The macroeconomic and policy environment continues to improve.Accumulation of policy effects to improve fundamental expectations

1) the domestic economy will improve month by month after it bottomed out in August, and the economy will return to normal in the fourth quarter after the relief of short-term disturbances.Affected by the rise in raw material prices and the epidemic, PMI in manufacturing and non-manufacturing fell back to 50.1 per cent and 47.5 per cent respectively in August. On the financial front, the stock growth of social finance fell further to 10.3% in August compared with the same period last year. Structurally, government bond financing is the biggest drag. Considering that the recent net financing of new government debt has rebounded, the period of greatest downward pressure in this credit cycle has passed. In terms of foreign trade, the growth rate of exports in August was 25.6%, and the economy continued to exceed expectations. Judging from the changes in overseas supply and demand, it is expected that China's exports will maintain a relatively high growth rate in the third quarter of this year. In terms of investment, the business activity index of the construction industry in the non-manufacturing PMI in August was 60.5%, up 3 percentage points from the previous value, and the resilience of the investment side is still strong. As policy pre-adjustments and fine-tuning have dissipated short-term disturbances, domestic economic performance is expected to improve month by month after bottoming out in August, with compound GDP growth of 5.3 per cent and 5.6 per cent respectively in the third and fourth quarters of this year.

2) the policy alleviates the contradiction between supply and demand, futures speculation is restrained, and commodity prices are expected to peak and fall in August and September.On the one hand, since the Politburo meeting in July put forward a national game of chess to correct the movement of "carbon reduction", the policy of ensuring supply and stabilizing prices for commodities has been falling to the ground, such as extending the expiration time of coal mines that are in a state of suspension. The National Development and Reform Commission approved the replacement of production capacity in some coal mines, and so on. Although it takes time for the policy to be transmitted to the supply side, the contradiction between supply and demand will eventually be gradually alleviated. On the other hand, under the loose liquidity, the speculative atmosphere of commodity futures is heavier, the fluctuation of futures prices is enlarged, and the active contract prices of some varieties deviate greatly from the spot prices. In order to curb speculation, commodity exchanges have raised margin requirements for popular futures contracts, such as coking coal and coke, and Zheng Shang has raised the margin ratio for thermal coal futures.As supply-side expectations improve and futures-side speculation is curbed, we expect commodity prices to peak in August and September, which will play an important role in improving production willingness in the middle and lower reaches.

3) the policy expectation continues to correct, the policy effect accumulates the bottom and improves the fundamental expectation.First of all, in addition to the policy on commodity prices, the people's Bank of China has added 300 billion yuan to the small and medium-sized re-loan line in order to strengthen the rescue and assistance to small and medium-sized enterprises. Second, Vice Premier Liu he mentioned moderately advanced infrastructure construction at the China International Digital economy Expo. Following the acceleration of special bond issuance in August, local government bonds issued a total of 183.9 billion yuan in September, accounting for 62% of the annual budget. The accelerated issuance of special bonds will accelerate the transformation of power grids, the construction of new energy power stations and energy storage and other new infrastructure to support infrastructure investment. Finally, in view of the impact of recent industry regulation on the capital market, People's Daily published an article this week to emphasize that "regulatory policies are treated equally" and "standardizing development is to promote healthy development." Although investors are still worried about some industry policies, in fact, the recently landed industry policies are mainly normative, and investors' policies are expected to continue to be repaired.

Macro liquidity will remain phased before the end of the year.With affluence, market liquidity is expected to continue to improve.

1) Macro-liquidity is still loose before the end of the year, and the fourth-quarter reserve cut is expected to hit the ground in October.Overseas, due to the repeated impact of the epidemic in August, the US non-farm payrolls data was lower than expected, and the improvement trend in the service industry was interrupted. We believe that the probability of the Taper plan announced by the Federal Reserve interest rate meeting in late September is very low. The ECB decided to moderately slow the pace of bond purchases at its September meeting, which is a calibration of earlier faster bond purchases and is not equivalent to Taper. As winter approaches and the Delta virus spreads, the easing exit of central banks in Europe and the United States is expected to suffer twists and turns. On the domestic side, in order to deal with the credit risk and alleviate the short-term pressure on the economy, it is expected that there is still room for full reserve reduction in the fourth quarter, and there is a high probability of landing in October. At the same time, it is expected that the 600 billion yuan of MLF due next week will be renewed. On the price side, interbank liquidity is still loose, and DR007 is expected to keep a close eye on 2.2% of the hub, 10-year Treasury yields will maintain a low range of 2.8% to 3.0%, and macro liquidity will remain loose until the end of the year.

