Firmly Optimistic About Fundamentals Driven Stock Market "Healthy Cattle"

In April 15, 2016, economic and financial data were released.

In March, the overall data of supermarkets were expected to be 6.7%, 6.7% in the first quarter, 6.8% in the previous year, and 6.8% in March. The market value is expected to be 5.9%, the former value is 5.4%, the highest value in 13 months. The cumulative investment in fixed assets in March is 10.7%, the market is expected to be 10.4%, the former value is 10.2%, and the highest value has been reached since the beginning of the month.

In March, M2 was 13.4% year-on-year, the market was expected to be 13.5%, the former value was 13.3%, the social integration was 2 trillion and 340 billion, the market was expected to be 1 trillion and 400 billion, the former value was 800 billion, the new loan was 1 trillion and 370 billion, the market expected 1 trillion and 100 billion, the former value 700 billion.

For the March economic and financial data, we commented as follows:

First, China's economic recovery is the "Fundamentals of the cycle" driven rebound.

The main logic is:

1, fiscal policy and infrastructure development.

After the "fiscal and monetary policy offensive and defensive swap", fiscal policy has been the main force, showing that the growth rate of fiscal expenditure in the second half of 2015 has been significantly higher than that of fiscal revenue growth, and the growth rate of infrastructure investment has picked up.

2, investment in real estate is getting warmer.

In our preliminary report, "China's real estate inventory is really high?" stressed that China's real estate inventory is high, but far from the market estimate is so high, the cycle is 3-4 years instead of 10 years.

Since the second half of 2015, real estate sales and real estate prices have continued to warm up and the cycle of reduction has shortened. Therefore, we judge that the growth rate of real estate investment in 2016 will be significantly higher than that in 2015.

1-3 real estate investment grew by 6.2% over the same period of 2015, which is much higher than that of 1% in 2015.

3, the dollar cycle peaks and the commodity cycle returns.

As early as December 2015, we clearly put forward this view. The return of commodity cycle will lead to PPI rebounded and converge year by year, while PPI will directly increase the profit of industrial enterprises while reducing the real interest rate.

In addition, commodity warming will change market expectations, promote industrial production and investment, and bring in replenishment needs.

4, "broad credit" rather than "wide currency" driven by the warmer.

We have always emphasized that monetary easing or "releasing water" is of little significance to the economic recovery. What is really useful is "broad finance" and "wide credit".

Excessive monetary easing does not stimulate the ultimate demand, but only leads to asset price bubbles.

Of course, moderate monetary easing is the basis of "broad finance" and "wide credit". Otherwise, the cost of government and enterprises will be too high, so the "broad finance" and "broad credit" can not be realized.

Since January 2016, credit expansion has accelerated significantly, which is an important support for the recent economic recovery.

Second, there are similarities and differences between the economic recovery in 2009 and 2012.

Similarities: the same is positive fiscal policy, infrastructure investment, real estate investment driven economic recovery.

The difference is: the economic recovery in the market is more natural, and the sustainability of economic recovery is much higher than that in 2009 and 2012. At the same time, it is the real end of the downlink cycle.

Specifically speaking:

1, this economic recovery is more similar to the economic recovery after the market clearing. The government has stimulated the demand side, but the stimulus is far weaker than in 2009 and 2012.

Taking infrastructure investment as an example, the growth rate of infrastructure investment in 2009 was as high as 50%. In 2012, it increased from 5% to 25%, and this time only increased from 15% to 20%.

Real estate investment is also a record of the lowest value (real estate investment growth in 2015 less than 2008) after the rebound, more like a natural clearing of the market results.

2, we believe that because the economic recovery is a high degree of market clearing, the sustainability of economic recovery is significantly higher than that in 2009 and 2012. This is also the reason why China's economy can show L.

The market's concerns about the economic recovery lie in its sustainability. The market expects the 2 and 3 quarters of the economy to be down again. But we think that this economic recovery will far exceed market expectations.

