Consumption, Emerging And Cyclical Industry &Nbsp; Who Will Stand Out?

July valuation of the repair is reflected in

After a general recovery rally, the market will tend to split up.

We recommend medium term profitability.

Growth is relatively determined, industry fundamentals exist to improve the expected industry as the direction of allocation.

In the next 1-2 months, we are relatively optimistic about the essential consumption of liquor, medicine, brand clothing and new energy in emerging industries; the first line of real estate, aviation, and banking, cement, coal and construction of the weak cycle.

Xu Wei, State Securities Institute

From the perspective of the real economy, the 2 quarter of this year

Let's observe inventory changes.

From the PMI data, we first went through the inventory of raw materials industry. By July, finished products have also started to go to inventory process, and the "new order inventory" index will be more obvious.

From the data of finished products inventory of industrial enterprises, inventory turnover rate has been increasing, and in June there was a further increase.

This is reflected in this round of economic prosperity, enterprises have been cautious about the expansion of finished goods inventory, inventory adjustment is relatively fast.

In terms of inventory accumulation, it may be that the stock of raw materials will be more.

At the same time, we see that in the industrial added value subdivision industry, the sharp decline in June was mainly caused by the decline of a few raw material industries, such as coal, iron and steel, nonferrous metals, etc., which can be understood as the consumption of raw material inventory.

For market expectations, we can use fund positions and fund allocation as observation indicators.

In the 2 quarter of this year, the position of fund positions dropped by nearly 10 percentage points.

The fund has sharply reduced its cyclical classes, and has increased steadily in the growth of consumer and policy supported emerging industries.

Market expectations, the end of the 2 quarter of this year, the economy will be more obvious decline, and even do not rule out the two bottom risk.

But the real data is that the demand side of the 2 quarter has been relatively strong.

The slowdown of industrial production is mainly affected by the de stocking factors. Instead, it may be characterized by the "soft landing" of the economy.

Therefore, there is a certain degree of phase difference between market expectation and reality.

At the same time, we see a certain improvement in the liquidity level in July.

As the overall economic boom continues, corporate profits and interim results remain relatively high, triggering a rebound in valuation recovery.

The difference between market anticipation and real economic complexity lies in the valuation restoration. There is no force that can drive the trend.

Soft landing to grasp structural opportunities

Market side:

Looking for structural opportunities in the shock pattern

Looking back at the market since the low point in 2008, first of all, the policy driven driving force is rising, and the investment driven industry represented by cement and machinery is the first to recover.

Then, with the massive easing of bank liquidity and the recovery of the economy, the resources and raw materials industries such as coal and steel began to rise.

However, after the first dynamic adjustment of credit, the market plummeted, and then consumer stocks benefiting from downstream demand began to show.

The second time was characterized by a rise in the reserve requirement and a decline in the market.

The third time was characterized by the tightening of real estate policies, and the market dropped to a low level, followed by the repair of cyclical industries.

It can be seen that when the policy, liquidity and economic co movement fluctuate, the market will have the trend performance.

When the above factors are relatively stable or expected, the market will show more concussion characteristics and look for some structural opportunities.

Economic front:

Soft landing of Macro-economy

According to the judgement of our macro group, the decline rate of industrial production began to slow down in July, and the enterprises' inventory level would be eased.

The economic downturn in the second half of the year will not bring about a hard landing for the economy. The extensibility of demand will make the overall economic fluctuation unlikely.

For inflation, the prices of farm products and pork continue to rise.

According to this conclusion, CPI will increase in July.

However, stocks of pork and grain are relatively adequate and there is room for regulation. The structural rise of some commodities will not turn into full-scale inflation.

We maintain that the CPI will continue to go up in the 4 quarter of this year.

In the second half of this year, the overall liquidity will be in a relatively balanced state.

The central bank's open market operation will be relatively moderate, the most relaxed time has passed, but tightening is a very slow process.

