The trend of economic recovery will continue

Chen Xing, chief of Sino-Thai Macro, predicts that in the second quarter of this year, from the internal trend, the economic growth rate will rise, the PPI growth rate will reach the highest level of the year, and the CPI growth rate will be on the rise, but the overall level is not high.

First of all, from the perspective of inventory cycle, industrial enterprises as a whole are still in the active replenishment cycle. Generally speaking, the change of PPI has a certain lead for the inventory of industrial enterprises. It is estimated that the year-on-year growth rate of PPI reached the highest level of the year in the second quarter, which also means that the current replenishment process for industrial enterprises is not over, at least until the third quarter.

Secondly, from the perspective of demand structure, the driving force of economic growth this year will shift from last year's "fast variables" such as exports, real estate investment, and infrastructure investment to "slow variables" such as manufacturing investment and consumption. In the second quarter, the fast variable will remain stable and the slow variable will improve.

First, on the consumer side, due to the improvement of the epidemic situation in many holidays in the second quarter, the consumption of services suppressed by the "local New year" policy will usher in a rare window for demand release; second, on the export side, when the economic restrictions imposed by the overseas epidemic have not been completely lifted, the improvement in external demand and the slow decline in export share will still guarantee China's export demand. Third, from the investment side, manufacturing investment will benefit from improved early earnings and an increase in inventory replenishment in the export chain, while real estate and infrastructure investment growth is under pressure during the year, but both growth rates are still supported in the short term.

Xu Chi, a strategic analyst between China and Thailand, believes that from the perspective of data disassembly, behind China's strong exports last year, the share of exports of labor-intensive products increased the most, that is to say, China's exports mainly grabbed the share of developing countries rather than developed countries.

Since the beginning of this year, on the one hand, the epidemic prevention and control in the United States has been higher than expected-the epidemic infection data, as measured by the hospitalization rate of people over the age of 65, has dropped sharply by more than 80% compared with January, and may return to the level before the outbreak began last year in April. Superimposing the prospect of the fiscal and infrastructure stimulus package constantly launched under the "one-party dominance" and the low inventory and high capacity utilization of the manufacturing industry, the "multiplier effect" of enterprise replenishment and production expansion will lead to a higher-than-expected economic recovery in the United States.

On the other hand, epidemic prevention and control in other countries has been lower than expected-"three outbreaks" and high mortality rates. The reason is that according to the current data, more than 60% of the people must be quickly vaccinated with two doses of MRNA vaccine to achieve the effect of mass immunization, which is extremely difficult for countries outside the United States, especially for the vast number of developing countries represented by Southeast Asia, in the short term.

The "K" prevention and control of the global epidemic, which continues to exceed expectations in developed countries and lower than expected in developing countries, will bring a sustained "increment" to China's economic core momentum-- export and manufacturing investment. On the basis of the vivid and strong economy, the policy environment is the key to whether the economy can exceed expectations. Judging from the government work reports of the two sessions, this year's policy is based on a more cautious attitude of "helping out again"-- monetary, financial, and preferential treatment for small and medium-sized enterprises is more relaxed than in normal years such as 2017-19. From historical experience, under the combination of a stronger economy and a more cautious policy tone, economic data are more likely to exceed expectations at least in the second and third quarters.

Li Xunlei, chief economist of China and Thailand, believes that the pace of improvement in the epidemic in different regions of the world has slowed down, so China's economic growth has rebounded moderately, which means that the recovery will continue for longer than expected. The United States through high borrowing and water release to stimulate the economy upward, although it will push up inflation expectations, but it is still beneficial to China's external demand growth, so that China's policy stimulus can be reduced, which is conducive to China's financial savings.

How long can new manufacturing export orders last?

