Smart Finance APP learned on July 29th that Chen Guo, Chief Strategy Officer of China Securities Co., Ltd. made an analysis and outlook on the market in a live broadcast. Chen said that from the main contradictions, domestic profit cycles, policies, and liquidity environments have all improved, so there may be some twists and turns and adjustments in the short term, but this is also a relatively good layout stage. The next year or even longer period should be a period of downward trends in the USD index and US bond rates, so we are roughly at the turning point of a cycle. This stage is also the most difficult, but it will soon be over. Domestic demand is still bottoming out, but some industries have global competitiveness and are showing some structural bright spots as their penetration rates in overseas markets rise or benefit from the renewal and innovation cycle.

Chen pointed out that although there has not been a large inflow of funds into the market, the supply and demand balance is still good. This can support the gradual rise of the central stock market. I don’t think that at this point in time, it is a simple matter of embracing dividend assets or chasing dividend assets. You still need to price them carefully, as dividend assets have already begun to show significant differentiation.

Waiting for the gold pit, gathering at the new high.

Specifically, the host asked, "We are particularly looking forward to your sharing today, because our slogan this time uses the main theme in your research report, 'Waiting for the Gold Pit, Gathering at the New High'. First, explain the title 'Waiting for the Gold Pit, Gathering at the New High'. From this title, you think that the road ahead is still tortuous, but you also said that we will gather at new highs, indicating that you are still relatively positive. Please explain this title to us."

Chen said that the focus is actually on the second half of the sentence, "Gathering at the New High".

Overall, I am optimistic about the market in the second half of the year. Why can we see innovative new highs?

Because the corporate profit growth rate will turn from negative to positive in the fourth quarter. At the same time, the market outlook expects that the cycle of the USD index and the US bond rate will end next year. In terms of liquidity, the Fed will enter an interest rate cut cycle around September, which is an important change. As for China's monetary policy and fiscal policy, it has also released some space. Of course, at the time of the report release, including now, it is believed that there may still be some difficulties and challenges in the short term market, including pressure on interim earnings and the third quarter report may not turn positive quickly.

You still need to observe whether domestic demand stabilizes and rises. At the same time, some overseas data is also entering a downward trend, and everyone's external demand is entering a downward revision stage.

Define this stage as a "gold pit", because from the main contradictions, domestic profit cycles, policies, and liquidity environment have all improved. Therefore, there may be some twists and turns and adjustments in the short term, but this is also a relatively good layout stage, which is the main meaning that the title wants to express.

The past three years have been a downward cycle for ROE, which may end next year.

The host asked, "We have seen that the market has been adjusting in the past three years, and this year has also been turbulent. With the help of the national team, we reached a new high this year in May. But in the past two months, it has adjusted again. What are the factors involved in this? What are the trading logics in the market now, and what are the reasons for everyone's concerns?"

Chen believes that the A-share market has experienced many challenges in the past three years, which can be summarized as a downward cycle of profit or ROE. In the history of A-shares, ROE fluctuates every three to four years.

The adjustment of supply and demand is partly due to the decline in demand, and partly due to the previous oversupply and excess supply, so supply also needs to be adjusted.

From the current situation, the demand adjustment is coming to an end. Nominal GDP growth rate in the second quarter was 4%, roughly the lower bound of future year-to-year fluctuations. However, the supply growth rate is still in the process of adjustment.

It can be roughly seen by next year that the capital expenditure growth rate will be significantly lower than the private GDP growth rate or income growth rate. That is to say, the enterprise will adjust from oversupply to a balanced or undersupply situation, so that enterprise profits can turn to positive growth. This is the cycle of ROE.

Domestic demand is still bottoming out, but some industries still have global competitiveness.

The host asked, "Now entering the financial report season, some companies have started to disclose performance. Because the performance has not been fully disclosed, we cannot summarize its characteristics. But you have tracked the first half of the year. What financial report periods need to focus on direction? Please share with us, including which key changes can be observed and verified."

In the second quarter, the profit growth rate of all A-share companies is still in the process of bottoming out. Negative growth is relatively converging compared to the first quarter, but the probability is still negative growth, estimated at about -3%. From the industry perspective, several phenomena need to be observed.

The first is that stable industries perform relatively well, such as the electric power industry.

