Core conclusions: (1) The CSI 300 has experienced a total of 5 rounds of decline, referring to history, this adjustment time and space has been significant, and the market valuation is at the middle and low level since 2013. (2) The negative feedback pressure of funds is not large: the proportion of leveraged funds is not high, the net redemption of the fund is not obvious, and the short-term outflow of funds from the north will still flow in the medium and long term. (3) The shock market throughout the year, the pullback of the past 2 months has left room for the back market, focusing on value, and growing attacks, such as photovoltaic wind power and data center cloud computing.
Is the market adjusting sufficiently?
Since the beginning of this year, the A-share market has continued to adjust, especially the recent sharp decline in the market, 2022/3/9 on the day of the intraday CSI 300 and Wande all A once fell by nearly 5%, the market appeared obvious panic, fortunately in the afternoon decline narrowed sharply, March 10-11 rebounded, but the 11th intraday again appeared sharp fluctuations, the market seems to be terrified. Is this round of adjustment sufficient? This report will discuss this topic.
1. Referring to history, the adjustment of space-time has been remarkable
Compared with history, the time and space of the current round of adjustment of the CSI 300 has been more obvious. We review that since 2005, the CSI 300 has experienced 4 rounds of complete ups and downs, and the specific rise and fall time and space are detailed in Table 1. From the perspective of adjustment time, the number of months of the past 4 rounds of rise in the CSI 300 rise is an average of 21.0 months, the number of falling months is an average of 11.6 months, the number of falling months is about 0.5 of the number of rising months, the CSI 300 rise months during the 2019/1-2021/2 period is 25.5 months, and 2021/2 so far (as of 2022/3/11, the same below) has fallen for 13 months, and the ratio between the two is 0.51. From the perspective of adjustment space, the number of falling points in the past 4 rounds of decline range CSI 300 is 0.7 to 0.8 times, while the 2019/1-2021/2 CSI 300 rise points is 2995 points, and the number of decline points in 2021/2 so far is 1863 points, and the ratio of the two is 0.62. Moreover, we further analyze the adjustment range of the past 4 rounds of decline in the CSI 300, we can find that the decline of the CSI 300 has gradually narrowed, from 73% to 47%, 48%, and then to 33%, which is related to the institutionalization of the structure of A-share investors, similar to the United States in the 1980s to open the era of equity investment and financing, through the cultivation of institutional investors to introduce long-term funds, the proportion of institutional investors has risen, thereby promoting the continuous improvement of the market center and the gradual narrowing of fluctuations. Compared with history, the adjustment time and space of the CSI 300 is already obvious.
The current valuation of A-shares is at a historically low level. First of all, the current valuation of CSI 300 is at a historically low level, as of 2022/3/11, CSI 300 PE (TTM, integral method, the same below) is 12.4 times, in the 48% quantile from low to high since 2013, and PB (LF, integral method, the same below) is 1.51 times and 50% quantile. Due to the rapid adjustment of China's economic structure in recent years, the composition of the CSI 300 has changed greatly, if calculated according to the initial composition in early 2013, the CSI 300 PE is 9.8 times, which is in the 18% quantile from low to high since 2013, and the PB is 1.24 times and 2% quantile. Secondly, if you look at all A shares, as of 2022/3/110,000, the full A PE is 17.7 times, in the 42% quantile from low to high since 2013, the PB is 1.79 times, 40% quantile, and the PE historical quantile of 73% of the industries in the A-share industry is below 50%, and 60% of the industries are lower than 20%. Finally, as of 2022/3/11, the CSI 300 dividend yield/10-year Treasury bond yield was 0.78, and the average of the ratio since 2013 was 0.71, which is currently in the historical 28% from high to low. The risk premium rate measured by the reciprocal pee of all A-shares PE minus the 10-year Treasury yield is 2.87% as of 2022/3/11, compared with the average of 2.37% since 2013, and is currently in the historical 32% from high to low.
From the perspective of profit growth, the current point of the CSI 300 is similar to the 2935 point at the beginning of 29. Let's think from another angle, in the long run, the increase in stock prices reflects the growth of fundamentals, so if we only consider the fundamentals of listed companies, without considering emergencies such as wars and conflicts, natural disasters, etc., we can calculate the approximate position that the index point should reach according to the growth rate of index profits. Taking the CSI 300 Index as an example, the overall decline of A shares in 2018, 2019/1/4 CSI 300 reached a low of 2935 points, when the market sentiment was relatively low, the index valuation was at a historical low, so if 2935 points were multiplied by the profit growth rate, it was deduced that the CSI 300 was similar to the low level at the beginning of 19 years. We predict that the net profit attributable to the mother of the CSI 300 will grow by 7% year-on-year in "Profitability: The Market and the Middle and Lower Reaches Are Better - 2022 A-Share Outlook Series 2-2021215", thus obtaining an annualized growth rate of 9.3% in the net profit attributable to the CSI 300 in 19-22 years.