Yang Chang, head of the Sino-Thai policy group, believes that with the continuous acceleration of overseas vaccination and rising expectations of economic recovery, whether the rapid growth of manufacturing export orders last year continues or not has a bearing on the sustainability and stability of economic and social development. March manufacturing PMI data continued to repair, of which PMI new export orders continued to rise 2.4%, the gap between new orders and PMI further magnified, indicating that external demand is still strong. How does the micro feel when the macro data are still strong? The Research Institute of Zhongtai Securities (13.490 0.11 minutes 0.82%) organized a survey of more than 200 manufacturing enterprises. The results show that:

Manufacturers are indeed repairing their operations, but they are still expected to be cautious. First, overall: two "over 60%" and two "close to 20%". In the first quarter of 2021, "more than 60%" of manufacturing enterprises increased compared with the first quarter of 2020, especially nearly 20% of manufacturing enterprises increased by more than 20% compared with the same period last year. But it is more valuable than the same period in 2019. "more than 60%" of manufacturers have not repaired to 2019 levels, and nearly 20% of manufacturers have less than half of their operating income in the first quarter.

Second, structurally, the industry is divided obviously, electrical machinery and general equipment are the worst, and automobile manufacturing and pharmaceutical manufacturing are the best. His recent research shows that the two weakest industries for repair are electrical machinery and general equipment, while special equipment, metal products, computer communications, and rubber and plastic repairs are slightly better. On the other hand, the repair condition of automobile manufacturing and pharmaceutical manufacturing is obviously preferred, and more than 40% of automobile and pharmaceutical manufacturing enterprises can achieve positive growth compared with the same period in 2019.

Third, new export orders: orders obtained in 2021 look stable, but some companies still reflect pressure. The situation of new export orders recently obtained by enterprises is obviously divided, of which about 40% of enterprises' new export orders are relatively stable, but the number of enterprises whose orders have decreased or even seriously shrunk is close to 40%.

In the future, new manufacturing export orders still face "three major uncertainties". First, the uncertainty of the time window: new orders may fluctuate sharply after the peak in the second-third quarter. A considerable number of enterprises believe that the peak of new order signing occurred in the first half of the year, and half of them think that the peak may occur in the third quarter.

Second, the uncertainty of the degree of repair: it is generally expected to increase slightly or even decline throughout the year. Enterprises related to computer communications, rubber and plastics are expected to increase slightly for the whole year, while enterprises related to special equipment, electrical machinery, general equipment and automobile manufacturing are expected to be the same for the whole year. At the same time, some enterprises still think that new orders for the whole year are lower than those in 2020.

Third, the uncertainty of disturbance factors: multi-factor classification resonance leads to the increase of complexity. From the common factors reflected by enterprises, there are many unfavorable factors affecting new orders for the whole year. the top factors include the possible contraction of external demand, the difficulties in the repair of international logistics, the possible change in exchange rate and the less-than-expected repair of the industrial chain supply chain.

Li Xunlei believes that China will still benefit from the growth of external demand under the global economic recovery this year, but the contribution of exports to GDP is bound to be lower than that of last year. This year, the transformation and upgrading of the manufacturing industry will accelerate, driving the high growth of investment in the manufacturing industry. However, it takes a long time for China to gain a greater advantage in the competitiveness of the manufacturing industry, not overnight. Of course, it is very difficult for the government to reduce leverage. In an era of economic slowdown and aging, the government leverage ratio is generally "easier to climb than to get down".

What is the trend of interest rate bonds in the second quarter?

Xiao Yu, an analyst at Sino-Thai solid income, believes that the yield on the main term interest rate bond has fallen significantly since mid-March, which has little to do with fundamentals and is mainly driven by liquidity easing. In addition, the weak supply of interest rate debt since the beginning of the year, the general "underallocation" of institutions after the passive deleveraging of the bond market at the end of January, external friction events and other factors are conducive to the repair of trading sentiment. At the current time, there are some differences among investors in the bond market, in order to avoid stepping into the air and continuing to catch up, or to enter the market calmly after the "last fall".

The current long-term bond yield may be in the top region, based on the capital interest rate center and maturity spread simple calculation, this round of bond market adjusted yield may not exceed 3.45%. However, from a month-on-month perspective, the momentum of the fundamental recovery is still strong, and the inflection point of the downward trend of interest rates still needs to wait. Looking forward to the second quarter, the room and momentum for interest rates to continue to decline is limited, but there is a certain risk of pullback, and we need to focus on two factors.

