Since the opening after the Spring Festival, contrary to the good start that most investors expect, A-shares have been fluctuating violently. How will the after-market of A-shares evolve and will there be any market in 2021? Many investors are pessimistic and we would like to restate our discussion.
Instead, what is troubling investors today is two highly consistent but conflicting expectations that have emerged since last summer: that the global economy will recover, and that money will stop expanding and liquidity will begin to shrink. The former drives up share prices by driving up corporate earnings, while the latter depresses stock valuations and drives down share prices. In fact, the market has not been free of these two expectations caused by the conflict and confusion. So which of these two factors is the main aspect of the contradiction? Is the east wind over the west, or the west wind over the east? We’ve had a lot of discussions about this since last year. We have always stressed that China’s monetary policy has already started to return to neutral and will be more neutral and tight for a long time to come. However, it is unlikely that China will continue to shrink or tighten excessively. On the whole, the main contradiction is not monetary contraction, but the global economic recovery and industrial restructuring to promote the growth of corporate earnings. The risk is that the pace and intensity of monetary contraction in different stages is difficult to grasp. A direct reason for the sharp fluctuations in A-share prices since the Spring Festival is the rapid rebound of the US long-end interest rate, which has exceeded 1.5%, causing some investors to worry about the inflection point of global liquidity. In fact, the main reason for the rapid rebound in the interest rate of long-term US Treasury bonds is not the monetary contraction of the US central bank, but the recent accelerated rise in international oil prices and metal prices, and the strengthening of inflation expectations in the international financial market. Short-term interest rates, such as one – and three-month rates, have largely hovered around zero, even as long-end rates have rebounded rapidly. That means that liquidity in the United States is not shrinking. According to the signals revealed by the US central bank, the US has no plan to stop monetary expansion in the coming period, let alone start to raise interest rates.
The international New York oil price has risen from more than 33 dollars in November last year to more than 60 dollars at present, with a rise rate nearly doubling. The international copper price has more than doubled from the lowest point of 4371 dollars last year to the present, and the copper price has returned to the historical high. We maintain our view in last week’s weekly report that, taking into account the global economic recovery and the supply-demand pattern in various industries, international oil prices, metals such as copper and most chemical products prices are likely to remain volatile and consolidated at current levels, with little likelihood of further substantial increases in the short term. As a result, U.S. long-end interest rates, driven by inflation expectations, are also likely to fluctuate around 1.5 percent for some time. From the middle point of view, with the rise in inflation in the future and accelerating economic recovery in the United States, the long end of the American interest rates and possibly rise space, but in the short term interest rates rise fastest phase may be in the past, the future for A period of time may be at the current level is given priority to with shock, the long side rate rapid rebound the impact on the a-share market may also come to an end. We reiterate that in the foreseeable time A shares at the current level of risk is not large, in the future for A period of time A shares are likely to be at the current level to consolidate the main pattern of shock, suggest investors to the market sharp shock firm confidence, do not panic to fall.
Structurally, liquor as the representative of the so-called agency means of core assets after the Spring Festival is generally more than the market falls, also caused the market larger impact, the early strength of new energy industry chain, intelligent electric car industry chain and military industry chain as well as chemical and metal plate also follow the market appeared a significant shock adjustment. From the valuation point of view, liquor stocks after adjustment of its dynamic valuation has fallen to this year’s earnings calculation of about 40 times. We believe that the market position of liquor shares and the certainty of profitability, the current valuation is not excessive. However, in the context of global economic recovery, cyclical stocks and small and medium-sized companies in the traditional sense represented by chemicals and metals are more flexible in their earnings growth, which will attract more capital attention. As a result, we recommend that investors as a whole continue to focus on cyclical stocks, such as chemicals and metals, and low-valuation sectors, such as banks and leading real estate, in the coming period. At the same time, to the whole world in view of the Chinese government has made the promise of carbon neutral, carbon neutral already is not only a long-term vision, but has become in many parts of a plan of action, such as China and Europe close to the two sessions, we recommend that investors in the long run and the strategic height to the dips focus on new energy industry chain, intelligent electric car industry chain. In addition, we pointed out many times, this year is 14 or 15 the start of the implementation, the difference is the key to the China science and technology power and independent innovation, is also the Chinese and international working environment, the key to modernization of national defense and military struggle preparation period, it is strongly recommended that investors in the long run and the strategic height to the dips focus on military industrial chain.