Policy signals appear frequently, and expectations for stable growth usher in repairs
This week is the last week of March 2022, and the market as a whole still continues the relatively dominant performance of the value style, with the value of the broader market up 4.88%, an outstanding performance. In terms of specific industry structure, driven by the strong signal of steady growth from the decision-making level and the intensive introduction of real estate relaxation policies in various provinces and cities, the real estate sector that we previously emphasized and recommended rose by 10.63% to lead the market, and the real estate chain has also recovered. After the stable growth chain (infrastructure, real estate) reached a staged high point in mid-February, it was affected by the time lag from policies to fundamentals, and at the same time, the introduction of new policies was insufficient, and the market in the early stage continued to question the strength of stable growth. The cumulative rise and fall was lower than that of Wind Quan A. The latest week, the real estate easing policy package implemented by Zhengzhou in early March was widely confirmed in the policy easing introduced by major cities across the country. Among them, Zhejiang Quzhou has a relatively high energy level. The third-tier cities in China are the first to optimize the policy of restricting purchases and sales at the same time. In the future, investors are expected to enter a period of expected restoration of stable growth. However, we insist that real estate is still a better investment vehicle than the real estate chain.
Inflation is the real core thread
From a domestic perspective, we found that even in Q4 2021, when demand is weak and China’s economy is in recession, the capacity utilization rate of the mid- and upstream raw materials sector is still at a historically high level, and the inventory of major domestic varieties has never exceeded the historical average level, and Prices remain fairly resilient (the 120-day moving average of the South China Industrial Products Index has not weakened).Overseas, before the Russian-Ukrainian conflict, there have been spot-driven rises in major industrial products and energy (spot-futures)cargo baseThe difference has widened), while the convergence has only recently occurred.This means that the sanctions derived from the Russian-Ukrainian conflict have only strengthened the existing inflation perception (the basis has begun to fall), and the sanctions are moving from expectations to reality.At the moment when demand expectations are gradually improving, domestic supply bottlenecks will resonate with overseas inflation. This is what we call inflation elasticity stronger than the economy. This is a more certain main line.
There are still a lot of profits in the middle and downstream links that have not been eroded, and the economy’s resilience to inflation is still there
We suggested in last week’s weekly report “Until the End of Inflation” that looking at the distribution of profits in the industry chain can better quantify how much demand has been “killed” by price levels.In order to take into account the structural changes, we further analyze theinterest rateFrom a different perspective, a similar conclusion is reached: that is, the current upstream relative to the grossinterest rateThe difference is constantly rising, but there is a gap of more than 6% from the historical high level. Considering that the cost of integrated enterprises in the middle and lower reaches of the industrial chain is lower than that of the upstream, the gap in net interest rate is more than 10%. From the perspective of the United States, the current abundant profit level in the middle and lower reaches will become a strong buffer between high upstream prices and terminal demand.Investors need to fully realize that the inertial thinking about profit distribution in the industrial chain under the down cycle of commodities in the past 10 years needs to be broken:Under a supply shock, when the end of the supply curve is approximately vertical, the price will rise until there is no demand to take over and it will be finally suppressed: whenWhen the middle and lower profits are compressed by the upstream to a certain extreme value, enough individuals will stop production, and the upstream demand will be compressed until the supply and demand gap reverses, and the end of inflation is far in the future.
Only by admitting inflation can we discover opportunities in inflation
China‘s current low inflation level has actually formed support for my country’s exchange rate and created space for the policy of stabilizing growth.existoil priceIn the sharp upward trend, cheap energy represented by coal has become an important force for China to fight against global inflation in a sense; structurally, this will also create greater profit margins for Chinese companies whose main products are electrolytic aluminum and chemicals.Although mid-stream and downstream investors are worried about rising oil prices,Investors will soon realize that the drop in oil prices is actually even less good news for Chinese onshore investors.From a longer-term perspective, even if the conflict is over, sanctions will continue, and the western consumer powers Europe and the United States and resource power Russia are forming a certain degree of separation in the future. At present, the spread between Russian crude oil (Ural crude oil and ESPO crude oil exported to Asia) and international oil prices has been continuously widening. In the future, with the continued decline of Russian resource products and the further increase in the prices of external non-Russian commodities, China, as a major manufacturing country, has the opportunity and ability to trade between the two worlds, reducing its own relative inflationary pressure and increasing its industrial competitiveness. Of course, this idea requires more opportunities and conditions, and it is also where optimistic investors should pay attention to under global inflation.
Towards the road of inflation, the layout of the real cycle
Inflation is becoming unstoppable, and domestic investors focus more on the more certain supply-demand contradiction, while ignoring broader opportunities such as rising real assets and energy arbitrage under inflation expectations, which lag behind overseas markets significantly. Inflation transactions will spread to a wider dimension, and we estimate that there is still a lot of room for improvement in the valuation of upstream resource products. In terms of specific configuration, the upstream is still a relatively dominant sector, and the best tool for demand recovery is the real estate sector: first,Copper, Aluminum, Gold, Coal, Oil & Gas, Agriculture (Planting, Fertilizers); Second, pay attention to the opportunities under the reshaping of the trade pattern:Oil transportation, dry bulk transportation; Third, in the main line of stable growth, we must abandon the simple mapping of 2016-2017 and look for industries whose supply has been cleared in the previous down cycle:real estateand layout from regional and structural expansion ideas:Bank(local, county and township), building。
risk warning: The implementation of the stabilizing growth policy was less than expected; overseas imported inflation exceeded expectations.
(Article source: Minshengsecurities）