One is the fine-tuning of the policy attitude. Recently, the central bank held a credit symposium, and the Banco Insurance Regulatory Commission issued a document to prevent the illegal flow of operating loans into real estate, all of which revealed the intention of structural tight credit. Referring to historical experience, under the background of strong demand for physical financing, tight credit brought about by strengthening financial supervision and punishment for violations is often accompanied by tightening of monetary conditions, increasing liquidity friction, declining availability of funds for non-bank institutions, and so on. on the contrary, it is bad for the bond market.

Second, conventional factors have a great impact on the capital side. April to May has always been a big month for tax payment and a small month for fiscal expenditure. In the last three years, the average increase of fiscal deposits from April to May exceeded 1 trillion yuan, taking into account the weak positive fiscal strength this year and the large scale of enterprise income tax settlement and payment in May. It is expected that the withdrawal of fiscal deposits will consume a large amount of excess savings. With the opening of the floodgates of new local bonds, the pressure on the supply of government bonds will also rise sharply. He reckons that net government debt financing was close to $2 trillion in the second quarter, peaking in May (more than 800 billion). Overall, liquidity may tighten marginally from mid-April if the central bank's MLF sequel is not active.

Li Xunlei believes that there is still upward pressure on market interest rates this year, which is inflation expectations on the one hand and increased credit risk on the other, but the central bank should take corresponding regulation and control measures to provide corresponding liquidity and keep real interest rates stable. Overall, inflation or monetary conditions will not be a major negative factor in stock market volatility this year.

Has the A-share market bottomed out?

Xu Chi believes that less than 3400 is the bottom range of this round of adjustment, and the "K" prevention and control of the global epidemic and policy caution will bring "new momentum" to the economy and capital markets in the second quarter.

First of all, he previously stressed that less than 3400 is the bottom range of this round of adjustment, reiterating that he is optimistic about the market performance in the second quarter, and that the core momentum of the US economy and China's economy-export and manufacturing investment that continues to exceed expectations will be the main line of the market. He pays attention to the switching of the valuation system from DCF to PE/EPS, the upward undervaluation of the boom and the investment opportunities for technology stocks. Secondly, he believes that for the capital market, with reference to the most similar 2009-10 cycle, the large-level inflection point of the market is not the monthly disturbance of a single macro indicator such as social integration, but the month-on-month change of the core momentum of the economy. as far as the current round of economy is concerned, they are mainly exports and manufacturing investment, which continue to be strong month-on-month.

Wang Shijin, a strategic analyst between China and Thailand, believes that because of the lag in the macro data, the market will generally apply the law of leading the financial cycle to judge the economic trend. From this point of view, the probability of economic growth peaking in the second quarter is relatively high. However, after the credit policy returned to the neutral policy setting at the end of last year, the broad sense of social finance growth has been a consensus expectation of the market, relative to the forecast of the future. Understanding the status quo and focusing on the margin may be more instructive to investment.

Judging from the data recently disclosed, JPMorgan Chase & Co's global manufacturing PMI reached the highest level in nearly a decade, indicating that the expectation of improved global demand is still strengthening, while domestic meso data such as electricity generation and apparent energy consumption are at a strong level compared with the same period in history. On the other hand, the liquidity factors that suppress the global market in March are also gradually easing, and the upward slope of interest rates on the US dollar and US Treasuries slowed down, so At present, the market is in the stage where there is no obvious inflection point in liquidity and economic data, and the macro environment is conducive to the market stabilizing and rebounding.

Li Xunlei believes that both the Dow and the S & P index of US stocks have recently reached record highs. Although inflation and long-term bond interest rates are rebounding, investor confidence comes more from the proactive fiscal policy and loose monetary policy of the United States. In this context, the bottom of A shares is also naturally raised. Cyclical stocks have benefited from low valuations and a rebound in the economic climate, while the previous "clustered stocks" have undergone a substantial adjustment, which seems to lack the motivation to continue to decline deeply. Inflation expectations and higher Treasury yields seem to be one of the wrong reasons for earlier stock market declines. However, the reason for continuing the bull market is also insufficient, and it is estimated that this year will be a round of ups and downs.