The second is some manufacturing directions, both at home and abroad, which show a strong competitiveness. They include ship, construction machinery, tires, whole vehicle leader and power grid equipment in many important offshore concepts. Another part of the technology industry maintains a high prosperity or marginal improvement, including optical module, semiconductor equipment, consumer electronics and IC design. Another type is the cyclical consumption category, where farming, industrial metals, shipping and a few chemical species have a relatively tight supply factor that leads to a prosperous price. If you summarize it, domestic demand is still at the bottom, but some industries are globally competitive and are penetrating overseas markets or benefiting from renewal and innovation cycles, presenting some structural highlights. The host asked, can we continue to pay attention to the industries you mentioned next? Chen Guo continued to say that the vast majority of industries are still worth paying attention to. However, some industries may experience marginal changes. For example, in the manufacturing industry, if overseas demand slows down rapidly or similar trade protectionism surges rapidly, it may pose a challenge to the performance of companies that rely on external demand. Of course, it is not believed that this is inevitable, because industries like shipbuilding have attributes that are difficult to replace in China. So this may bring some uncertainty, but quite a few companies still prove themselves in this process.

Part of the technology industry continues to maintain a high prosperity or marginal improvement, including optical module, semiconductor equipment, consumer electronics and IC design.

Another type is the cyclical consumption category, where farming, industrial metals, shipping and a few chemical species have a relatively tight supply factor that leads to a prosperous price.

In summary, domestic demand is still at a low point, but some industries are globally competitive, are penetrating overseas markets, or benefiting from renewal and innovation cycles, showing some structural highlights.

The host asked, can we continue to pay attention to the industries you mentioned next?

Chen Guo said that most industries are still worth paying attention to. However, some industries may experience marginal changes.

For example, in the manufacturing industry, if overseas demand slows down rapidly or trade protectionism surges rapidly, it may pose a challenge to the performance of companies that rely on external demand.

Of course, it is not believed that this is inevitable, because industries like shipbuilding have attributes that are difficult to replace in China. So this may bring some uncertainty, but quite a few companies still prove themselves in this process.

Dividend-bearing assets begin to differentiate.

The host asked, do you still think dividend investment should continue? For example, the power industry has risen a lot.

Chen Guo stated that the power industry also faces this problem. In terms of industry indexes, it is still acceptable. In terms of the interim report, the performance is good, and the power industry's performance in the second half of the year is also good. However, the power is differentiated internally. For example, some hydropower leading companies may have overdrafted this year or next year's profit growth. Moreover, the dividend yield rate is already significantly narrower than the ten-year Treasury yield rate, and it is difficult to have a significant increase in space. Its expectation is that the ten-year Treasury yield rate will decrease significantly, but it is relatively difficult in the short term, so it needs a period of shaking and consolidation. Dividend assets are now like this. Some dividend assets, such as coal or some resource dividends, do not have even basic fundamentals than power, and their future stability may not be as good as that of power. I don't think that at this point in time, it is simple to hold a group of dividend-bearing assets or to chase dividend-bearing assets. You still need to price them more carefully. Here, obvious differentiation has begun to emerge.

At present, the market is from being conservative to being aggressive. The host asked, your medium-term strategy mentions a 'change from being conservative to being aggressive,' based on what judgment? What is the basis, and where is the turning point?

Chen Guo said that first of all, the market was depressed before and poised to recover later this year. The change from being conservative to being aggressive mainly stems from changes in the profit cycle, roughly between the third and fourth quarters. Changes in the profit cycle, coupled with expectations that ROE will bottom out and rise next year, are important changes for the fourth quarter of enterprise profits. Secondly, roughly at the end of the third quarter, the Federal Reserve entered a rate-cutting cycle, which is also an important change. Third, domestic policies, such as policies that stabilize growth or expand domestic demand, are continuously being strengthened from the end of the third quarter to the fourth quarter. Because this year's growth target must be achieved and it is difficult because of the actual growth rate of 4.7% in the second quarter. At the same time, efforts to cope with next year's external challenges will require deployment and policy intensification in the fourth quarter. The Federal Reserve's entry into a rate-cutting cycle has also opened up the space for monetary policy. Some recent policy statements, including the Third Plenary Session, attach great importance to economic growth this year and subsequent expansion of domestic demand. So the profit cycle itself, coupled with overseas liquidity inflection points and domestic policies, will form a change from being conservative to being aggressive. The turning point is roughly at the end of the third quarter.

