Zhong Wei Column A Opportunities And Risks: Two Climbing, Two Hidden Troubles

Zhong Wei (chief economist of Minsheng and silver fund)

In this essay, we emphasize: Quarterly, the two "Climbing" of economic growth will bring certain opportunities for rights and interests allocation. But investors must pay close attention to two internal and external concerns, one is the risk of epidemic politicization and the other is the economic cost of normalization of epidemic prevention and control.

? ? Because China's A share market is a growth oriented market dominated by risk preference (the price earnings volatility caused by mood fluctuations can explain most of the A share market, while the economic cycle, company fundamentals, macroeconomic policies and noise trading are four other relatively important factors). Therefore, the two climb can partially fix the risk preference, but the two worries may quickly damage the risk preference. Restoration.

On the whole, the A share market may show a M oscillation in the year. It is not possible to exclude the risk of a fall in the three quarter and the four quarter.

Optimistic presupposition of the epidemic: the worst moment is passing away.

There are many assumptions about where the epidemic will go. Some macro and strategic analyses are based on the presupposition of optimistic judgment. This optimistic judgement includes the following elements:

First, the awakening of the government and the public is crucial to the prevention and control of epidemics. Otherwise, crying and death are always far away from policy and public concern. In many countries, there is no doubt that there is "public awareness" at present.

Two, the multinational epidemic prevention and control into a sustainable mode, that is, the German Korean model, strong detection + short isolation + severe treatment. At present, Germany's daily nucleic acid and antibody detection capacity reaches 0.3% of the total population, and Korea and Spain reach 0.1% (about 0.06% of China). To ensure that medical resources are not run, the rate of hospitalization is usually not more than 20% in Europe and the United States, which determines the sustainable balance between the US and Europe in controlling the epidemic situation and maintaining the ability of social economic restart.

The three is that East Asia (including China), Europe and the United States generally show epidemic control situation. East Asia leads Europe for about 4-6 weeks. Europe leads the United States for about 2-3 weeks. Epidemic prevention in Europe and the United States determines that its extinction cycle (using R0>1 as a mark) will be more time-consuming than East Asia.

In addition to Japan, the East Asian economy is currently in a climbs period, and Europe may reach a climbs in late May to early June. The US may start economic climb in mid June to late June. The major economies of the world will step up the economy cautiously and step by step in sub regional sectors, and try to bring them back to normal.

Four, before the successful development of vaccines, socio economic exchanges will focus on "global stability Mishima" in East Asia, Europe and the United States.

Although the epidemic is spreading all over the world, we are relatively optimistic that the "three islands of stability" have emerged, and the peak of the epidemic is likely to be over in late March and early April. The "three islands of stability" account for about 70% of the world's GDP and most of the financial resources.

So far, we have not observed the exchange rate crisis, the sovereign debt crisis and the collapse of systemically important institutions. Therefore, the current situation is not a financial crisis, which is called financial turbulence more accurate. We can hardly tell how the global epidemic will spread to the third world. But for the most important part of the world economy, the worst moment is likely to be over.

The two quarter may be the window period for A share allocation.

We observe the five factors of equity market, one is investor risk preference, the two is macroeconomic growth and so on; the three is financial and monetary industries and other policy aspects; four is the fundamentals of listed companies' earnings and so on; five is based on informal news trading noise. The difference between the expected and the final value of the five factors constitutes the expected difference. The expected difference between the five factors drives the trend of the equity market.

We judge that China's economy will have two "Climbing" in 2020. China's economic growth will show a trend of rising from quarter to quarter. In terms of quarterly marginal improvement, the steepest improvement will be in the second quarter compared with the first quarter (China and the East Asian periphery) and the third quarter relative to the second quarter (climbing in Europe and America).

At present, China and East Asian economies have begun to climb into the climbs. By the end of May and the middle of June, the European and American economies may also enter the climbs. Nevertheless, the global economy will continue to decline in 2020, but the global stability of the three islands and the economy will be initially stable.

The two climbs of the economy decided that the A share will have a window period of deployment.

? ? ? In terms of the five factors: the epidemic and the consequent economic recession have determined that the risk appetite of investors is difficult to be significantly repaired during the year. China's macroeconomic performance is better but not as expected. China's fiscal and monetary policies will remain quite restrained and demand will not immediately resume and expand. Sexual opportunities; noise trading activities are limited to the market.

In the first quarter, China's GDP fell 6.8%, and the United States and the European Union fell by 4.8% and 2.7% respectively, both closer to market expectations. China's economic growth is expected to return in the two quarter, but it will be difficult to achieve more than 3% growth. In the two quarter, the growth in Europe and the United States will continue to be significantly negative and fall into recession.