2. There is little pressure on negative feedback of funds
According to the analysis of the previous article, compared with history, combined with valuation and profit growth, the time and space for the adjustment of the CSI 300 has been more significant. However, some investors are worried that this adjustment may trigger negative feedback of funds, resulting in market oversold, and we will analyze this from the perspective of leveraged funds, fund redemptions and northbound funds.
At present, the pressure of A-share leveraged funds is not large. One of the factors that may trigger the negative feedback of stock market funds is financing transactions, and we have counted and compared the highs and lows before and after the market correction since July 2015 to the end of January 2016, the end of January to the beginning of 1918, the january to March of 2020, the market adjustments since February to March 21 and December 21. Overall, the proportion of the balance of the two financings to the circulating market value of A shares before and after the previous adjustments and the proportion of the trading volume of the two financings to the turnover of A shares have gradually declined, and the fluctuation amplitude of the two financings during the previous adjustments is also weakening. Specifically, from the perspective of the balance of the two financings, In the first four rounds of adjustment, the balance of the two financing accounts for about 2.5% of the outstanding market value of A shares at a high point of about 2.5% (except for the round of 4.7% from July 2015 to the end of January 2016), the low point is usually about 2.2%, while the balance of the two financing balances in the current round of adjustment is 2.5% of the proportion of the market value of A shares, the low point is 2.4%, and the fluctuation is small; from the perspective of the transaction volume of the two financings, the high point of the balance of the two financing balances in the first four rounds of adjustments is mostly about 11% (except for the round of more than 20% from July 15 to the end of January 16), the low point is usually 7-8%, and the high point of the proportion of the two financing transactions in the current round of adjustment is only 8%. .0%, the low is only 6.4%, and the decline is also decreasing. Therefore, compared with history, the current pressure on A-share leveraged funds is not great.
The phenomenon of net redemption of public funds is not obvious. Another factor that can trigger negative feedback on stock market funds is fund redemptions, as large-scale redemptions can trigger a stock sell-off. We analyze the redemption of the fund from two perspectives: First, the data of high-frequency ETFs, the shares of the SSE 50 and CSI 300 ETFs, which are mainly institutional investors, and the corresponding wide-base indexes are reversed, which means that institutional investors are always "buying low and selling high". The relationship between the share of the China-wide Internet ETF and the corresponding index, which is mainly based on individual investors, has changed in the latest year: when the Hang Seng Technology Index fell in 18 years, the share of the China-Wide Internet ETF declined, but after the Decline of the Hang Seng Technology Index in February 2021, the share of the China-Wide Internet ETF accelerated upwards, and individual investors began to "fall more and buy"; second, the time lagging public fund share data, in the past three years, the market has had three relatively large drawdowns, which are the global epidemic impact in March 2020. Core assets tumbled in February 2021 and growth stocks tumbled since December 2021. In these three market declines, the fund has not been redeemed, the net subscription of the fund in March 2020 was more than 100 billion yuan, the net subscription in March 2021 was more than 400 billion yuan, and the net subscription of the fund in January this year was more than 100 billion yuan, and as a comparison, in 2018, both from the annual level and from the monthly level, the fund was net redemption when the market fell. This is because in the past, individual investors often used the stock market as a short-term trading market, and when the market fell, investors would choose to redeem funds and buy real estate and high-yield products instead. In the past three years, the background of residents' asset allocation has undergone profound changes, the new regulations on asset management have led to the demise of high-yield rigid products, the change in the age structure of the population has led to a decline in the allocation demand for real estate, and the medium- and long-term allocation demand for residents' rights and interests has risen. In contrast, absolute income products and accounts may have recently appeared to sell and reduce positions, such as bank wealth management outsourcing, pensions, annuities, some private equity products, etc., which is related to the requirements of the control drawdown of the product itself.