3, we believe that the long term economic downturn since 2011 has ended and the future is the second half of the "L". China's economy will grow at a high speed for a long time.

We think that the "13th Five-Year plan" has caught the key of new urbanization, and the process of urbanization in China will last until 2020.

Although the high inventory of real estate leads to the growth of real estate investment, it is difficult to return to the high growth rate of over 20% in the past. However, the growth rate of real estate investment has returned to 5-10%, which is expected to become a "new normal".

In addition, the growth rate of infrastructure investment supporting new urbanization will also maintain steady growth, and the "new economy" will continue to make additional incremental contributions.

In the future, China's economy will be a "L" type in the second half, and its specific form should be "W", with the fluctuation of 7% as the center.

4, the market has the view that this economic recovery is "return to the old road", we think this is a false proposition.

According to China's current situation, China is still a developing country and is still in the process of urbanization. Therefore, infrastructure and real estate will still be an important part of China's economy, and economic restructuring can not be accomplished overnight.

At the same time, we should see that the proportion of investment has dropped, the proportion of consumption has increased, the proportion of infrastructure and real estate has declined, the proportion of "new economy" and the service industry has increased, and the economic structural adjustment has not stagnated, and it will continue for a long time in the future.

Those who believe that China should abandon full infrastructure and real estate and turn to consumption and new economy in an all-round way is a idealism that is divorced from China's reality and will inevitably lead to the collapse of China's economy and massive unemployment.

Third, the monetary easing cycle is basically over and the fiscal force will continue. Structural reform will become the focus.

1, we believe that the monetary easing cycle since 2014 has basically ended.

Monetary easing is first aimed at hedging inflation, followed by a hedge against economic downturn.

And the CPI center increased from 1.5% in 2015 to 2-2.5% in 2016. Economic growth has also shown signs of overall warming. The reason for monetary easing is no longer valid.

Even if there is a reduction in the future, it will only be a hedge against foreign exchange and the lack of basic currency, which has nothing to do with monetary easing.

In fact, the turning point of monetary easing has already appeared. The last interest rate cut in October 2015 has lasted for half a year, but the market has always been lucky.

2, the positive fiscal policy will continue, mainly manifested in the new urbanization is the focus of the next five years, infrastructure investment growth will maintain a reasonable level, that is, 15-20%, while tax cuts and tax reform will continue.

However, as the economy gets warmer, fiscal stimulus will gradually weaken in order to prevent a repeat of the excesses of 2009.

3, structural reform will gradually become the focus.

The 2013-2014 year reform is the focus of the government. Since 2015, steady growth has become the top priority of the government.

Now, with the economic stabilization and recovery, the importance of steady growth will drop, and the importance of structural reform will be improved, including the long-term strategy of SOE reform, capacity building, one belt Road, innovation and entrepreneurship, and consumption upgrading.

Fourth, for the allocation of assets in large categories, to maintain the view since December 2015, the L inflection point of China's economy has passed in 2016. Bigoted and empty headed China's economy must make a big mistake. The long term bearish bond market will be bullish on commodities in the long run.

1, for the bond market, continue to look at the long term.

At present, both economic growth, inflation, risk appetite and monetary policy are all bad debts. The sharp adjustment of the bond market is inevitable.

2, for commodities, the long-term view remains unchanged.

The US dollar will see its peak for a long period of time, and China's fiscal policy will continue to exert momentum. Real estate investment will continue to stabilize and pick up.

3, for the stock market, firmly optimistic about the fundamentals driven stock market "healthy cattle", cyclical plate also benefited from demand side pick-up and supply side reform, there is excess return.

Combined with the PMI and import and export data in March, the signal of economic recovery has already changed from "spark" to "prairie fire". The so-called "stagflation theory" should rest for a while.

Since December 2015, we have emphasized that the inflection point of China's economic L has passed, and the Chinese economy is bigoted by bigotry. In 2016, "cycle returns" and "inflation return", we strongly see many commodities. We are optimistic about the fundamentals driven healthy bull market in China's stock market.

