"Eastern Wu Vision" A-share counter-offensive? Chen Jun's latest research and judgment: three abandonments and three tight eyes

Today (May 11) the A-share market rebounded significantly, the ChiNext index once rose by more than 5% (Note 1) during the session, and since 2022, under the repeated epidemic situation, the Fed has raised interest rates and other factors, and the investment uncertainty in the A-share market has been rising. The more the market rises and falls, the more it is necessary to maintain the rationality of investment, how will the A-share market go after the rebound? What are the investment opportunities in the future? Recently, Xiaobian invited Mr. Chen Jun, executive vice president of Soochow Fund, to interpret the investment value of the macro-economy and the A-share market for us.

(Note 1: Source: Wind, statistical date: 2022/05/11, past performance of the index does not indicate future performance.) ）

Chen Jun: Executive Vice President of Soochow Fund, Chairman of the Investment Decision Committee, Manager of Soochow Xingxiang Growth Hybrid Fund, 22 years of experience in securities industry, 19 years of investment management experience, through the market ups and downs cycle.

Q1: In the short term, has the pessimism of A shares been released?

Chen Jun: At the current point in time, I think we should not panic, but should calm down to find investment opportunities, A shares after this round of adjustment or have entered the relative bottom area, is expected to usher in a cost-effective investment range.

On the one hand, from the perspective of the economy's chain comparison, April is the month most affected by the epidemic, and the economy in April has dug a deep hole, which means that the economic growth in May and June is expected to rise month-on-month;

On the other hand, from the perspective of valuation, the valuation of many leading enterprises in this round of adjustment has fallen significantly, but from the perspective of enterprises, if logistics gradually recover in mid-May and enterprises resume work and production, the impact on the performance of enterprises throughout the year may be relatively limited. As a result, some companies may not need to cut their earnings this year.

We take it a step further and look at an objective valuation metric, the equity-debt risk premium, and generally calculate the equity-debt risk premium using the ratio of Wind's all-A historical price-to-earnings ratio to the ten-year Treasury yield. The risk premium of equity and debt reflects the relative valuation of equity and debt, and the higher the risk premium, the lower the valuation of the stock market relative to the bond market, and the higher the cost performance of stock market investment. According to Dongguan Securities statistics, as of 2022/05/05, the current equity and debt risk premium is 2.12%, close to the historical 90% quantile; among them, the equity-debt ratio in February 2019 and April 2020 exceeded 2%, which is the relative low point of the stock market at this time.

Q2: Under the current market, which tracks are more concerned?

China's old engine "real estate + infrastructure" has slowed down, reflected in investment, that is, the current market uncertainty is larger, we have to make trade-offs, find certainty in uncertainty, specifically "three give up three eyes"

Abandoning the total focus on the structure: Due to the structural transformation, the macroeconomic growth rate is downward, and there are fewer opportunities for a sharp rise in the broad market index, but there is a certain opportunity expected in the structure. I tend to look for structural opportunities in areas that I am familiar with and recognize, and looking ahead, I think structural opportunities in A-shares may be on the clean energy track.

In my opinion, short-term things, things that are not long-term, we must be more and more cautious, because if the market continues to consolidate or fall, affected by investment sentiment, it is impossible to hold on to bad things, and in this process it is easy to lead to chasing up and down, and the portfolio may be particularly hurt. Therefore, when the market is volatile and consolidated, we should pay more attention to industries with long-term development and companies with long-term growth.

Abandoning the game to focus on synergy: In the context of economic structural transformation, we should abandon companies that swim against the current, consider choosing companies that go up the river, keep up with the trend of the times, and focus on the boom track supported by policies and in line with the development trend of the times.

Based on the above three logics, I think clean energy is still likely to be the direction of the next 3-5 years. First of all, all countries, whether it is China or the United States or Europe, are encouraging clean energy; secondly, affected by the Russian-Ukrainian war, due to the emergence of the world energy crisis, the price of traditional energy has risen sharply, the importance of energy security has increased significantly, and countries have increased their clean energy. Finally, since 2022, the clean energy track has pulled back significantly, the valuation has declined, and the cost performance of clean energy investment is expected to increase.

3. Recently, there have been more suppression factors in the clean energy track in the market, how to look at it?

Chen Jun: At present, there are four main suppression factors for clean energy: reduced policy support, increased upstream costs, shrinking downstream consumption, and congestion in the track. In fact, the above four major suppression factors of clean energy are all marginally improving, and the current stock price trend of clean energy-related stocks has reflected the market's pessimistic expectations.

Policy issues: The current policy focus is on steady growth, and many people feel that in this context, the construction of clean energy may be suspended. In fact, clean energy-related energy construction, such as the construction of energy grids, is an important part of infrastructure construction and is also part of steady growth. In addition, with the development of technology, the cost of clean energy power generation has dropped significantly, the economy has improved, compared with infrastructure such as highways, the economy of clean energy infrastructure is larger, and the possibility of returning costs is higher.

Upstream high cost problem: Everyone has recently been discussing the sharp decline in the net profit margin of battery manufacturers, which is mainly due to the increase in upstream cost prices. In fact, high raw material prices will bring a lot of upstream expansion power, and with the rise of supply, the price of upstream raw materials is expected to fall, and the profit margins of clean energy companies are expected to rise over time.

Downstream demand issues: Affected by the epidemic, the market is worried that automobile consumption will decline greatly. On the one hand, the overall decline in automobile sales does not mean that every company is damaged, and some companies may still grow against the trend; on the other hand, with the improvement of the epidemic and the promotion of automobile resumption of work and production, along with the economics of electric vehicles are becoming more and more recognized, compared with the second quarter, the sales of electric vehicles in the third quarter are expected to rebound.

Track congestion problem: In my opinion, the valuation of the clean energy track after the pullback is obviously digested, and at the same time, some investors have turned their attention to other stable growth tracks such as traditional infrastructure and real estate, which has further alleviated the congestion problem of the clean energy track. Valuation correction, superimposed on the possibility of high growth in the future, the cost performance of clean energy track investment is expected to increase.

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