Northbound funds do flow out in the short term, and it is expected that they will still flow in the medium and long term. In addition to leveraged funds and fund redemptions, large outflows of foreign capital often cause disturbances to A shares. As of March 11, 2022, the net outflow of funds from the north in march reached 34.1 billion yuan, and the cumulative outflow since the beginning of the year was 13.3 billion yuan, which caused investors to worry about the withdrawal of foreign capital from A-shares. Looking back at the inflows in recent years, in 2018 and 2019, there were several single-month net outflows of funds from the north due to Factors such as Sino-US trade frictions, and in March 2020, the spread of the new crown epidemic and the sharp fluctuations in overseas stock markets led to a sharp outflow of 67.9 billion yuan of funds from the north in the month, and in the second half of 2020, Sino-US relations began to wave again, and the funds from the north in August to September were again significantly outflowed. Although there have been many net outflows of funds from the north, if we look at it from an annual point of view, from the opening of the Shanghai-Hong Kong Stock Connect in 2014 to 2021, the northbound funds have been a net inflow of A shares every year, which shows that the net outflow of a single month in that year does not affect the trend of foreign capital inflows into A shares. In the long run, the inflow of foreign capital into A-shares is a long-term trend with greater certainty. As the importance of the mainland economy in the world increases rapidly, the market capitalization of A-share listed companies in the global capital market will also rise to 13% in 2020. However, the proportion of A shares in the global portfolio is still very low, for example, the MSCI ACWI index is the benchmark tracked by many overseas passive funds, while the weight of A shares after MSCI's latest adjustment is only 0.4%, and the weight of Chinese stocks other than A shares is 3.6%. In addition, we can also look at the holdings of large investment institutions around the world, such as Norges Bank Investment Management, one of the world's largest sovereign funds, according to its latest disclosure data, Chinese listed companies account for only 3.8% of their stock portfolios.
3. Open the upside after the pullback
The market was shocked throughout the year, and the upward space was opened after the pullback. In "Qu Zequan, Fu Ze Zhi - 2022 China Capital Market Outlook - 20211211", we proposed that "2022 is a rest in the long bull, a stage of shock and momentum", and "Looking Forward to 22 Years: Our Three Special Judgments - 20211219" further pointed out that "the market amplitude will increase ... If the equity fund index returns to historical averages next year, the fund's index will rise by about -6% from now until the end of next year, and investors will need to lower their expectations for annual returns. ”。 Unexpectedly, less than 1 quarter this year, the decline of less than CSI 300 has reached 13%, and the stock fund index has fallen by 13%. Compared with last December, the factors that caused the market to fall more than expected mainly stemmed from the periphery, specifically: the first is the Fed's interest rate hike expectations, and the number of expected interest rate hikes for the whole year of 2022 implied by interest rate futures (calculated based on 25 BPs in one rate hike) has risen from 2-3 times in December last year to a high of 6-7 times in February this year. From the performance of various assets, the US treasury interest rate has continued to rise in the past three months, the DOLLAR index has strengthened, and the US stock market has adjusted at a high level, which indicates that the impact of the Fed's interest rate hikes on large assets has been reflected. The second is the Russian-Ukrainian conflict, since Russia officially declared war on Ukraine on February 24, global stock markets have fallen sharply in the short term, and commodity prices have soared. Stocks in Europe and the United States have stabilized in the recent week, with germany's DAX up 4.1%, France's CAC40 up 3.3%, Britain's FTSE 100 up 2.4%, Brent crude falling the most by 13%, and the impact of the Russian-Ukrainian conflict on risk assets may be weakening. With the gradual fading of external disturbance factors, we believe that internal factors will become positive energy affecting the trend of A-shares, and the annual shock pattern and the pullback of the past 2 months have left room for the later market. In the "two sessions" in the government work report put forward the annual GDP growth target of about 5.5%, is the upper edge of the market expectation of 5-5.5%, the relevant stable growth policy continues to exert force, specifically:
In terms of monetary policy, the government work report proposes to increase the implementation of prudent monetary policy and expand the scale of new loans. In the early stage, the central bank lowered the MLF, SLF and LPR interest rates, and after the "opening" of financing in January, the performance of social financing and credit data in February was significantly weaker, but combined with The January data, the total amount of social financing in January and February was still stable, and the sustainability of credit expansion remained to be seen. Considering the ANNUAL GDP growth target of about 5.5%, this year's policy focus is on "stable growth", and the credit expansion is not as expected, which may mean that the increase in all aspects of the policy is more certain. In terms of fiscal policy, the government work report proposes to improve the effectiveness of active fiscal policy, the scale of fiscal expenditure is more than 2 trillion yuan larger than last year, superimposed on last year's retained fiscal funds, and this year's fiscal space is abundant. On March 8, the central bank issued a news release saying that "this year, the People's Bank of China paid the balance profits to the central government in accordance with the law, totaling more than 1 trillion yuan, mainly for tax rebates and increasing transfer payments to local governments", this more than one trillion yuan of funds is directed to financial assistance, equivalent to increasing the deficit rate of nearly 0.9 percentage points, fully reflecting the enthusiasm of the finance, the next infrastructure investment is worth looking forward to. In terms of real estate policy, the report proposes to continue to ensure the housing needs of the masses. On March 4, the China Banking and Insurance Regulatory Commission and the Chinese Bank of China issued the Notice on Strengthening the Financial Services of New Citizens, which has clear support for the financial needs of 300 million new citizens to settle down.
