Guosen Securities February Strategy: Spring Rain and New Hop

Core Conclusions

In January, the A-share market was re-emerged in the market, and the Shanghai Composite Index closed. The GEM index fell rapidly in the case of the listed companies' performance. Looking forward to February, we believe that the spring offensive will enter the second wave, and the market is worth looking forward to. The main logic is that at the bottom of the valuation history (which determines the limited downside space), the fundamental data vacuum before the two sessions (relatively fixed molecules), and the risk-free interest rate rapid decline (wide credit has not yet appeared, funds remain in the financial system, risk preferences In the context of rising expectations and strong policy expectations, the current A-share market is in an excellent time window. On the other hand, from the historical statistics, the A-share market has the highest probability of rising in February. In addition, the 2019 GEM will have a big change after a big bath, there is hope for change, it deserves our attention. From a structural point of view, we propose to focus on three directions: one is the frontier technology sector represented by 5G and artificial intelligence, the other is the leading enterprise with stable ROE and high level, and the third is the superior enterprise of the 2B end of public service.

January market review: White Horse market reappears

Overall, in January A-share market, the white horse leading market reappeared, the Shanghai index closed with red, the GEM closed down. Judging from the performance of each index, the SSE 50 led the gains, up 8.30%, the highest monthly increase since February 2018; the Shanghai and Shenzhen 300 index followed closely, rising 6.34% in the whole month; the Shanghai Composite Index also rose 3.64%, ending a three-month decline. From the perspective of market style, Baima's leading market reappears. The trend of the Shanghai Composite Index is significantly better than that of the GEM. With the performance of listed companies at the end of the month, the GEM index fell rapidly and eventually fell 1.80%. Among other indexes, CSI 500 rose 0.20%, CSI 1000 index fell 1.68%, GEM 50 fell 1.32%, and Wanda A rose 2.73%.

In terms of industries, more than half of Shenwan's first-tier industries rose. In the context of risk-free interest rates, the consumer and financial sectors with higher profitability and stable dividend yields benefited. Household appliances, food and beverage, non-bank finance and banks accounted for the top four positions in monthly gains, including household appliances. The increase was as high as 13.06%, and the monthly increase of the other three industries was no less than 8.0%.Leisure services, general and media industries have seen large declines.

Market Outlook for February: Spring Rain and Rain New Hope (000876, Diagnostics), Spring Offensive Second Wave

Looking forward to February, we believe that the spring offensive will enter The second wave, the market is worth looking forward to. The main logic is that at the bottom of the valuation history (which determines the limited downside space), the fundamental data vacuum before the two sessions (relatively fixed molecules), and the risk-free interest rate rapid decline (wide credit has not yet appeared, funds remain in the financial system, risk preferences In the context of rising expectations and strong policy expectations, the current A-share market is in an excellent time window. On the other hand, from the historical statistics, the A-share market has the highest probability of rising in February. In addition, the large-scale impairment of goodwill has made the GEM listed company's performance in 2018 almost swayed, greatly reducing the performance base of 2019. The GEM will have a big change in 2019, and there is hope for change. It deserves our attention.

On the one hand, we believe that there are three typical characteristics of the current A-share market, namely (1) the bottom of the valuation history; (2) the profit cycle is downward; and (3) the risk-free interest rate is rapidly declining. In the medium term, if the market wants an upward trend, it still needs to wait for the turning point of the profit cycle. This is not yet seen, but this does not prevent the short-term market from having a decent rebound, short-term rebound. The persistence and height depend on the relative changes in numerator (profit) and denominator (interest rate). At present, A shares are at the bottom of the valuation history (determining the limited downside space), the fundamental data vacuum before the two sessions (relatively fixed), and the risk-free interest rate rapid decline (wide credit has not yet appeared, funds remain in the financial system, risks Within the time window of strong policy expectations and strong policy expectations, we believe that “spring sway” will continue with a high probability.

The current rapid decline in risk-free interest rates is undoubtedly a major positive factor for the stock market. Since the fourth quarter of 2018, there has been an accelerated decline in risk-free interest rates. The 10-year Treasury yield to maturity fell from 3.98% at the beginning of 2018 to the current 3.10%, a drop of 88BP. From the current economic growth rate of China's economy and inflation, the risk-free interest rate is one.It is quite possible to step down or even break down the 2.7% historical low, which will lower the denominator's discount factor and lead to the revision of the stock market valuation, which is undoubtedly a major positive factor for the stock market.