In the first quarter, Shanghai and Shenzhen listed companies had a negative growth of 8% in revenue and 24% negative in earnings. In April, about 76% of the industrial enterprises achieved a yield of 80%, which means that the overall production rate is still insufficient. Under the background of no major stimulus policies and the political worries of outbreaks, we are concerned that the current market consensus on China's economic growth is too high. We are more worried that the failure to achieve the sudden change of investor risk appetite.

Combined with five factors and two climbs, the whole two quarter or even the three quarter of the earlier period, if the two worries do not ferment, will be the window period of A share allocation.

Two hidden worries may have an impact on market restoration.

The first worry is the politicization of the epidemic.

When the epidemic in Europe and the United States is stabilized, some politicians in the West will politicize the new crown pneumonia problem, and criticize China's voice may be very high, because for Western politicians, this is a very low political cost option, but the income may be huge. If the epidemic in Europe and the United States is out of control, it will be worse. The world may slip deeper into political and economic warfare. We can not rule out this possibility.

As the US foreign affairs has said, the epidemic is a catalyst for history, but it is not a turning point. The decline of leadership in the United States, the weakening of global cooperation, the disharmony among big powers, and the characteristics of the international environment have already appeared before the outbreak, and this pandemic has made them more striking than ever before.

The pan politicization of the epidemic will continue to hurt the sentiment of A share investors to a large extent. Looking back at the performance of the A share market in the second quarter of 2018 in the Sino US trade war, we can estimate the seriousness of the matter.

The second hidden worry is the economic cost of normalization of epidemic prevention and control, which may make it difficult to recover demand in a short time.

Before effective vaccine appears, epidemic prevention and control should be normalized. In this case, some industries can not go back to the experience state before the epidemic for a long time, mainly the life service industry, covering tourism, entertainment, sports, convention and exhibition, hotels, film and television, and many other industries. Even the industries that are considered to be benefited, such as the electricity supplier industry, have seen a sharp slowdown in the growth rate after the epidemic. In the first quarter, online retail sales of physical commodities increased by only 5.9% over the same period last year, while the growth rate last year was around 20%.

Investors may gradually understand that even though many cities have put in vouchers, they will not be able to reverse the long-term slowdown in consumption. After the outbreak, consumption is also difficult to have a sustainable V shape reversal. We should even see that the slowdown in China's consumption began in the middle of 2011, and it has lasted for nearly 10 years. The slowing growth of consumption is closely related to the increasingly strong residents' defensive mentality brought about by the slow economic growth, difficult salary increase and difficult employment.

Not only China, the trajectory of global economic growth has changed due to the outbreak of the new crown pneumonia. Economic recession necessarily means insufficient demand, and then supply is forced to shrink. With the global economy paying a heavy price for epidemic prevention and control, growth will become more cautious and difficult. The economic recession after the blockade is inevitable.

The marginal improvement of economic growth in the two quarter is larger than that in the first quarter. The three quarter is also the same as the two quarter. This is the two climbing, which will create a window period for the allocation of A shares. However, when A share investors realize that normalization of epidemic prevention and control will lead to a longer-term cost of life services, and the politicization of epidemic problems will lead to the international society rip off, their risk preferences will decline again. Therefore, we suspect that in the two quarter and the three quarter, the probability of risk appetite repair and market recovery is relatively large. And later this year, whether the A share market will fall and how much it falls is highly uncertain. These depend on the degree of fermentation of the two worries and the expectations of investors.

Investment options in type M oscillation

From the macro logic, we can form three judgments.

First, the duration of fixed bull market may be longer, and it should be put in a longer term. The equity market is fluctuating, while the bull market is somewhat neglected, but it is relatively sustainable.

Second, in the equity market, the two climbing of the economy will bring opportunities for configuration. But we also need to pay attention to that, in the three quarter or a little later, with the ferment of two worries, the market may encounter enormous problems.

Third, the politicization of the epidemic problem has decided that investors must be cautious about the bigger blue chips of the target market, and the more localized ones are more concerned.

The cooperation between the United States and China in the field of high technology may accelerate and deteriorate. Independent innovation in large aircraft, chips and communications will be more difficult and urgent. The prospects for cooperation in the pharmaceutical industry are also unclear. Therefore, it is worthwhile to be equipped with technology, medicine, basic consumption and infrastructure in the face of the local market.

Life service industry is not optimistic because of the normalization of epidemic prevention and control. This is determined not only by optional consumption, but also by basic consumption, which is difficult to get back to before the epidemic.

The two growth "Climbing" determines that we will see the emotional repair and market repair that we like to see, and the two hidden danger decides that this kind of restoration is likely to disappear at any time. We have to look for Chinese investment, China's innovation, and China's growing enterprises serving the Chinese market from a new perspective.

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