In April 15, 2016, economic and financial data were released.

In March, the overall data of supermarkets were expected to be 6.7%, 6.7% in the first quarter, 6.8% in the previous year, and 6.8% in March. The market value is expected to be 5.9%, the former value is 5.4%, the highest value in 13 months. The cumulative investment in fixed assets in March is 10.7%, the market is expected to be 10.4%, the former value is 10.2%, and the highest value has been reached since the beginning of the month.

In March, M2 was 13.4% year-on-year, the market was expected to be 13.5%, the former value was 13.3%, the social integration was 2 trillion and 340 billion, the market was expected to be 1 trillion and 400 billion, the former value was 800 billion, the new loan was 1 trillion and 370 billion, the market expected 1 trillion and 100 billion, the former value 700 billion.

For the March economic and financial data, we commented as follows:

First, China's economic recovery is the "Fundamentals of the cycle" driven rebound.

The main logic is:

1, fiscal policy and infrastructure development.

After the "fiscal and monetary policy offensive and defensive swap", fiscal policy has been the main force, showing that the growth rate of fiscal expenditure in the second half of 2015 has been significantly higher than that of fiscal revenue growth, and the growth rate of infrastructure investment has picked up.

2, investment in real estate is getting warmer.

In our preliminary report, "China's real estate inventory is really high?" stressed that China's real estate inventory is high, but far from the market estimate is so high, the cycle is 3-4 years instead of 10 years.

Since the second half of 2015, real estate sales and real estate prices have continued to warm up and the cycle of reduction has shortened. Therefore, we judge that the growth rate of real estate investment in 2016 will be significantly higher than that in 2015.

1-3 real estate investment grew by 6.2% over the same period of 2015, which is much higher than that of 1% in 2015.

3, the dollar cycle peaks and the commodity cycle returns.

As early as December 2015, we clearly put forward this view. The return of commodity cycle will lead to PPI rebounded and converge year by year, while PPI will directly increase the profit of industrial enterprises while reducing the real interest rate.

In addition, commodity warming will change market expectations, promote industrial production and investment, and bring in replenishment needs.

4, "broad credit" rather than "wide currency" driven by the warmer.

We have always emphasized that monetary easing or "releasing water" is of little significance to the economic recovery. What is really useful is "broad finance" and "wide credit".

Excessive monetary easing does not stimulate the ultimate demand, but only leads to asset price bubbles.

Of course, moderate monetary easing is the basis of "broad finance" and "wide credit". Otherwise, the cost of government and enterprises will be too high, so the "broad finance" and "broad credit" can not be realized.

Since January 2016, credit expansion has accelerated significantly, which is an important support for the recent economic recovery.

Second, there are similarities and differences between the economic recovery in 2009 and 2012.

Similarities: the same is positive fiscal policy, infrastructure investment, real estate investment driven economic recovery.

The difference is: the economic recovery in the market is more natural, and the sustainability of economic recovery is much higher than that in 2009 and 2012. At the same time, it is the real end of the downlink cycle.

Specifically speaking:

1, this economic recovery is more similar to the economic recovery after the market clearing. The government has stimulated the demand side, but the stimulus is far weaker than in 2009 and 2012.

Taking infrastructure investment as an example, the growth rate of infrastructure investment in 2009 was as high as 50%. In 2012, it increased from 5% to 25%, and this time only increased from 15% to 20%.

Real estate investment is also a record of the lowest value (real estate investment growth in 2015 less than 2008) after the rebound, more like a natural clearing of the market results.

2, we believe that the economic rebound is higher than that in 2009 and 2012 because of the high level of market clearing.

It can show the cause of L.

The market's concerns about the economic recovery lie in its sustainability. The market expects the 2 and 3 quarters of the economy to be down again. But we think that this economic recovery will far exceed market expectations.

3, we believe that the long period of economic downturn since 2011 has ended, and the future is the second half of the "L", and China's economy will grow at a high speed for a long time.

