Why is it dominated by molecules in the second half of the year?

Because what is relatively certain in the second half of the year is that the economic recovery will slow moderately, inflation expectations will fall, and the direction of volume and price will shift downwards, corporate earnings growth will reach an inflection point.Some enterprises still maintain a high boom, and some of them may turn into a decline. The shift means that "good performance" is important, regardless of whether the economy is maintained at a high level or further improved. Differentiation means the coexistence of opportunities and risks of "structural". It is necessary to judge the position of the industry in the business cycle from top to bottom. it is also necessary to have a rational understanding of the governance level of the enterprise's development concept, the domestic and international competition pattern of the industry, and the long-term development trend of the industry from the bottom up.

Although the economy turns to decline in the second half of the year, there is a high probability that there will not be the same downward slope as in 2018. On the whole, the annual growth rate is high before and after low fluctuation. The downside comes from the impact of credit contraction on the start-up demand of construction industries such as real estate infrastructure, while exports have gone downhill under the combined effect of share and external demand. Resilience comes from the fact that manufacturing and consumption are still improving, while the demand for the completion of real estate construction also provides support for the upstream and downstream industrial chains.

Why is the denominator in the second half of the year just the balance, not the core?

Because both at home and abroad, the liquidity environment is likely to be fine-tuned and will not change much.

Domestic liquidity can neither be substantially tightened nor loosened substantially, and the status quo will most likely be maintained.On the one hand, the domestic economy fell moderately in the second half of the year, inflationary pressures fell, and the window allowing liquidity to tighten substantially has passed. Judging from the statement of the regular meeting of the central bank in the second quarter, the important statement has not changed, and it is still to maintain a flexible, accurate and prudent monetary policy, reasonable and abundant liquidity, and basically stable macro-leverage ratio.

On the other hand, the possibility of a substantial easing of liquidity is also relatively low. A sharp easing requires the trigger of risk events, such as the release of credit risk or increased downward pressure on the economy, but the Tianjin municipal government bond conference on June 22 allayed concerns about the "systematic release of platform risk". There is also little pressure for steady economic growth throughout the year.

There is also a high probability that there will not be a trend inflection point in the loose liquidity environment overseas.From August to September this year, due to the bottoming out of the US Treasury's TGA balance pressure and the gradual maturity of the Fed's plan to curtail QE, there may be a second-order guiding inflection point of liquidity. But the background of absolute laxity will not change. On the one hand, as the fiscal stimulus expires, there are signs that the rapid recovery is coming to an end-consumption data excluding services are falling, property sales and investment are falling, and output data are falling or flattening at high levels. (see "the fastest recovery in history, and probably the fastest almost recovery.") on the other hand, the United States has entered an era of fiscal monetization. The Biden administration's ambitious infrastructure investment and welfare society also need the support of long-term low-interest bond financing. Since last year, the Federal Reserve has become a major buyer of US bonds. It is also hard to normalize monetary policy, whether it is policy interest rates or balance sheets.

In a nutshell, the macro environment in the second half of the year is a downward inflection point for growth and inflation, and the liquidity environment remains the status quo or fine-tuned but does not turn. This environment determines that the investment strategy should be based on numerators (turning but no pressure) and taking into account the denominator (fine-tuning but not turning).

Specifically, good performance is a necessary condition, and liquidity and risk appetite determine duration.If the liquidity is loose and the risk preference is high, we should lengthen the duration and prefer the direction of high performance growth. If liquidity is tight or risk appetite decreases, the duration should be shortened, in the direction of high performance stability, high growth is not required, but valuations are low.The former is offensive and the latter is defensive.

At present, we have not seen the inflection point of liquidity, and the risk of growth has not been exposed.Should not be too conservative (while missing out on more money-making opportunities in a loose liquidity environment). However, the market has fully priced the optimistic performance expectations of some high-boom industries, and the risk premium has dropped to an all-time low, facing potential economic growth and overseas liquidity risks in the future.Nor should it be too radical (and lose too much in the phased risk-off)。

Therefore, the best response at present is the barbell strategy, which requires both the sharpest spear and the strongest shield to seek the balance of risks and benefits between high growth, high valuation and high stability and low valuation.