Due to the monetary factors of the 4 national Mid Autumn Festival and the release of large amounts of fiscal deposits in 11 and December, in general, liquidity is at least fluctuating for a short time.

We expect that the average potential growth rate in the next 5 years will be roughly 9%.

The overall judgement is soft landing, structural adjustment and slow economic growth. The GDP growth rate in 2011 is expected to be 9.3%.

The macro economy met to the bottom in the 3 quarter of this year, and this downturn has been expected by the market.

From this point of view, we believe that the low level of the pre market may be the bottom of the medium term.

Moreover, it seems that the economic downturn will be leveling off.

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Performance:

Profit certainty improved

According to the above two caliber statistics of profits from state-owned enterprises and 22 industrial enterprises in the region, as of June this year, the income of industrial enterprises remained high and stable, indicating that overall demand remained stable.

Profit margins tend to be stable, and profit growth begins to fall under the base.

Under the premise of economic soft landing, according to the current profit growth trend, it is in our predicted good level range, which made our original 18% increase in profit growth forecast this year.

At the same time, if the momentum of economic downturn is not very significant, there will be a certain increase in profit forecasts, that is, from a pessimistic scenario to a benchmark scenario.

According to our medium-term strategy report on earnings and valuation estimates, the market low is at the Shanghai Composite Index 2300 points, the high point depends on the profit combination next year, relative optimism scenario, corresponding to the Shanghai Composite Index 2900 points.

Industry differentiation should be preferred.

According to the positioning of the market for large categories of industries since 2009, we can divide the industry into 3 categories: first, cyclical and large market value industries.

Such industries are highly correlated with investment and exports, and are more driven by the real economy, liquidity and policies, which have a great impact on the index.

These include weak periodic classes.

The difference between it and the strong cyclical class is mainly the fluctuation of earnings.

We see that the volatility of coal, cement, banking and construction in recent years is relatively small.

The reason is obviously related to the small stock of industry, the high concentration of industries and the demand driven.

Moreover, the valuation level is the lowest in the market, and in addition to the strong cyclical category.

Mainly in steel, nonferrous metals, shipping, paper making, construction machinery and other raw materials and investment products industry, there are stock factors, higher production capacity, greater elasticity of demand, and the volatility of earnings is more intense.

The valuation level is third in the market.

Secondly, consumption is in line with the medium term structural adjustment.

Supported by the increase of residents' income and the guidance of national policies, the profits of such industries are growing steadily and valuations are relatively high.

Among them, including the optional consumer category, refers to real estate, household appliances, cars, aviation and so on.

Driven by downstream consumption intention, such industries have certain cyclical characteristics, and profits will fluctuate to a certain extent.

The valuation is flexible and second in the market.

In addition, it includes essential consumption, including medicine, agriculture, forestry, animal husbandry and fishery, commerce, food and beverages, etc.

Driven by consumption, earnings growth in such industries is relatively stable.

Valuations are at the top and fourth in the market.

Third, the characteristics of new industries driven by policies are relatively obvious. Because of the adjustment and upgrading of the industrial structure, the state will have special support for emerging industries.

Specifically, emerging industries include electronic components, information equipment, information services, electrical equipment, etc., covering new energy, new energy vehicles, information technology, biomedicine and other fields.

The market has given higher valuations, which is the highest valuation plate in the market.

To sum up the 2010 valuation distributions of various categories, first, the valuation of the weak periodic class is the cheapest.

The number of banks is 10 times, and the rest is about 15 times; secondly, the optional consumption is about 18 times; third, the strong cyclical class is 17-26 times; fourth, the essential consumer is about 26-32 times; finally, the emerging industries are more than 30 times.

Weak periodic VS partial strong cycle

Valuation brings safety margin

We believe that the industry valuation in the weak cycle is at the bottom of the market, because the relative certainty of its earnings growth is higher, so it is a relatively good choice in cyclical stocks.

