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What do you think of today's A-shares? Especially while the global stock market continues to renew its highs, we are still hovering at a low level, unchanged 3000 points to defend the battle. Under the stimulus of many policies, can the market usher in a turnaround? In fact, the trend of the economy has pointed the way to the financial market, after all, the stock market is a barometer of the real economy. As investors, we must be prepared for a long battle and be patient; At the same time, the author also noticed that the genes of the new hot spots in the market in such a cycle all come from the "going overseas" model, which is very noteworthy.
The delicate relationship between economic data and policy stimulus
The most recent financial data released in June 2024 showed that M2 grew by 7% year-on-year, M1 decreased by 4.2% year-on-year, and M0 increased by 11.7% year-on-year. In the first five months of 2024, the cumulative increase in the scale of social financing will be 14.8 trillion yuan, a decrease of 2.52 trillion yuan from the same period last year. The poor performance of the data is obvious, and companies are choosing to shrink rather than expand; Residents tend to prepay their loans rather than borrow, which leads to such figures. Investors' attitudes are divided into two categories: one is pessimistic, believing that poor data should be quickly withdrawn to avoid being trapped; On the other hand, there are optimists, who believe that the upcoming important meeting in July may lead to a full liberalization of policies, and now is a good time to pick up bargaining chips.
In this regard, the author believes that we should accept the reality of weak cycles and avoid excessive pursuit of bull markets. With this expectation, we can understand the importance of a protracted strategy, and the change of market trends also needs to be realized gradually, and rushing to achieve results will only be counterproductive. For example, we note that in the first half of 2024, a number of pension funds managed by well-known financial institutions such as CITIC Prudential, Ping An and Penghua have announced liquidation, especially Ping An Pension's five-year FOF with a target date of 2045, whose total return is as low as -17.87%. This is not the case for institutional investors, and the situation for ordinary investors can be imagined.
Looking back at more than a year of data, PMIs in mid-2023 and early 2024 both showed lows, and the double-dip recovery that many were expecting did not materialize. In fact, the current economic recovery is L-shaped. This is especially true for brick-and-mortar companies, some of which have even had to shut down and reduce production to avoid further losses. This is basically consistent with the performance of the A-share market, which is in a see-saw situation, and reducing operations is the best policy. We need to be patient and wait for possible turning points such as the Fed's rate cuts.
With the announcement of the European Central Bank's interest rate cut, the watershed of global monetary policy has arrived, and a wave of interest rate cuts by central banks around the world is coming. Before the ECB, central banks such as Canada, the Czech Republic, Hungary, Sweden and Switzerland had already announced interest rate cuts. Overall, the US dollar began to weaken, and gold and silver resumed their high volatility. The ECB's hawkish approach and rhetoric are helping emerging markets ease near-term macro-level pressures. As one of the countries in the world that most hope to cut interest rates quickly, the interest rate cut can greatly alleviate the current domestic debt risk, delay the crisis, and help the return of capital to emerging markets.
An era of challenges and opportunities
This is a time of great challenges and opportunities. The integration of capital thinking and new business models has made the world a stage of competition. In the wave of new business, there are no industries destined to be eliminated, only enterprises that fail to adapt to changes and are subverted. From the perspective of the first half of 2024, the export data is positive year-on-year and month-on-month. In the commodity category, ships are still the best growth rate, and the semiconductor and consumer electronics industries have also begun to pick up; The auto industry is still growing at a solid pace, while home appliances and labor-intensive goods are likely to respond to tax hikes due to inventory replenishment. At the national level, exports to the United States, as well as exports to Southeast Asia and Latin America, have picked up.
The logic of the market in 2024 is that the hot spots are "going overseas", high dividends, technology, consumption replacement, etc. Among them, many investors are confused about the "going overseas" strategy. In fact, this is quite similar to what Japan experienced during the "lost 30 years" period. Japan's experience shows that "going overseas" enterprises have become giants, successfully solved domestic contradictions, and stood out. This also tells investors that it is also very important to learn and discover the meaning of the growth of the times.
In 2023, the mainland holds $9.58 trillion in overseas assets and $2.91 trillion in net assets. OFDI is the main form of "going overseas" of mainland capital, and its share of the mainland's total overseas assets has risen from 6% in 2004 to 30% over the past 20 years. However, Made in China is undergoing an unprecedented test. Prior to 2015, the mainland's share of global export trade rose steadily, but fell between 2015 and 2021. Although it recovered in 2021-2022 due to better control of the epidemic, it continued to decline in 2023 and is now on par with pre-2020 levels.