On the Investment Strategy of A-share Market in the second quarter

Chen long, the chief strategy of China and Thailand, believes that the market is expected to strike a balance between economic recovery and policy tightening, and the global economic recovery will exceed expectations in the second quarter. In particular, the two major momentum supporting the current round of China's economic repair, exports and manufacturing are still expected to remain strong in the second quarter.

Although the margin of liquidity in the broad sense is tight, liquidity in the narrow sense remains loose. The loosest stage of macro liquidity has passed, and the interbank market has gradually returned to neutrality after the resolution of the credit crisis. However, what is different from previous years is that the share of foreign exchange behind the sustained high growth of exports is expected to join hands with the central bank to become an important force to support China's liquidity stability. In addition, according to our estimates, although there are signs of a rebound in inflation in the near future, it is less likely for the central bank to raise policy interest rates, and inflationary pressures are limited throughout the year.

The concentrated maturity of credit bonds increases the probability of short-term risk events, but the breaking of rigid payment is beneficial to the pricing and structural optimization of the bond market, the return of risk-free interest rate will be accelerated, and the yield of 10Y treasury bonds is expected to enter the high consolidation stage in the short term. Therefore, risk appetite is stable and slightly reduced. Factors such as global re-inflation, tight policy margins and exposure to credit default risk are the key to suppressing the rebound in risk appetite in the second quarter.

Tang Jun, chief financial engineering officer of China and Thailand, believes that the second quarter will continue the investment logic of economic recovery after the epidemic. In the macroeconomic aspect, the indicators of the Sino-Thai clock show that the indicators of economic output, inflation and policy (monetary and fiscal) have not changed much, maintaining the previous point of view. The indicators we have constructed to measure the idling of funds (the difference between the rate of expansion of the banking balance sheet and the growth rate of social finance) have rebounded significantly. According to the law of historical statistics, short-term positive interest rate debt.

Capital markets will continue to trade the logic of economic recovery after the epidemic in the second quarter. Since the start of the new crown vaccination, the strong performance of commodities such as crude oil, the marked rise in US debt interest rates and the obvious repair of stock market pro-cyclical industry valuations all reflect expectations of economic recovery after the epidemic. Despite the recent increase in the number of daily new cases overseas and concerns about the fourth wave of overseas outbreaks, we believe that there is a high probability that the market will continue to trade the logic of economic recovery in the second quarter.

The daily increase in new cases in parts of Europe and the United States is unlikely to lead to stricter blockade and epidemic prevention measures. In the article "Dawn of Global epidemic Prevention-Economic restart or earlier than expected in Europe and the United States" released on February 4, it analyzed the time points when the European and American governments adopted strict blockade measures in the past few rounds. It is concluded that: "the intensity of blockade measures in Europe and the United States depends on the pressure of the health care system. After vaccination of key groups such as the elderly, the serious illness rate and mortality rate will decrease significantly, even if the number of newly diagnosed cases increases. The pressure on the health care system will also ease, and the blockade may be lifted ahead of time. "in fact, while the number of new cases has risen in some parts of Europe and the United States, the number of new deaths has not increased, or even continues to decline. It can be seen that after some key groups have been vaccinated, the pressure on the health care system is declining, and it is less likely that governments in Europe and the United States will increase their epidemic prevention measures again.

Under the logic of continuing trading economic recovery, the certainty of repairing the cycle leader valuation of undervalued and high dividend yield is higher, while the B shares and H shares, which are in line with the characteristics of low valuation, high dividend yield and high proportion of traditional cyclical industries, have higher allocation value. In fact, the CSI dividend Index (4013.569) (0.0000), the Hang Seng H-share Index, and the China B-share Index (4133.386) (0.17%) have increased by 8%, 4% and 6% respectively over the past month relative to the CSI 300 Index (5161.55750.78) (5161.55699) (50.78).

What is the focus of equity asset allocation?

