Chen Li, chief prospect |: The Year of the Tiger is expected to introduce more active fiscal policies, and A-shares will be better after the holiday

The Paper's trainee reporter Sun Yan

【Editor's Note】

2021 is an extraordinary year, behind the ups and downs of the A-share market, the traditional white horse stocks represented by the "Mao Index" have fallen silent, and the "Ning Combination" industrial chain has sprung up.

Entering a new 2022, how will the capital market interpret it? Recently, the surging news (www.thepaper.cn) reporter interviewed a number of securities companies chief strategist, chief economist, star fund manager, the pulse of the new main line of investment, tap new market opportunities, look forward to the new trend of the market.

This issue features an exclusive interview with Chen Li, Global Chief Strategy of Soochow Securities and Vice Chairman of Soochow International.

Chen Li, Global Chief Strategy of Soochow Securities and Vice Chairman of Soochow International

Looking forward to the Year of the Tiger, Chen Li believes that the macro environment is developing in the direction of economic normalization, and the global economy will gradually recover towards the level of 2019. On the one hand, this means that the level of economic growth is significantly higher than in the past three years, and on the other hand, it also means that monetary policy is no longer expanding, but gradually contracting.

Chen Li further said that China's economy has achieved rapid growth in 2020 and 2021, and the economic growth rate in 2022 may be slower than in 2021. In terms of quarters, the economic growth rate in the first and second quarters of 2022 may decline year-on-year, and the third and fourth quarters may rebound.

For the Year of the Tiger, Chen Li looks forward to a more active fiscal policy. Around infrastructure investment, Chen Li believes that a considerable part of its marginal increase may also lie in new energy and new infrastructure, such as the promotion of photovoltaics and lithium batteries, hydrogen energy research, and investment in new innovation, software and digital economy.

Chen Li also reminded investors to pay attention to the macroeconomic risks that may be brought about by the contraction of monetary policy overseas and the Fed's interest rate hikes.

The following is a transcript of the conversation between The Paper and Chen Li (slightly edited):

The Paper: What do you think of the current global macro environment?

Chen Li: Looking at other countries around the world, I think the macro environment is moving in the direction of economic normalization. Although the new crown epidemic still has an impact on us, on the one hand, Europe and the United States have not stopped the pace of opening up, on the other hand, more data from South Africa and Israel show that Omiljung has a smaller lethality.

In this case, I think that in 2022, the global economy will gradually recover towards the level of 2019. On the positive side, the global economy will grow faster in 2022 than is currently expected to be higher than in the past three years. The World Bank and the International Monetary Fund (IMF) also predict that in 2022, the vast majority of countries in the world – whether developed or developing – will have GDP growth faster than in 2021, 2020, and even beyond 2019.

On the flip side, since the economic level may return to 2019, the ultra-loose monetary policy in response to the epidemic in the past two years may also exit. In general, in 2022, the rest of the world, including the United States, is likely to tighten monetary policy and shrink its balance sheet.

So looking globally, 2022 will be a return to normalcy. On the one hand, this means that the level of economic growth is significantly higher than in the past three years, and on the other hand, it also means that monetary policy is no longer expanding, but gradually contracting.

The Paper: Looking forward to the Year of the Tiger, what do you think the overall trend of the domestic macro economy will be?

Chen Li: China's situation may be different from that of other countries around the world: China's economy has achieved rapid growth in 2020 and 2021, which is equivalent to one year ahead of the world, so the economic growth rate in 2022 may be significantly slower than in 2021. In terms of quarters, the economic growth rate in the first and second quarters of 2022 may decline year-on-year, and the third and fourth quarters may rebound.

The pressure faced in the first half of 2022 is relatively large, and the central bank's statement about "triple force" some time ago also corroborates this. Specifically from an economic point of view, first, exports are facing high-tech interference, and the growth rate is naturally declining; second, the rapid decline in real estate investment has dragged down the growth of fixed asset investment; third, the epidemic is relatively severe, and under the guidance of the current anti-epidemic policy, the growth rate of retail sales of social consumer goods will also decline.

By the second half of 2022, with the introduction of more active monetary policy and more active fiscal policy, and with the expansion of the scale of infrastructure investment, perhaps in six months, the policy effect can stabilize the economic growth rate in the second half of 2022.

The Paper: What do you think is the macroeconomic impact of the epidemic? What are the likely impacts of 2022?

Chen Li: The impact of the epidemic on the macro environment can be divided into two aspects: direct and indirect. The direct impact of the epidemic on the macro environment, of course, is that people go out less, which further causes a decline in consumption levels, such as the overall service industry has suffered a blow of nearly half of the decline, and tourism, hotels, retail, and catering have been negatively affected.