As the demographic dividend effect weakens, countries with lower labor costs such as Viet Nam, India, and Mexico are replacing the export share of labor-intensive products on the mainland, putting pressure on China-related enterprises. In the face of this situation, we need to transform the industry with high added value and form customer dependence. It is difficult to sustain simple labor costs with low labor costs, and it is difficult to support gross profit margins from price wars. At the same time, we can also use overseas labor costs to make high value-added enterprises, and now that China's innovative drugs are "going overseas", the choice of overseas bases is also taking advantage of this factor.
Finally, trade friction factors cannot be ignored. The share of mainland merchandise exports to United States peaked in 2018 at 21%. But then it continued to fall. In 2023, only 14% of United States imports came from Chinese mainland, which is comparable to 2005 levels. At the same time, companies in Korea, Japan and India have all benefited. Therefore, in the process of "going to sea", we should not only consider our own factors, but also integrate more with local enterprises and people to form a community of interests, so as to reduce the risk of being sanctioned.
Looking for ideas for "going global" enterprises
With the slowdown in the upgrading of the domestic industrial structure, overcapacity and declining production efficiency, more and more fund managers have begun to look for companies with the ability to "go overseas", adapt to the trend of new "global trade mode" and have new competitiveness. Enterprises "going overseas" can be divided into four types: production capacity, brand, e-commerce and retail. Referring to the experience of Japan enterprises in "going overseas", industries with comparative advantages take the lead in "going overseas", that is, after Japan enterprises start the "going overseas" strategy, industries with a high proportion of exports become the preferred choice of enterprises after "going overseas".
On the one hand, traditional mature industries such as Chinese manufacturing companies are gradually transferring production capacity to Southeast Asian countries such as Viet Nam and Cambodia and expanding new factories, so as to enjoy local export tariff advantages and tax incentives, such as the textile and garment and automotive industries. On the other hand, enterprises have their own brands "going overseas" or entering new markets through mergers and acquisitions of overseas brands, and gaining overseas market share by virtue of strong product strength and brand influence, such as Haier and Midea in the home appliance industry.
Secondly, cross-border e-commerce enterprises rely on the sharing network brought by mature domestic industrial clusters to achieve efficient use of resources and form price advantages. In the context of high inflation overseas, the cost-effective products provided by cross-border e-commerce are more attractive, and Pinduoduo and Douyin have made obvious attempts in this regard. However, there is also uncertainty in the policy of overseas purchasing agents and is easily affected. Therefore, it is necessary to choose more new energy wind photovoltaics, new energy vehicle manufacturing and other fields with technology priority, and whether it can come out of a Chinese "going to sea" road is the key, after all, "going to sea" is to solve the current contradiction of domestic oversupply and involution, and to solve the supply and demand relationship through "going to sea".
Finally, in some industries that were previously monopolized by foreign countries, Chinese companies have formed their own competitiveness, such as the "going overseas" of China's innovative drugs/vaccines, which are now very clearly increasing, especially in third world countries, which have very good cost performance and are just needed; There's also a similar situation in the field of electronics, which is at the heart of our focus. Obviously, "the overseas model is the inevitable direction of the transformation of Chinese enterprises in the future, and only then can we solve the problems of the economy, which is also bound to become an important thinking mode for future bull stocks."
"Going overseas" has become the key to breaking the situation of listed companies
There are two factors: active and passive factors for Chinese enterprises to "go overseas". The passive is due to friction factors, and can not sit idly by, but can only actively expand other channels to hedge the impact, such as the number of exports to the "Belt and Road" countries has increased significantly; The initiative is because of the economic transformation, the involution is obvious, and overseas factors are needed to solve the problem. In fact, in the analysis of the performance report in the past two or three years, the author has specifically mentioned that after all, when there is a lack of bright spots in the domestic side, the income of "going to sea" is very critical.
In 2023, the overseas business revenue of A-share companies will reach 9.81 trillion yuan, accounting for 13.5% of the total revenue, both of which are slightly lower than the previous year. In 2023, the overseas business revenue of A-share companies will be 8.45 trillion yuan, accounting for 12.71% of the total revenue, both of which hit a record high. In 2023, the gross profit of A-share companies' overseas business will reach 1.48 trillion yuan, accounting for 13.1% of the total gross profit of A-shares, and the gross profit margin of overseas business will reach 15.07%, all of which will hit a record high. Compared with 10 years ago, the gross profit of overseas business increased by 8.41 percentage points to A-shares, and the gross profit margin of overseas business increased by 7.23 percentage points, with an increase of 179.52% and 92.11% respectively.
