Tighter Financial Regulation Has Promoted The Promotion Of Value Investment Weights.

Market expectations are quietly changing, and financial regulation is once a result of concern. Now it is a "process" concern. The drop in positions also brings about changes in mentality, which once was "panic running away" and now is "waiting for failure".

Shen Wan Hongyuan strategy highlighted the bottom area in the most pessimistic moment of market expectation. The biggest expectation difference is that the final form of financial deleveraging is the debt replacement of commercial banks, rather than the shrinking of the table.

At this stage, we have observed that market expectations are changing quietly: the market is gradually recognizing that the market is gradually recognizing that the financial leverage will eventually return to the right path (debt replacement).

And the market is still worried that the process of financial deleveraging for the right path may be very tortuous, and the risk preference of A shares will be repeatedly affected.

That is, the market is worried about the "result" of financial regulation. Now it is a "process" concern. The mitigation of medium and long term conflicts is an important positive change at the expected level, but uncertainty exists in the short and medium term path.

It is accompanied by the changing process of institutional investors' positions and investors' mindset.

The early stage of financial deleveraging is expected to be out of nowhere, and the positions have also been fast downwards. At the present stage, the positions have returned to a low level, and the market concerns are concentrated on the uncertainty of the medium and short term. The long-term pessimism has begun to dissipate, and investors' willingness to continue to reduce positions is limited. The real mentality of investors tends to keep low positions and wait for the market failure to occur again.

In our view, it is the process of stabilizing the micro market structure, and it may not be easy to market failure again.

We believe that the main factor that triggers market failure may be only the case of financial anti-corruption (small probability event) affecting the real gold and silver of the stock market.

Current market

It is only "reasonable" rather than "wrong killing": no real cheap and overvalued structure can be found.

Another angle to support our bottom region is that the valuation system of the current market has become more reasonable. Although it is hard to find a wrong killing, it is hard to find overestimation.

(1) the 28 tier one industries of Shin Shen Wan, PE (TTM) and PB (LF), are higher than those with only 4 historical industries since 2005 (light manufacturing, leisure services, communications and textiles and clothing). Besides the communications industry, the other 3 industries are currently only slightly above the historical average, especially the consumer goods industry is not an overvalued sector.

Therefore, the current position should be cautiously overestimated by two words.

(2) the valuation of PE and PB in 13 industries is lower than the historical average (food, beverage, computer, media, banking, steel, utilities, non silver finance, building decoration, automobile, real estate, electrical equipment, commercial trade and agriculture, forestry, animal husbandry and fishery). But considering the matching of valuation and Fundamentals (boom trend and industry life cycle characteristics), we must also admit that the direction of "wrong killing" may not exist.

Although reasonable, it has not been wrongly killed, which means that it may not be realistic to hope that valuations provide a strong margin of safety, which may be an important reason why investors generally feel the difficulty of structural choice.

But judging from the general trend, we believe that we need to realize that there is no overestimation of the market as a whole, and that "reasonable" is the "wrong killing". If the market falls again rapidly, the direction that the valuation can provide the margin of safety will appear, which is also an important basis for the bottom area.

Reasonable valuation + low position = bottom area.

The trend still supports the "beautiful 50" win in the moment, but the contradiction of microstructure is accumulating, it has not become the winner in 2017, and time is the friend of the gem.

In this regard, we emphasize 4 points: (1) the basic risk of the "beautiful 50" target is relatively controllable, and the probability of performance exceeding expectations is not high.

Relative to the trend of basic trend, the relative growth rate of representative assets such as gem and so on is also in the downward channel.

(2) the supporting environment for the "beautiful 50" objectively exists in the environment where the risk-free interest rate and risk premium go up synchronously. The tightness of financial regulation has also promoted the promotion of value investment weights. These supporting factors are still effective in the short run.

(3) the "beautiful 50" win in the moment, but the microstructure is indeed accumulating some problems. In the first quarter of the year, the deployment of the public offering fund for the leading shares (our leading companies in various industries, and the narrow leading points of a handful of absolute leading companies) have been gradually approaching the high level in 2012. The proportion of the trading volume of the leading shares and the proportion of the two share of the purchase have also been at a relatively high historical level.

(4) time is already a friend of the growth enterprise board, and financial leveraging gradually clears up the process of "debt replacement", which is the gradual opening process of the risk-free interest rate downlink.

The weak cyclical performance may also be reflected in the second half of 2017 as the gradual emergence of performance resilience. At the same time, the decline of motherboard performance driven by cyclical factors may reverse the trend of relative performance growth, and the gradual liberalization of market oriented M & A is a trend, which should not be underestimated.

So at this stage, we still emphasize the trend of economic development and inflection point in our structural choice, focusing on environmental protection, thermal power, apple industry chain, upstream of new energy vehicles and aviation investment opportunities.

In addition, stock price and valuation provide the direction of safety margin as the focal point of allocation. Under this logic, the international project contracting and defense industry, the joint-stock bank and the leading city business are waiting for the regulatory expectation to be pessimistic.

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