Financial Industry August 15 News In the past two years, the A-share market has shown obvious characteristics of small-cap stock performance, and the yield of the broad-based index has continued to increase with the reduction of the average market value of the sample companies, and the yield and market value have shown a strong negative correlation. In 2022, especially since the market surge in early May this year, the small cap index has a significant excess return compared to the large market index.
According to the "Logical Framework for Switching Large and Small Disk Styles" released by Founder Securities, the Shanghai 50 Index fell by 10.1% in 2021, the CSI 300 Index fell by 5.2%, the CSI 500 Index rose by 15.6%, and the CSI 1000 Index and the China Securities 2000 Index, which represent small-cap stocks, rose by 20.5% and 29.2% respectively. Founder Securities believes that the main line of market investment in 2022 will grow in the emerging industry hard technology small cap.
The large and small markets have nothing to do with liquidity and economic cycles
For the style of large and small markets, one of the most talked about logic in the market is to explain the market from the perspective of liquidity and currency cycle. This view generally believes that when the downward liquidity of interest rates is relaxed, the market activity increases and the valuation of growth stocks is easy to rise, so it is easy to appear in small-cap stocks. When the upward liquidity of interest rates tightens, the valuation of high-growth and high-valuation sectors is easily suppressed, and it is more likely to appear in the large-cap market at this time.
However, Founder Securities believes that from the empirical facts, whether liquidity is loose or not is not the decisive factor in the switching of the style of the large and small disks, and the large and small markets have nothing to do with the currency cycle.
Taking the A-share market as an example, in 2013, the growth stocks represented by the ChiNext Board significantly outperformed the market as a whole, opening the so-called "small and medium-sized innovation market". From the perspective of market style, 2013 was a standard small-cap stock market, and the CSI 1000 Index continued to outperform the market as a whole.
From the perspective of the liquidity environment, there was a so-called "money panic" in 2013, and the interbank market lending rate soared sharply in June and December 2013 to create a historical extreme, and the long-end interest rate was basically a unilateral upward trend after June. As a result, 2013 was a classic "small-cap stock market in a tighter liquidity environment." Conversely, the large-cap market can also appear in an environment of loose liquidity or in an environment of tight liquidity.
Not only is this the case for A-shares, but also for U.S. stocks, and there is no necessary relationship between excess returns on large and small plates and tight liquidity at interest rates. In the strongest small-cap market in the history of the US stock market from 1975 to 1983, there were exactly two oil crises, and the sharp inflation spike led to a sustained rise in interest rates that exceeded 10% at one point. It can even be said that the U.S. small-cap stock market in the late 70s broke out in a liquidity crunch environment.
In addition to interest rate liquidity, the second logic that is widely talked about by the market is the relationship between large and small markets and economic cycles. Founder Securities believes that similar to the logic of the currency cycle, the market of large and small-cap stocks has nothing to do with the economic cycle, and the market of small-cap stocks (large-cap stocks) can occur both during the economic upswing period and the economic downturn. However, different economic cycles affect investors' "perception" of market style.
The reason is that when the small-cap market appears in the economic upward cycle, at this time, because the prosperity of various industry sectors is very good, there are many main lines of market conditions and investment opportunities, investors often do not pay too much attention to small-cap opportunities. For example, the A-share market in 2009 was a standard small-cap stock market in terms of style, but because the economy was fully recovered at that time, investors paid more attention to the "coal flying dance", "home appliances going to the countryside", "cars going to the countryside" and other markets, and did not care too much about the small-cap stock market at that time.
But by 2013 and 2015, when the small-cap market broke out again, the situation was completely different. At that time, because the economy was in a downward cycle, most of the industry sectors were booming downward, and there were not many investment lines and opportunities in the market from the general fundamentals. At this time, investors will pay special attention to the opportunity of small-cap stock market, and the market's perception of small-cap stock market will also rise significantly, which is the case in the 2013 mobile game animation film and television market.
The size of the plate style may depend on the logic of the industry
So what is the determinant of the style of the large and small plates? Founder Securities believes that the core logic or mainly lies in the industrial logic. That is, when a new industrial chain appears in the real economy, it is likely that there will be a small-cap stock market; On the contrary, when there is no new industrial chain in the economy at a specific stage, and the logic of industrial development increases in concentration, the stock market will show the dominant characteristics of large-cap stocks.
Increasing industrial concentration is essentially a stock game process, and the market share gained by leading companies is the revenue lost by competitors. The more concentrated the industry, the less targets can be invested, so the so-called "grouping" and "core asset concept" have emerged in the market. A more typical case is that from 2016 to 2019, before the outbreak of the epidemic, the ROE of leading consumer listed companies continued to rise, which was completed in the process of continuous decline in the year-on-year growth rate of total retail sales of consumer goods.
Corresponding to the logic of "convergence" of industrial concentration, it is a new industrial chain or industrial upgrading, which is an incremental "diffusion" logic. In the process of industrial upgrading, related enterprises will form a large amount of capital expenditure, and the expenditure of downstream enterprises will become the income of their upstream enterprises, so it will drive investment opportunities in the entire industrial chain. Especially in emerging growth industries, the emergence of a new technology will correspond to huge demand, and small and medium-sized enterprises with related new materials and new equipment in the industrial chain will have huge profit elasticity or even double the growth.
For example, after 2019, the emerging industrial chain represented by semiconductors and new energy has risen again, and the capital expenditure of industry-related companies has increased significantly. The capital expenditure of the downstream company opens up the revenue space of the upstream company, and your expenditure is my income, in the process, the industry once again shows the characteristics of "diffusion" development. This is the industrial logic behind the growth explosion of many small and medium-sized enterprises since 2021.
In the future, the dominant style of small caps may continue
Looking ahead, Founder Securities believes that the style switch from 2021 is a new turning point. First of all, the main logic of the A-share market has changed from industrial concentration to industrial upgrading. A new industrial chain represented by new energy and new energy vehicles has emerged, giving birth to a large number of outstanding small and medium-sized growth enterprises. From a global perspective, the relevant industrial chain has constituted China's dominant competitive industry, and under the state's support for the "specialized and specialized" enterprise policy, it is expected to have good development in the future for a considerable period of time.
Secondly, from the relative valuation of small and medium-cap companies, the valuation premium rate of small and medium-cap companies is still at the bottom of history. At the peak of the small-cap market in 2015, the median price-to-earnings ratio of the CSI 1000 Index was about 140 times, the median price-to-earnings ratio of the CSI 500 was about 80 times, and the median price-to-earnings ratio of the CSI 300 was about 40 times, and the small-cap companies had a large valuation premium rate compared to large-cap companies. At present, the median price-earnings ratio of CSI 1000, CSI 500 and CSI 300 is generally not much different, and the historical quantile of small cap stocks relative to the price-earnings ratio is low, which leaves room for the subsequent stock price performance.
In addition, the market's "growth valuation premium" for small market capitalization companies and the "stability valuation premium" for large market capitalization companies are essentially the same, ignoring short-term performance growth rates. For a long time, the PEGs of listed companies rose significantly with the increase in market capitalization, and the "profit growth rate" of large market capitalization companies was much more expensive than that of small market capitalization companies. From 2021 onwards, the logic of "stable valuation premium" for large market capitalization companies has been difficult to gain a foothold in the market, so on the whole, the dominance of small and medium-cap markets may be the stylistic characteristics of the A-share market in the next 3-5 years.
This article originated from the financial world