We believe that the "13th Five-Year" plan has captured the key to the new urbanization, and the process of urbanization in China will continue until 2020.

Although the high inventory of real estate leads to the growth of real estate investment, it is difficult to return to the high growth rate of over 20% in the past. However, the growth rate of real estate investment has returned to 5-10%, which is expected to become a "new normal".

In addition, the growth rate of infrastructure investment supporting new urbanization will also maintain steady growth, and the "new economy" will continue to make additional incremental contributions.

In the future, China's economy will be a "L" type in the second half, and its specific form should be "W", with the fluctuation of 7% as the center.

4, the market has the view that this economic recovery is "return to the old road", we think this is a false proposition.

According to China's current situation, China is still a developing country and is still in the process of urbanization. Therefore, infrastructure and real estate will still be an important part of China's economy, and economic restructuring can not be accomplished overnight.

At the same time, we should see that the proportion of investment has dropped, the proportion of consumption has increased, the proportion of infrastructure and real estate has declined, the proportion of "new economy" and the service industry has increased, and the economic structural adjustment has not stagnated, and it will continue for a long time in the future.

Those who believe that China should abandon full infrastructure and real estate and turn to consumption and new economy in an all-round way is a idealism that is divorced from China's reality and will inevitably lead to the collapse of China's economy and massive unemployment.

Third, the monetary easing cycle is basically over and the fiscal force will continue. Structural reform will become the focus.

1, we believe that the monetary easing cycle since 2014 has basically ended.

Monetary easing is first aimed at hedging inflation, followed by a hedge against economic downturn.

And the CPI center increased from 1.5% in 2015 to 2-2.5% in 2016. Economic growth has also shown signs of overall warming. The reason for monetary easing is no longer valid.

Even if there is a reduction in the future, it will only be a hedge against foreign exchange and the lack of basic currency, which has nothing to do with monetary easing.

In fact, the turning point of monetary easing has already appeared. The last interest rate cut in October 2015 has lasted for half a year, but the market has always been lucky.

2, positive

Will continue, mainly in the new urbanization is the focus of the next five years, infrastructure investment growth will maintain a reasonable level, that is, 15-20%, while tax cuts and tax reform will continue.

However, as the economy gets warmer, fiscal stimulus will gradually weaken in order to prevent a repeat of the excesses of 2009.

3, structural reform will gradually become the focus.

The 2013-2014 year reform is the focus of the government. Since 2015, steady growth has become the top priority of the government.

Now, with the economic stabilization and recovery, the importance of steady growth will drop, and the importance of structural reform will be improved, including the long-term strategy of SOE reform, capacity building, one belt Road, innovation and entrepreneurship, and consumption upgrading.

Fourth, for the allocation of assets in large categories, to maintain the view since December 2015, the L inflection point of China's economy has passed in 2016. Bigoted and empty headed China's economy must make a big mistake. The long term bearish bond market will be bullish on commodities in the long run.

1, for the bond market, continue to look at the long term.

At present, no matter economic growth,

Or risk appetite and monetary policy, all of which are bad debt markets. The sharp adjustment of the bond market is inevitable.

2, for commodities, the long-term view remains unchanged.

The US dollar will see its peak for a long period of time, and China's fiscal policy will continue to exert momentum. Real estate investment will continue to stabilize and pick up.

3, for the stock market, firmly optimistic about the fundamentals driven stock market "healthy cattle", cyclical plate also benefited from demand side pick-up and supply side reform, there is excess return.

Combined with the PMI and import and export data in March, the signal of economic recovery has already changed from "spark" to "prairie fire". The so-called "stagflation theory" should rest for a while.

Since December 2015, we have emphasized that the inflection point of China's economic L has passed, and the Chinese economy is bigoted by bigotry. In 2016, "cycle returns" and "inflation return", we strongly see many commodities. We are optimistic about the fundamentals driven healthy bull market in China's stock market.