Market change
The market rose sharply on March 16, with the Shanghai Composite Index up 3.48% and the gem Index up 5.20%. At the industry level, non-bank finance, power equipment, social services, transportation and so on led the increase.
The Jin Stability Committee of the State Council held a special meeting to send positive signals and stabilize market sentiment.
The reason for the sharp rise in the market today is mainly due to the fact that the Golden Stability Commission of the State Council has made a clear and positive response to hot issues of market concern to stabilize market sentiment. On March 16, the Financial Stability and Development Committee of the State Council held a special meeting. The meeting pointed out that "actively introducing policies beneficial to the market and prudently introducing contractionary policies" is a strong response and positive support to the market's previous concerns about the sustainability and strength of stable growth policies, and has well stabilized market sentiment. In addition, at the same time, the meeting also made a clear response to the hot issues of market concern: (1) the monetary policy should respond actively to maintain the moderate growth of new loans; (2) real estate enterprises promptly put forward countermeasures to prevent and defuse risks and supporting measures for the transformation of real estate enterprises; (3) support overseas listing of enterprises, communicate with the United States on issues related to China-listed stocks and form a cooperation plan; (4) the economic governance of the platform insists on making progress in the midst of stability; (5) to further strengthen communication and cooperation between the two places in view of Hong Kong's financial market.
The policy responded timely and clearly to hot issues, and the central bank and the Bancassurance Regulatory Commission responded quickly that the follow-up of the stable growth policy was still in a period of increase.
The policy responded quickly, sending out a positive signal of steady growth. Since mid-December 2021, the market has been retreating continuously, and the recent volatility has obviously increased and the decline rate has accelerated, resulting in the phenomenon of magnifying the negative and ignoring the good. In this regard, the Golden Stability Committee of the State Council responded clearly to the hot issues discussed in the market one by one, sending out a strong positive signal, confirming that in order to achieve the 5.5% goal of "medium-to-high-speed growth on a high base", the policy is still in a period of "steady growth". At the same time, the tone of "prudent introduction of contractionary policies" shows that there will not be a rapid shift in policy. After the Golden Stability Committee, the central bank and the Bancassurance Supervisor quickly followed up the meeting, emphasizing "full support for the stability of the macro-economic market." The rapid response of various ministries to this indicates that follow-up policies will be "intensive", monetary policy will warm steadily, support moderate growth of credit, fiscal policy will be moderately ahead of pace, and real estate regulation and control policies will continue to be warm. Comprehensive policy support will strongly boost market risk appetite.
Market valuations have fallen sharply to a low level, the margin of safety has thickened, and the performance-to-price ratio of medium-and long-term investment has been highlighted. At present, the valuations of major market indexes such as A-share stocks, Shanghai Composite Index and gem Index have fallen back to the quantile levels of 34.13%, 22.60% and 35.93% since 2010 respectively, which are significantly lower than the phased highs at the end of 2021 and are already on the absolute low side. Valuations in some industries have been significantly undervalued, such as the electronics industry's current valuation of 26.7X, which is in the historical quantile of less than 3 per cent. The pharmaceutical industry is currently valued at 29.1X, with a historical quantile of only 5%. The sharp decline and low index and industry valuations have thickened the margin of safety, have medium-and long-term investment value, and do not need to be habitually pessimistic about the future.
Short-term balanced response, medium-term focus on the growth of the third stage of the valuation market
In the process of internal policy reinforcement and external risk restriction, the market volatility has been magnified, and institutional investors should be balanced to deal with it. At the same time, after a substantial adjustment, the valuation level of the market and some industries has returned to historically low levels, and the medium-and long-term investment value has been very significant. Pay attention to the market in the third stage of growth and the main line of rebound investment in the stable growth sector, which is weakest restricted by external risks. Main line one: look forward to the growth style of the third stage of the medium-term investment opportunities in the valuation market, now is a good time for layout. Specifically, we can pay attention to the growth of strong main line industries represented by new energy (vehicles) and electronics, and the expected benefit valuation diffusion industries represented by national defense and military industry and computers. The second main line: the stable growth sector which is weakest restricted by external risks. Pay attention to building materials, architectural decoration, urban pipe network transformation, new Electroweb construction and other new and old infrastructure areas, as well as the recent economic reversal of real estate, banks. Main line 3: medium-and long-term investment opportunities for the recovery of service consumption and increases in the prices of required consumer goods, especially after the recent pullback due to the impact of the epidemic. Pay attention to the pharmaceutical sector prepared in advance to achieve the recovery of service consumption and the travel chains such as airports, catering, tourism, and leisure services after the repeated impact of the recent epidemic. In addition, the medium-and long-term investment opportunities for rising prices of necessities are also worthy of attention, including dairy products, planting industry, chemical fertilizer and so on. The theme continues to pay attention to the digital economy and the reform of state-owned enterprises.
Risk hint
The development of Omicron mutant strain exceeded expectations; there was a deviation in the interpretation of policies; the risk of geo-conflict between Russia and Ukraine spilled over; the Federal Reserve raised interest rates more than expected and even shrank the table ahead of schedule.
