network construction is small, and the investment space of environmental protection and smart cities is relatively large.
Focus on environmental protection and smart cities in the Xiong'an New District sector
At present, the market is generally based on the development scale of the Shenzhen Special Economic Zone, the Shanghai Pudong New Area, and the future population of the Xiong'an New District. However, according to the plan, Hebei Xiong'an New District will carry 2 million to 2.5 million people in the long-term, considering the long-term control area of ​​about 2,000 square kilometers, even if the Baiyangdian water area of ​​more than 300 square kilometers included in the long-term plan is removed, the long-term male The population density of Anxin District is only 1200 to 1,500 people per square kilometer, lower than Tianjin Binhai New Area, and lower than Beijing, Shenzhen and Shanghai Pudong New Area. Therefore, we recommend focusing on the concept of environmental protection and smart city in the Xiong'an New District.
1. Environmental protection
In the short-term, we will focus on environmentally-friendly PPP leading enterprises that have gained experience in order and river basin management, mainly in state-owned enterprises and central enterprises. Once the Xiong'an New District can successfully explore a green and intelligent development path, relevant enterprises will benefit a lot.
2. Smart City
Analogous to the exploration of Shenzhen's new city, Xiong'an New District will explore the development path of smart cities. At the same time, Xiong'an New District is expected to break the cost constraints of the existing real estate model for the exploration of the new city, and try to promote industrial upgrading. Companies that can focus on smart cities are not necessarily limited to the Beijing-Tianjin-Hebei region.
State-owned enterprise reform and central enterprise restructuring
From the point of view of the improvement of fundamentals and the time required for landing, the current concept of reform of state-owned enterprises has a sub-item: after a long period of integration of state-owned enterprise reforms, the performance of some companies after reform has improved significantly. The reform of state-owned enterprises has evolved to this day. Combined with the current market environment, market funds now pay more attention to the improvement of performance, and there are also stocks expected by state-owned enterprises.
Judging from the current situation, there are important points in the merger and reorganization of central enterprises. They can focus on the areas where the future reforms are expected to be strong or have made substantial progress. The industry's leading indicators and efficiency gains are the safety mats for restructuring the theme, and the power industry can be properly concerned. A few days ago, the suspension of China Shenhua and Guodian Power became a landmark event, which triggered a strong expectation of the market for coal-fired power restructuring, which may be the first shot of the five major power generation group mergers and acquisitions campaign.
With the further development of power reform, power generation enterprises will gradually transform into distribution power and energy service enterprises, or will become a new trend of future industry development. In addition, with the reorganization and integration of state-owned coal-fired power companies, substantial improvements have been made in fuel costs and power generation structure optimization, reducing inefficient inventory and removing excess capacity, in line with the policy of “three to one and one subsidyâ€. It is not excluded that the supporting policies with more surprises will follow. In the current market node, the power industry has a sturdy defensive attribute, and it also meets the demand for stable returns from the market's large funds to warm up. Therefore, the power industry is expected to gain higher attention in the future.
new energy vehicles
The theme of new energy vehicles is not a pulse market, and involves multiple industries. The performance of related companies continues to improve. It is recommended to choose companies with good fundamentals and potential for expansion, such as companies with upstream lithium resources.
After one year of adjustment, China's new energy auto industry has once again entered a stage of restorative growth in 2017. It is estimated that the annual sales volume will reach 800,000 units, a year-on-year increase of more than 50%, which will bring about a rapid recovery of the entire industry chain. Focus on the whole vehicle field, ternary battery industry chain, lithium battery equipment and lithium hydroxide, cobalt and other related standards.
New energy vehicle: 2017 will be a year of restorative growth of new energy vehicles. In the investment direction, we can pay attention to the leading enterprises of new energy commercial vehicles, recommend Yutong buses, and pay attention to Zhongtong Bus and BYD. The new energy passenger car is recommended to pay attention to the layout of small electric vehicles in Jianghuai Automobile. The company's electric vehicle sales in March are gradually on the right track, and the Jianghuai Volkswagen joint venture is worth looking forward to.
Battery industry: The new energy vehicle volume will drive the high growth of the lithium battery industry, and the rise of the ternary battery will drive new growth points. It is recommended to pay attention to Yiwei Lieneng, Guoxuan Hi-Tech, Dangsheng Technology, Nord Group, Xingyuan Material, Shuangjie Electric.
Lithium-ion equipment: The future support policies and subsidies will be tilted toward large battery manufacturers. After the merger and reshuffle in the lithium battery industry, the market share of leading enterprises will be further enhanced, while the import substitution market share will be superimposed. We are optimistic about companies with core technology advantages and high level of automation, and recommend leading companies such as Pioneer Intelligence and Wintech that are relatively low in valuation.
Upstream materials: Lithium hydroxide and cobalt are recommended, as high nickel ternary will become the main trend of power batteries. We expect battery-grade lithium hydroxide to usher in a gap between supply and demand in 2018. The price of battery-grade lithium hydroxide is expected to rise in 2018. We recommend Yanfeng Lithium, Tianqi Lithium and Yahua Group.
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