While the market's risk-free interest rate has fallen sharply, we have also noticed that monetary easing has not yet been transmitted to the real economy. In other words, the so-called "wide credit" situation has not yet appeared. This is reflected in: (1) Although the risk-free interest rate has fallen sharply, the “credit spread” of low-rated companies remains high, and the financing of low-rated entities is still difficult; (2) represented by M1, M2 and social financing scale. A series of financial indicators show that the inflection point of credit contraction has not yet appeared. This means that a large amount of money brought by wide currency will be retained and hoarded in the financial system. For the stock market, the market “money more” means that risk appetite is expected to pick up, while taking into account that the interest rate of government bonds is currently low, the attractiveness of equity assets will become stronger and stronger.

On the other hand, historical data shows that the “spring spurt” market in the A-share market generally occurs in February, even from the full year, the probability of rising in February is also Highest. From 2000 to 2018, the Shanghai Composite Index's probability of rising in February reached 77.8%, much higher than other months. The variance of the annual increase in February was also the lowest compared to other months. The second highest rise probability is November. From 2000 to 2018, the probability of the Shanghai Composite Index rising in November is 67%. From an event-driven perspective, there are “two sessions” every year in March. At the same time, there will be a “central economic work conference” in December of the previous year, which will have a directional influence on the policy of this year. The policy theme is hype in spring. Direct driving force.

The “big bath” of small and medium-sized achievements is also one of the important reasons that have affected the stock market in the near future. The performance of listed companies at the end of January has led to a rapid decline in the GEM. Judging from the relevant information of the disclosed annual report (99.2% of the small and medium-sized board and 93.3% of the listed companies of the GEM have disclosed the relevant information of the annual report), the cumulative growth rate of the small and medium-sized achievements in the fourth quarter fell to the negative range. The growth rate of net profit of small and medium-sized listed companies continued to fall after reaching a high point in the first quarter of 2017, and has now reached a new low since the second quarter of 2016. GEM listed company's net profit growth rate fell to the end of 2017After the negative interval, there was a brief rebound in the first quarter of 2018, and then the downside mode was restarted. In the fourth quarter of 2018, the value plummeted to -48%. The GEM said that the cumulative decline in the last four trading days in January also reached 3.0%.

It is worth noting that the main reason for the sharp decline in the performance of this small and medium-sized enterprise is not the deterioration of the company's operating conditions, but the listed companies (especially small and medium-sized enterprises) arising from a wave of mergers and acquisitions around 2015. The company has accumulated a large amount of goodwill. Most of the company's performance in the three years or so of the performance of the gambling period due to the performance of the non-compliance of the value of the impairment, resulting in the performance of listed companies in 2018 "big bath." The large-scale impairment of the goodwill has made the GEM listed company's performance in 2018 almost swayed, greatly reducing the performance base in 2019. The GEM will have a big change in 2019, and there is hope for change. It deserves our attention.

In the long run, we are also more optimistic about the A-share market. First of all, we must recognize that in essence, the stock market is pricing the profit of the enterprise rather than the economic growth rate. The changes in the economic structure will cause the two to differentiate. This differentiation occurred between 2001 and 2005. At that time, China’s economic growth rate was extremely high, and nominal GDP increased by 87% in five years. However, the Shanghai Composite Index experienced a “five-year bear market”, which fell from 2245 points. 998 points, the big logic behind this is the differentiation of corporate profits and economic growth. According to comparable calculations, the profit growth rate of listed companies in the past five years is only 1.7%, and the stock market is for corporate profits rather than economic growth. Pricing.

Under the trend of “high quality development” and “industrial concentration”, the profitability of enterprises will be better than the economic growth rate. The future will continue. As of the third quarter of 2018, the ROE of all A-shares and the elimination of financial two oils were 10.8% and 10.1% respectively. Although there was a slight decline in the second quarter to the third quarter, it is still at a relatively high level. The current enterprise ROE is above the historical hub level. , much higher than the historical low. With the deepening of structural reforms on the supply side, the reform and opening up has been increasing, and the Chinese economy is accelerating the transition to a high-quality development model. In this process, the driving force for economic growth will shift from demographic dividends and capital factors to technology.As steps and efficiency improve, industry concentration will generally rise. Enterprises with brand, technology and efficiency will gradually win and improve profitability. This is the normal result of structural adjustment and market competition.

That is to say, under the economic structural transformation, the profitability of the enterprise and the macroeconomic situation have deviated from each other. The current corporate profitability is significantly better than the economic situation, in addition to the economic growth rate. In the process of low innovation, the risk-free interest rate will be further reduced, and it is quite possible to break down the historical low of 2.7%. The reduction of interest rate is conducive to the upward revision of stock market valuation. Therefore, in the long run, we are more optimistic about the A-share market. Considering the current bottom level of valuation, if the future ROE is not so bad, the 2019 A-share market is expected to bring very good returns.

In terms of structure, we suggest focusing on three directions: one is the frontier technology sector represented by 5G and artificial intelligence, the other is the leading enterprise with high ROE stability, and the third is the 2B end of public service. Advantageous enterprise.

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