The price of coal and cement in the weak cycle industry shows a more prominent stability.

It is more likely to be driven by policy loosening, and the stability of earnings growth is relatively higher.

For banks, valuations are significantly lower than all other industries, which may imply investors' concerns about the quality of bank stocks and the medium-term growth.

However, because bank stocks are significantly lower than the valuation of the market and the ultra low positions of the fund, it is not ruled out that when the soft landing of the economy is gradually materialized, there will be a wave of repair market.

From a valuation point of view, a strong cycle does not imply sufficient pessimism.

Because its profit volatility is very large, July mainly follows the market restoration.

From the perspective of cyclical driving, these industries will have outstanding performance only when there are strong uplink signals.

On the basic level, there is still some pressure on the whole higher inventory in the future.

Moreover, in the future investment, especially the real estate new trade union gradual decline, the industry demand will be medium-term suppression, it is difficult to see the fundamental improvement.

Must consume VS emerging industries

Long term economic pformation must be matched with varieties.

It is worth mentioning that in the context of the medium-term economic pformation, there will be sustained demand driven areas, which must be allocated and the market has already been matched.

In the case of essential consumption, when the overall valuation of the industry is relatively reasonable, it is more likely to choose companies from bottom to top, that is, enterprises with competitive advantages and growing space.

We are relatively optimistic about medicine, liquor and brand clothing.

Liquor has the incentive to raise prices, and the valuation of leading enterprises is still relatively low.

Pharmaceutical stocks still have long-term investment value, and short-term policy implications do not constitute a selling reason. Core Company is worth holding.

As for brand clothing, the retail terminal (textile and clothing retail) is optimistic, this year the discount rate is low, and the residents' consumption will rise.

Since August, brand clothing, spring and summer ordering will start gradually.

We expect that the growth rate will not be lower than that of the first half of the year, which may constitute a catalyst for a wave of market.

In the same way, the emerging industries are also the focus of the market.

As a result, the opportunities are driven by the policy level and from the bottom to the top of the subdivision industry.

We are relatively optimistic about the performance of new energy.

For example, in the aspect of wind power access, increasing investment in new energy integration will be an imperative step for energy strategy. Access technologies such as energy storage, compensation, low voltage ride through, and automatic generation control will enter the golden period of development.

In the next 1 months, we are relatively optimistic about the essential consumption of liquor, medicine, brand clothing and new energy in emerging industries; the first line of real estate, aviation, and banking, cement, coal and construction of the weak cycle.

Consumer Discretionary

Boom to raise real estate stock returns

Alternative consumers may also need to make a distinction.

As a result of last year's policy stimulus, the auto and home appliances industry has seen a boom in blowout.

At present, car sales have begun to decline, and the corresponding inventory index has begun to rise.

Household appliances are still in a high and prosperous state, but it is unlikely that they will exceed expectations.

We believe that there will be limited room for further improvement in the next period of time.

We believe that there is a potential for improvement in real estate sales in the future.

The difference may lie in the fact that real estate is affected by policies and suppresses demand, and sales of real estate are at the bottom.

Moreover, the willingness of residents to buy houses has not completely subsided. After 3 months of observation on policy, the expectation of housing prices will stabilize.

In our chain of logic, real estate sales is a key indicator.

According to our simulation of inventory, there will be more real estate supply in the 4 quarter.

This high inventory will continue in the first half of next year due to the high rate of new operation in the past few years.

We now expect real estate sales to warm up in the coming months.

Based on policy stability and price stability demand release, especially in the first tier cities where sales are at the bottom, there is relatively obvious improvement.

Therefore, we suggest that we pay more attention to the relative returns of the first tier real estate stocks in the coming period.

Real estate inventory after the 4 quarter is one of the risk factors.

If sales can not be maintained at a relatively stable level, it means there is pressure in the real estate market.

Another risk factor is that when sales are getting warmer, housing prices are rising again, resulting in policy tightening.