CICC: The present may be a deep adjustment to the medium-term relative low for A-shares, which has brought good layout opportunities

The Zhitong Finance App learned that CICC released a research report saying that the direct reason for the sharp market correction was the escalation of the situation in Iran. Not only has the recent geopolitical conflict not abated, but has further intensified. In terms of rhythm, the market deductive logic has changed, shifting from the initial round of emotional shock to macroeconomic and fundamental concerns. At the beginning of the outbreak of the geographical conflict in early March, the first round of impact of the warming geographical situation on the stock market was usually reflected in emotional shocks and a jump in risk premiums. It was reflected in rising volatility and capital reallocation. Capital tends to shift from equity assets to safe-haven assets. The bank believes that after the emotional shock recedes, the market focus will gradually shift to fundamentals and policy lines, and the geographical conflict will become the dominant logic for substantial changes in the global industrial chain and macroeconomic environment.

CICC's main views are as follows:

The market deepened under external shocks, and the Shanghai Composite Index fell below a critical point during the phase. The A-share market experienced a severe setback on March 23. The Shanghai Composite Index, Wandequan A Index, and the GEM Index fell 3.6%, 4.1%, and 3.5% respectively. The Shanghai Composite Index once fell below the 3,800 integer mark in the intraday period. The Asia-Pacific stock market generally deepened. The Korea Composite Index plummeted 6.5%, and the Nikkei 225 Index and the Hong Kong Hang Seng Index declined similar to A-shares. The A-share style and sector performance also showed obvious “killing valuation” characteristics: in terms of large and small markets, the high-valued small micro market performance was weaker; the Wande Micro Market Index and the China Securities 2000 Index fell 6.4% and 5.4% respectively, which was higher than the general market; in terms of industry, petroleum and petrochemical, coal, electricity, batteries, power grid equipment, high-dividend companies with safe-haven attributes, and sectors with better fundamental expectations were resilient; consumer services, software, etc. had strong stock price declines.

Recently, market concerns in these two areas have increased: 1) Cost shocks and profit differentiation. China is a typical energy importer. Rising energy prices are putting direct or indirect upward cost pressure on most domestic industries. If the impact continues to spread to global trade, it may also affect China's export demand. This concern has been accompanied by a rise in oil prices. Recently, attention has continued to rise, and is reflected in the capital market, affecting subsequent profit judgments in A-shares, especially in the non-financial sector; 2) The linked effect of macro-inflation and interest rates. High oil prices drive up inflation expectations, which in turn affects the pace and direction of the Federal Reserve's monetary policy. Historical experience shows that if the global liquidity easing cycle ends early, it will suppress equity market performance.

At this point, buy or sell?

It is expected to welcome a rebound in the short term, but we still need to pay attention to the evolution of the conflict and the A-share financial environment. As of the release of the report, there have been major changes. According to media reports, Trump said on the 23rd that the US and Iran have had “very good and productive” talks over the past two days, and that the US will “postpone the attack on Iran's power plants for 5 days.” Afterwards, Iranian media quoted information from Iran's Ministry of Foreign Affairs as saying that there was no dialogue between Iran and the US. Under the combined impact, oil prices declined rapidly, the decline in gold narrowed, and US stocks rebounded. The development of short-term events is expected to bring about a rebound in A-shares, but we still need to pay attention to subsequent developments and the recent A-share funding situation, such as institutional redemption pressure. From the perspective of market stabilization monitoring, it is currently necessary to prevent negative feedback on the index.

Currently, it may be a relatively low point for A-shares in the medium term, and deep adjustments have brought good layout opportunities. Although there is still some uncertainty about the short-term trend, the risk in the A-share market was further released. The bank believes that the valuation is at a relatively reasonable level. If measured by risk premium, as of March 23, the profit yield of the Shanghai and Shenzhen 300 Index had an equity risk premium of 5.5% compared to the 10-year treasury bond yield, which is 42% since 2010. With a dividend rate of 2.7%, the Shanghai and Shenzhen 300 Index still has an advantage in terms of value for money. In the medium term, there has been no fundamental change in the macro environment in which the market is located. The logic supporting the “steady progress” of the A-share market is still valid. Risk release and downside adjustments are expected to bring better allocation opportunities. Manufacturing in China has obvious advantages. Currently, artificial intelligence is in the stage of iteration and application of new technology. Demand for energy and cost of new model training is growing exponentially, supporting upstream demand and driving price increases and profit improvements for related listed companies' products.

In terms of configuration, focus on several main lines. 1) Booming growth: industries benefiting from the implementation of AI technology such as optical communication and storage; batteries and energy storage related to new energy sources. 2) Cyclic resource stocks: Consider the position of the production capacity cycle comprehensively, and focus on segments where the supply and demand pattern supports price increases and performance certainty, such as power grids, chemicals, etc. 3) High dividends may still be phased and structured this year, focusing on matching with cash flow.