China Has Stepped Into The Economic L Type And Is At The Starting Point Of The New Cycle.

After 6 years of capacity adjustment, deflation and balance sheet adjustment, a large number of small and medium enterprises withdrew from the traditional industries such as steel, coal, cement, glass, chemical industry, machinery and so on. Leading enterprises compressed capacity and increased the concentration of industries. They overlay the supply side reform to expand production capacity, expand the competition pattern of traditional industries, and enter the era of leftover and strong. In 2014, we predicted that the "new 5% is better than the old 8%".

Although a large number of invalid zombies are on record, it has been difficult to resume production, resulting in a significant degree of profit concentration in the industry, and even some industries have entered oligopolistic competition. Leading enterprises in the industry have established barriers to entry through machine substitution, environmental protection standards and bank lending restrictions.

Leading companies profit margins, balance sheet repair and capacity utilization far better than the average level of the industry, began to harvest the fruits of victory, but because of the long winter of the past production capacity, enterprises are still very cautious about large-scale expansion of new capacity, only to upgrade the equipment which was delayed in the past, and the capacity expansion cycle is still in the future stage.

The two is demand recovery.

Export trade has gradually recovered since the second half of 2016. The main driving force is the acceleration of external demand in the US and Europe, and the depreciation of RMB against the US dollar at the end of -2016 in August 2015. 14% major economic indicators such as PMI, CPI, PCE, and salary have been accelerated since the second half of 2016, with the help of replenishment, cycle accelerator and Trump's financial expansion expectations. The economy has shown signs of recovery from overheating, and the Fed's interest rate hike is expected to increase.

Benefiting from export recovery and equipment renewal, domestic manufacturing investment has picked up since the second half of 2016, and manufacturing investment accounts for 31% of the total social investment (25% of infrastructure and 23% of real estate).

As the 1234 tier cities are more fully stocking real estate, more than two years of real estate market prosperity makes developers cash flow very abundant. Under the demand of replenishing inventory, real estate investment will exceed the expected recovery. It is estimated that real estate investment will increase by 4%-5% in 2017 and more than 6% in the first half of this year.

In the second half of 2016, the change of local government was nearly completed, and a new round of infrastructure Championships is being staged.

Driven by a sharp rise in PPI and a 2014-2015 year cut in interest rates, the real lending rate (the lending weighted interest rate -PPI of financial institutions) has dropped significantly, and the demand for corporate financing has begun to recover due to the low cost of debt and the rising price of assets represented by land, commodities and raw materials.

The three is the opening of the new political cycle.

In the second half of 2016, the local general assembly is basically completed, and the 19 major chapters will open a new chapter in October 2017.

The tone of policy is shifting from steady growth to reform and risk prevention.

China and the United States are entering a new round of interest rate raising cycles, but the background and purpose are different. The Fed's interest rate increases are designed to counter cyclical regulation. China's structural hikes are designed to leverage, prevent risks and stabilize exchange rates.

Remove from deficiency to reality.

Raising the interest rate of the open market policy will directly raise short-term funds, thereby putting pressure on the yield of long end bonds.

However, due to the segmentation of China's interest rate market and the lack of interest rate pmission mechanism, the direct impact of broad interest rates on deposit and lending rates is limited.

At present, the financing structure of enterprises is mainly loans, so the policy interest rate increase has limited short-term impact on the recovery of the economic cycle.

new

The cycle of raising interest rates under the framework has already started, with tight money and wide credit.

We are more interested in reforming the relevant themes. We are more optimistic about the trend of the times, the "core" driving force, the coordinated development of Beijing, Tianjin and Hebei, the structural reform of the supply side, the expansion of production capacity, the reform of state-owned enterprises, and the military reform.

Stock market: since the fourth quarter of last year, the market has come back to recession and deflation view one after another. In the 4 quarter of 2016, we put forward "buying stocks to resist inflation, buying anti inflation stocks" and seeing many stock market bearish bond markets. In early 2017, we proposed the dawn of dawn, the rise of the middle reaches, the new normal new cycle and the new bull market. Since February, the recommended undervaluation has really grown.

Due to supply clearing, demand recovery and corporate performance improvement, we maintain the structural bull market in the medium term A shares = the new cycle + undervalued real growth + reform judgment, which is different from the 2014-2015 year denominator valuation drive, and the 2016-2017 year is mainly driven by molecular performance.

Though in short term

The interest rate increase, real estate regulation, tight money and resistance point of disturbance, and other disturbances, but the improvement of the medium-term fundamentals has lasted for a long time.

Bond market: as the Fed raises interest rates faster, "economic L", inflation expectations, policy deleveraging and other factors, the bull market that has lasted for more than 2 years has ended and there may be trading opportunities in 2017.

Commodities: demand recovery and supply clearing, and commodity prices may be dominated by interval fluctuations.

Real estate: in 2015, we predicted that "first tier housing prices will double". In 2016, we proposed "1516 look at Shenzhen and 1718 look at Beijing".

In the long term, the real estate cycle sees the population, the medium term, the land and the short-term finance. The new round of real estate regulation mainly depends on the purchase and loan restriction, and the long-term mechanism is yet to be implemented.

Potential risk: the Federal Reserve is expected to raise interest rates more than expected; Trump's new deal is blocked; domestic money is expected to tighten; real estate regulation is overcorrecting; reform is lower than expected.

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