2) the transition period of the new rules of asset management ends, the expected rate of return of financial products goes down, and liquidity continues to spill over.On September 8, the Bancassurance Regulatory Commission openly solicited opinions on the measures for liquidity risk Management of Financial products of Financial companies, and made detailed norms from the aspects of legislative basis, scope of application, relevant definitions, basic requirements, supervision and management, etc. With the gradual end of the transition period of the new regulations on asset management, the policy ends quickly, and the pressure on the transformation of the net value of financial products increases, both of which limit the type and duration of asset allocation after the rolling of new products. Yields on wealth management products have accelerated downward since June, with expected annualised returns for three-month products falling to 2.68 per cent from 3.73 per cent at the end of May, a drop of 105bps, according to Wind.Due to the expected earnings decline, the liquidity spillover benefits are obvious in the rolling process of huge financial products, which is also an important support for the recent continuous pick-up of public and private offerings and the entry of A-share hot money and retail incremental funds.

3) the market liquidity environment is expected to continue to improve.According to the main body of investment, northward allocation of foreign investment has returned to a faster inflow pace since August and maintained a relatively balanced allocation style. according to the survey data of CITIC channels, the proportion of A-share transactions of quantitative strategy is currently stable at 10%-15%. It has not been significantly enlarged recently; the proportion of financing transactions in the two cities is also declining. We believe that the recent transactions of small and medium-sized companies are active, and hot money and retail investors are still the main sources of incremental capital. According to the latest data released by China Clearing, 1.87 million new natural person investors were added in August, rising for four consecutive months, with the total number of natural person investors reaching 192 million at the end of August, up 11.7 per cent from a year earlier. Under the loose macro liquidity environment and the liquidity spillover of financial products, A-share trading is still active, and market liquidity is expected to continue to improve.

When the style switch is going on, the center of gravity is partial to the value.

1) the fundamentals are expected to be better with the liquidity environment, and the style is switched to progress.As mentioned above, the overall environment of economic operation and macro policy is good, and the macro and market liquidity environment is well-off, which is an important support for this round of A-share style switching. After the four major signals analyzed in our focus report last week emerged, the market style will continue to switch. In terms of valuation, the dynamic price-to-earnings ratio of the Shanghai Stock Exchange 50 to the gem index has fallen to 4.9 from its peak of 5.7 in August; on transactions, the share of transactions in the previous popular new energy and semiconductor industry chains has continued to decline, while the five industries with the fastest monthly growth in average daily turnover in September compared with August are power, construction, non-silver, media and coal, while undervalued sectors continue to pick up.

2) adhere to the balanced configuration, and the center of gravity continues to shift to value.For the current allocation value of the major industries in the current market, we judge as follows. First of all, the periodic plate space is subject to the elasticity of resource prices and the intensity of counter-cyclical policies. Combined with the previous policy analysis, its medium-term allocation performance-price ratio is decreasing. Second, the orderly release of credit risk, the financial sector affected by the bottom of the credit cycle, there is room for valuation repair, but it is difficult to continue to lead the rise. Thirdly, considering the recent incremental capital structure and preference, "specialization and innovation" in growth and manufacturing is still an important investment direction. Finally, most of the dynamic valuations of consumption and medicine have been adjusted to near the average. Although the short-term economic recovery remains to be seen, considering the resilience after the mitigation of the epidemic, the room for repair after policy correction, and the long-term stable preference of superimposed institutions, we believe that consumer medicine is still the most valuable variety for left allocation at present.

3) combined with boom and valuation, looking for a subdivided track with poor positive expectations.In the selection of specific varieties, we should start from three directions: 1) the consumption and medicine with high prosperity in the left layout value plate, especially those subdivided industries which are in good condition but are greatly adjusted by transaction or policy factors in the early stage, recommendSub-high-end spirits, CXO, vaccinesAnd Hong Kong stocksBeer, clothing faucet2) the manufacturing and technology sectors need to pay more attention to the matching of valuation and earnings, and recommend that the results in the third quarter are expected to continue to exceed expectations.Machinery, military industry,Semiconductors, lithium batteriesIsoelastic varieties; 3) under the background that the suppression factors have been improved, but have not yet been completely eliminated, attention is paid toA-share financial plate和Hong Kong stock Internet leaderThe opportunity to fix the valuation.

Risk factors

Repeated global epidemics and lower-than-expected vaccination; intensified frictions in the field of science and technology trade between China and the United States; slower-than-expected domestic economic recovery; and tighter-than-expected macro liquidity at home and abroad.