In absolute terms, in 2023, the revenue of overseas business in 8 industries will exceed 500 billion yuan, of which the revenue value of the electronics and petroleum and petrochemical industries is the highest, both exceeding 1 trillion yuan, and the overseas revenue value of automobiles and power equipment is not low, exceeding 800 billion yuan and 700 billion yuan respectively. From a relative point of view, there are 7 industries with overseas business accounting for more than 20% of the revenue, namely electronics, household appliances, automobiles, machinery and equipment, petroleum and petrochemical, power equipment, and basic chemicals. So, why is it evolving? Japan's experience in "going to sea" can be used for reference.
Real estate in mainland China peaked in 2021, with a historic inflection point in the population at the end of 2023 and the beginning of an aging process. These are similar to Japan, although they cannot be carved into a sword, but their experience is very useful, such as "going overseas" in the post-real estate period, consumption replacement and new technology cycle, aging, dividend model, etc. In the post-real estate era, there are relatively few industries that can maintain high growth, and the underlying logical value of the dividend model is highlighted. In a low interest rate environment, dividends are more valuable. The five major trading companies in Japan bought by Buffett are also bull stocks with the logic of "going overseas", and their main operating income comes from resources and trade.
The so-called consumption replacement, after the 90s, Japan's biggest beneficiary from consumption replacement is Fast Retailing (Uniqlo's parent company), which was listed in 1997 and rose more than 45 times by 2021. As a result, the actual controller has become the richest man in Japan many times. Of course, after the domestic advantage, "going to sea", such as Uniqlo in shopping malls all over China. The mainland now also has an obvious phenomenon of consumption downgrading, how to find alternative factors, high quality and low price have become the key.
Japan's post-real estate era has experienced the Internet and computer revolution, and the new technology cycle is less affected by the overall economy and has its own cycle. The bull stocks generated in the last round of new technology cycle include Tokyo Electron, Shin-Etsu Chemical, Sony, etc. And this round is an obvious artificial intelligence cycle, and it is still unknown which varieties will come out, which is the charm of science and technology. Japan "goes to sea" to solve domestic problems, Japan's dominant industry is automobiles, Toyota, Honda, etc. are big bull stocks in the field of Japan's automobile, and the profitability is strong. So, what are our advantageous enterprises?
A careful study of the performance report and the trend in 2024 can also find some eye-catching phenomena, such as Yutong Bus, Shantui Shares, Xinghu-Technology, Chunfeng-Power, etc., which have all risen by more than 50% during the year. And these varieties also have some commonalities, overseas revenue is more than 1 billion yuan, and it has increased for more than 3 consecutive years, which in turn promotes the continuous growth of net profit. Among them, Yutong Bus will achieve overseas revenue exceeding 10 billion yuan for the first time in 2023, and the gross profit of overseas business will reach 3.294 billion yuan, accounting for nearly half of the company's gross profit.
The mainland's traditional advantageous industries are textiles and apparel, power equipment and coal, which occupy a considerable share of global exports and are in a leading position in the global value chain. In addition, in recent years, the proportion of overseas revenue in five industries, including automobiles, household appliances, commerce and retail, electronics, and non-ferrous metals, has increased by more than 10 percentage points. Among them, the proportion of overseas revenue in the automotive industry has increased most significantly, and the proportion of overseas revenue in this industry will reach 23.38% in 2023, an increase of 17.03 percentage points compared with 10 years ago. From the perspective of the future, strategic emerging industries will become an important direction of transformation. The position of such industries in global exports is becoming increasingly prominent, and the proportion of added value of the industry also has a large room for improvement. Industries that meet this trend include new energy, heavy trucks, pharmaceutical/medical, fine chemicals, high-end machinery and equipment, and new energy vehicles.
In short, "if you don't go to sea, you will be out" has become the consensus of all parties, and it is also the force to promote enterprise change. Nowadays, the more mature the enterprise, if it only relies on existing factors, its survival pressure and innovation momentum will gradually weaken, and it may lose its competitiveness in the change. Only by forming a "second curve" to promote the growth of the industry will there be more opportunities. "Going overseas" has become an important choice for corporate growth and earnings, and it has become a bright spot in the stock market in the weak cycle, which is the key for investors to obtain returns.
Author: Wang Wei, an investment expert, a well-known financial blogger on Weibo, a financial writer, and the author of "Calendar Stock Buying Law" and "The First Lesson of Unraveling".