According to the industry configuration model constructed by Zhang Han, an analyst of Sino-Thai financial engineering, from the four dimensions of profit, valuation, market sentiment and price momentum, the current recommended industries are: coal, steel, banking, transportation and electronics.

Profit perspective: according to the industry boom tracking index system constructed by Sino-Thai Metalworking, the profit improvement in the middle and upper reaches of the cycle in this round of economic recovery is the most obvious, followed by the consumer sector, while the profit growth rate of the TMT sector shows a downward trend throughout the year.

Valuation point of view: after the Spring Festival, the issuance scale of public funds shrinks, while the inflow of northward funds is poor, and the market is lack of incremental funds. From the market point of view, the market turnover center gradually shrank to 700 billion, the seesaw effect between hot spots is obvious. In this environment, the high-valuation plate is under more pressure.

Momentum perspective: although the short-term style of the market changes rapidly, the momentum ranking of the cyclical industry is still relatively high, statistically speaking, it still has a probability advantage.

Market sentiment: according to the industry chip floating earnings ratio index calculated by Sino-Thai Metalworking, there is no emotional overheating industry at present, and the cyclical industry chip floating earnings rate rises moderately, which represents the improvement of market profit effect and is conducive to the persistence of stock prices.

Chen long believes that the overall stable upward judgment of the equity market in the second quarter remains unchanged, closely around the molecular-end performance of the plate that exceeds expectations. According to our estimates of the performance of different industries from 2020 to 2021, the profits of most industries continue to repair. From the perspective of the sustainability of profit improvement, the performance of the mid-stream manufacturing sector, especially the high-end manufacturing sector, still shows strong resilience. Judging from the extent of profit improvement, the petrochemical industry, which is closely related to the rise in commodities, and leisure services damaged by the epidemic last year, transport performance is expected to accelerate the recovery.

In terms of industry configuration, adhere to the idea of manufacturing power (new energy industry chain, military industry, science and technology and high-end equipment manufacturing), crude oil industry chain (coal chemical industry, refining and chemical industry, oil service), dilemma reverses the service consumption of epidemic repair (aviation, tax exemption, tourism). In terms of thematic investment, we will focus on the 14th five-year Plan and the 2035 Vision outline (thematic investment opportunities under carbon neutral conditions).

Wang Shijin believes that under the macro combination of economic recovery and liquidity return to neutral, stock allocation should return to the PB-ROE perspective from racing science and pay more attention to the matching degree of earnings and valuation. At the market level, the distortion of index weight has undergone the first round of correction. On the one hand, the vast majority of stock valuations are already below the historical center, and the allocation value of some new economic leaders has been highlighted; on the other hand, the position of traditional blue chips strengthens index resilience, which is also the main reason why we think that there will not be much room for index adjustment in March, which is still true.

From the perspective of medium-term allocation, the monetary credit cycle is interpreted in the stage of tightening credit towards wider currencies, which is conducive to the performance of bond assets, high dividends and cash flow should be given higher weight. it is suggested that attention should be paid to both ends of the industry configuration, one is that the industry income growth continues to outperform the nominal GDP growth rate, and the other is that it was hit hard by the epidemic last year. In the short term, the April market recommended that priority be given to the overfall and rebound opportunities of high-quality clustered stocks.

Li Xunlei believes that the stock market obeys formal logic for a long time and dialectical logic for a short time. In the past month, the CSI dividend Index, Hang Seng H-share Index and Guoshi B-share Index have risen 8%, 4% and 6% respectively relative to the CSI 300 Index, indicating that the dialectical logic of Zhongtai recommending Hong Kong stocks and undervalued stocks in the fourth quarter of last year has been confirmed. The premium index of Amure H shares has fallen significantly in the past six months. As for long-term obedience to formal logic, that is, obeying the trend of differentiation dominated by the stock economy: the regional economy and the strong ones such as residents' income, industries and companies are always strong, the growth and decline of each other and the survival of the fittest, from this dimension, institutional investors will continue to huddle together on blue chips.

Risk hint: policy changes and economic recovery is not as expected.