In summary, domestic demand is still at a low point, but some industries are globally competitive, are penetrating overseas markets, or benefiting from renewal and innovation cycles, showing some structural highlights. Chen Guo said that most industries are still worth paying attention to. However, some industries may experience marginal changes. For example, in the manufacturing industry, if overseas demand slows down rapidly or trade protectionism surges rapidly, it may pose a challenge to the performance of companies that rely on external demand. Of course, it is not believed that this is inevitable, because industries like shipbuilding have attributes that are difficult to replace in China. So this may bring some uncertainty, but quite a few companies still prove themselves in this process. Dividend assets begin to differentiate. At present, the market is from being conservative to being aggressive.

The third quarter-end: Change from being defensive to being aggressive.

The host asked, your medium-term strategy mentions a 'change from being defensive to being aggressive,' based on what judgment? What is the basis and where is the turning point?

Chen Guo said that first of all, the market was depressed before and poised to recover later this year. The change from defensive to aggressive mainly stems from changes in the profit cycle, roughly between the third and fourth quarters. Changes in the profit cycle, coupled with expectations that ROE will bottom out and rise next year, are important changes for the fourth quarter of enterprise profits. Secondly, roughly at the end of the third quarter, the Federal Reserve entered a rate-cutting cycle, which is also an important change. Third, domestic policies, such as policies that stabilize growth or expand domestic demand, are continuously being strengthened from the end of the third quarter to the fourth quarter. The Federal Reserve's entry into a rate-cutting cycle has also opened up the space for monetary policy. Some recent policy statements, including the Third Plenary Session, attach great importance to economic growth this year and subsequent expansion of domestic demand. Therefore, the profit cycle itself, coupled with overseas liquidity inflection points and domestic policies, will form a change from being defensive to being aggressive. The turning point is roughly at the end of the third quarter.

In summary, domestic demand is still at a low point, but some industries are globally competitive, are penetrating overseas markets, or benefiting from renewal and innovation cycles, showing some structural highlights. Chen Guo said that most industries are still worth paying attention to. However, some industries may experience marginal changes. For example, in the manufacturing industry, if overseas demand slows down rapidly or trade protectionism surges rapidly, it may pose a challenge to the performance of companies that rely on external demand. Of course, it is not believed that this is inevitable, because industries like shipbuilding have attributes that are difficult to replace in China. So this may bring some uncertainty, but quite a few companies still prove themselves in this process. Dividend assets begin to differentiate. At present, the market is from being conservative to being aggressive.

The Federal Reserve's entry into a rate-cutting cycle has also opened up the space for monetary policy. Some recent policy statements, including the Third Plenary Session, attach great importance to economic growth this year and subsequent expansion of domestic demand.

In summary, domestic demand is still at a low point, but some industries are globally competitive, are penetrating overseas markets, or benefiting from renewal and innovation cycles, showing some structural highlights. Chen Guo said that most industries are still worth paying attention to. However, some industries may experience marginal changes. For example, in the manufacturing industry, if overseas demand slows down rapidly or trade protectionism surges rapidly, it may pose a challenge to the performance of companies that rely on external demand. Of course, it is not believed that this is inevitable, because industries like shipbuilding have attributes that are difficult to replace in China. So this may bring some uncertainty, but quite a few companies still prove themselves in this process. Dividend assets begin to differentiate. At present, the market is from being conservative to being aggressive. The Federal Reserve's entry into a rate-cutting cycle has also opened up the space for monetary policy. Some recent policy statements, including the Third Plenary Session, attach great importance to economic growth this year and subsequent expansion of domestic demand. Therefore, the profit cycle itself, coupled with overseas liquidity inflection points and domestic policies, will form a change from being conservative to being aggressive. The turning point is roughly at the end of the third quarter.

The key point for the second half of the year: the growth rate of profit is turning positive.

The host asked, now that the schedule is halfway through this year, the market is leading with dividends, growth is recovering, and value is returning. What are your investment prospects for the second half of the year?

Chen Guo determined that the key point for the second half of the year is the reversal of negative profit growth.

The market's pessimistic expectations for domestic demand have begun to improve, and policies will continue to increase efforts to expand domestic demand. Expanding domestic demand will boost related industries, boost market risk appetite, and increase opportunities for growth stocks. The industries worth focusing on include household appliances, machinery, electronics, military industry, etc.