The indirect impact of the epidemic on the macro environment lies in the potential increase in unemployment after the blow to the service industry. This has led to a decline in household income expectations, which has further led to a decline in per capita spending power. It can be said that consumption is facing double pressure, not only the number of people going out to travel and eat out has decreased, but also the per capita consumption level of people who go out has also decreased.

But looking ahead to 2022, as the world tends to return to 2019 levels, perhaps we should also move closer to such normalization.

The Paper: What do you think of double carbon investment? What are the possible changes to the double carbon investment in 2022?

Chen Li: I think double carbon investment is the general direction. The mainland has made a commitment to achieve carbon peaking and carbon neutrality, which is a national strategy and a long-term strategy, and this is not only the need of China, but also the needs of Europe, the United States, Japan and the world.

From this perspective, "carbon peak by 2030" and "carbon neutrality by 2060" are long-term and important strategies. But that doesn't mean there have been massive carbon cuts every previous year.

Overall, I think the setting of the carbon reduction target for 2022 may learn the experience and lessons of the second half of 2021: the barbaric "one-size-fits-all" of pulling the brakes and curtailing the power ration at that time did cause a series of adverse consequences. Therefore, the carbon movement in 2022 may be slower and more reasonable than in 2021, and the double carbon movement will be promoted without harming macroeconomic operations.

In other words, in 2022, the use of traditional energy sources such as oil, coal, and natural gas is still very important, and investment cannot be abandoned.

The Paper: What do you think may be changing in the A-share market in the Year of the Tiger under the new normal of the economy?

Chen Li: I think we must first look at how investors view the positive arguments of the Central Economic Work Conference. Judging from the performance of the A-share market in January 2022, there may be quite a few investors who do not believe that the active fiscal and monetary policies set by the Central Economic Work Conference can quickly reverse the trend of economic decline.

However, I believe that the positive policies set by the Central Economic Work Conference will still be implemented. This is more evident in monetary policy, such as lowering the reserve requirement ratio, lowering the LPR (Loan Market Quotation Rate), and possibly recovering in credit growth. In terms of fiscal policy, the effect may not be apparent until after the Spring Festival. So I personally believe that the performance of the A-share market after the Spring Festival will be better than before the Spring Festival.

The Paper: What policies are you most looking forward to in the year of the tiger capital market?

Chen Li: Personally, I look forward to a more proactive fiscal policy in the Year of the Tiger. This is reflected in the increase in infrastructure investment.

Here I would like to clarify a market misunderstanding. I believe that the marginal increase in infrastructure investment lies in affordable housing on the one hand, as well as traditional railways, highways, subways, bridges, light rail and other "iron public foundation" projects. But these investments are only to hedge against the decline in real estate investment, and will not bring growth to the construction, building materials, construction machinery and other industries.

In other words, due to the decline in real estate investment, the demand for cement, steel, construction, construction machinery, etc. may fall by 30%, and after increasing infrastructure investment, it may only change from a 30% decline to a 10%, and it is impossible to become a 10% increase.

On the other hand, the marginal increase in infrastructure investment may also lie in new energy and new infrastructure, such as the promotion of photovoltaics and lithium batteries, hydrogen energy research, and investment in new innovation, software, and digital economy.

The Paper: For the macro economy of the Year of the Tiger, what do you think need to pay special attention to the risks?

Chen Li: I think one of the risks comes from the contraction of monetary policy overseas. The economic situation abroad and the domestic economic situation are just the opposite, almost all countries in the world expect the economic growth rate in 2022 to be higher than in 2021, but the domestic generally believes that China's GDP growth rate in 2022 will be lower than that in 2021. The opposite economic situation will lead to the opposite direction of monetary policy, which may lead to market fluctuations in the process and will also have a certain impact and impact on us.

The second risk comes from the Fed's interest rate hike. From the historical law of the Fed's interest rate hike, such as in the process of gradually reducing the balance sheet and raising interest rates after the Fed ended QE from 2013 to 2015, the stocks and bonds in the global market before the interest rate hike fell, but in the middle of the first interest rate hike to the second rate hike, stocks and bonds rose again.

This is because, at first, for interest rate hikes, the market was generally worried about currency tightening and valuations falling; but when the interest rates were really raised, on the one hand, expectations were fully reflected in the market, on the other hand, after all, interest rate hikes originated from the economic upward movement, and the market recognized that corporate profits and profits were very good, so confidence was restored.

Responsible Editor: Yes Winter Photo Editor: Le Yu Feng

Proofreader: Yan Zhang