Focus on value: Bank real estate valuation is low, and brokerage potential is greater. In late November last year, we put the value sector represented by financial real estate in the first echelon, during which financial real estate also ran out of excess returns, the Shenwan real estate index began to bottom out from 2021/11/2, and so far (as of 2022/03/11, the same below) has risen by 0.17% (relative to the CSI 300 excess return is 16 percentage points, the same below), the maximum increase during the period is 22.4%, and the Shenwan Bank index has bottomed out from 2022/1/4. The increase so far is -1.3% (12 percentage points), with the largest increase of 10.1% during the period. Looking back at history, since 2010, the financial real estate sector has run out of excess returns relative to the market a total of 6 times (see Table 3 for details), of which the average value of the excess income of banks relative to the CSI 300 is 18 percentage points, and the real estate is 20 percentage points, which shows that the excess returns of banks and real estate have been more obvious. However, the overall valuation of the large financial sector is still at the bottom, and the current (as of 2022/03/11, the same below) bank PB (LF) is 0.62 times (at the low to high 0.2% quantile since the beginning of 2013), real estate is 0.99 times (1.7%), securities is 1.34 times (7.2%), and the over-allocation ratio of the fund position relative to the CSI 300 is low. Low-valued, low-allocation banks and real estate may continue to rise in the future, but there may be little room for excess returns, and brokerage indices currently have no absolute and relative returns. Standing at the moment, we believe that large finance should pay attention to securities companies, securities companies benefit from the policy and make good profits: from the Central Economic Work Conference in December 2021 to the CSRC System Work Conference in January 2022, the central major meetings have repeatedly mentioned the goal of fully implementing the registration system. As of 2022/3/12, a total of 22 A-share securities companies disclosed their 2021 results, accounting for 46% of the total number of listed securities companies, and the total attributable net profit of these companies reached 100.4 billion yuan, an increase of 41% over 2020.
Growth offensive: low-carbon economy, digital economy. Catalyzed by policies and performance, growth is expected to gradually dominate. However, there will also be differentiation within the growth, combined with the current fundamental differences in the growth industry, policy support and early performance, we believe that the next low-carbon economy in wind power, photovoltaics, UHV, etc., cloud computing in the digital economy, data centers, etc. are worthy of attention.
In terms of low-carbon economy, the focus is on wind power, photovoltaics and UHV. In "Where are the highlights of infrastructure for steady growth?" -20220113" proposed that this year's domestic new infrastructure policy is expected to exert force, accelerate the construction of wind and solar bases under the "double carbon" goal, and is expected to drive trillions of investment, and new power grid facilities such as UHV are also under supporting construction. (1) Wind power and photovoltaic: The new infrastructure represented by wind power and photovoltaics is an important point of the current stable growth policy. According to the forecast of haitong new analysts, the new installed capacity of wind power in the mainland is expected to be more than 71GW in 2022, an increase of about 50% year-on-year, and the new installed capacity of photovoltaics in the mainland is expected to reach 80GW in 2022, an increase of more than 50% year-on-year. The latest annual report or performance express also verified the high prosperity of wind power and photovoltaics, with Tongwei shares' cumulative net profit attributable to the mother in 2021 of 127% year-on-year, Zhonghuan shares 269%, and Three Gorges Energy 56%. (2) UHV: The construction of domestic wind and solar large base projects has been launched, which has spawned new demand for UHV, and UHV is also an important driving force for new infrastructure construction. According to China Energy News, cited by First Finance and Economics, the State Grid UHV investment plan of 380 billion yuan during the "14th Five-Year Plan" period is expected to become an important structural increase in power grid investment.
In terms of digital economy, we focus on cloud computing, data centers, etc. In "Bigger and Stronger Digital Economy: What Areas Are Worth Paying Attention to?" -In the 20220218", we proposed that according to the "14th Five-Year Plan for the Development of the Digital Economy", the CAGR of the added value of the core industries of the digital economy in 20-25 years is expected to reach 14.1%. (1) Cloud computing: "East numbers and west calculations" requires the collaborative construction between data centers and networks, cloud computing, and big data. According to the "Cloud Computing White Paper" of the China Academy of Information and Communications Technology, the cloud computing market size will exceed 1,000 billion yuan at the end of the "14th Five-Year Plan", and the compound annual growth rate will be as high as 36.8% in the 22-25 years. (2) Data center: In February, the National Development and Reform Commission and other departments jointly issued a notice agreeing to start the construction of eight major computing network national hub nodes in Beijing-Tianjin-Hebei, yangtze river delta and other places, which marked the full launch of the "East Counting West Calculation" project. We expect that by the end of 2023, the average annual growth rate of the national data center rack scale is expected to remain at about 20%, according to the Economic Reference Newspaper quoted by the China Academy of Information and Communications Technology forecast, the next three years of data center industry investment or reach 1.4 trillion yuan.
Risk Warning: The Russian-Ukrainian conflict has worsened, affecting the global economy and inflation.
This article originated from the financial world