Fidelity : A-share core assets are attractive, pay attention to three main lines

Since entering 2022, the A-share market has not seen the "good start" expected by most institutions. Some industries, especially the "track stocks" that have experienced huge gains in the past two years, have experienced sharp corrections. After entering 2022, the GEM index, which has a relatively large weight in the new energy industry, has fallen for 6 consecutive trading days.

In addition, the possibility of early tightening of monetary policy by the Federal Reserve has also put pressure on global markets. So, how should investors deal with such uncertainty? Where are the structured investment opportunities in 2022?

Today (January 11) evening, Fidelity International held an online media sharing session on the 2022 Fidelity China Market Investment Outlook. Zhou Wenqun, head of stock investment and fund manager of Fidelity International China, said that looking forward to the A-share market in 2022, although there are still macro uncertainties, the policy has clearly turned. From the recent high-frequency data, the economy has stabilized. Signs, it is expected that the A-share market will be stable and progress in 2022, and there will be more investment opportunities.

In addition, she pointed out, "In the context of policy easing expectations, we expect China's economy to bottom out in 2022. From the perspective of performance growth and valuation, A-share core assets are relatively attractive."

In the past 2021, the performance of the A-share market has experienced very large structural differences. Traditional companies represented by CSI 300 have experienced relatively large stock price adjustments. However, the performance represented by CSI 1000 is very eye-catching, because it is superimposed with relatively loose liquidity.

Looking ahead to 2022, we feel that this phenomenon will change. Although there are still certain uncertainties in the macroeconomic development, the policy has been clearly turned. Moreover, recent high-frequency data shows signs of stabilizing the economy. We believe that in 2022, China's overall market will be organic amid crisis and seek progress while maintaining stability.

In the 2021 epidemic, the world's major economies have adopted large-scale monetary easing policies. In comparison, China's central bank is more restrained. Compared with the overall overseas enterprises, China's economic growth has recovered relatively quickly, but it has also entered another downward cycle relatively quickly. Especially since the second half of last year, we have seen that the epidemic has repeatedly suppressed the growth of consumption, and the accelerated regulation of the real estate sector has also led to a relatively obvious slowdown in the growth rate of the entire real estate sales and related investment. A certain amount of pressure appeared in the third quarter of 2019.

From the perspective of overseas markets, near the end of last year, the new variant of the new coronavirus, Omicron, spread relatively quickly. Before the emergence of Omicron, due to the protective effect of vaccines, many overseas governments changed some measures in the control of the epidemic, and prevented and controlled some of them. However, due to the strong spread of Omicron, the government had to add these control measures back, which added a lot of variables to the overall epidemic situation and added some pressure to the overall epidemic recovery. Fortunately, under various pressures, we have seen that the central government has frequently issued various policy signals to stabilize growth since December last year. Secondly, we have seen corresponding policy responses from monetary policy and fiscal policy. Since December last year, we have seen interest rate cuts and RRR cuts one after another. Although the overall magnitude is not particularly large, the overall policy shift towards stabilizing growth and placing it in a more important position is very clear. We also expect that more fiscal and monetary policies will be launched in 2022 to support the bottoming out of the real economy. Although short-term stable growth has been mentioned as a more important position, we believe that the long-term structural reform of the economy will not change. Because for China's economy, sustainable development is a very important transformation direction.

In 2021, due to the rapid adjustment of the energy structure, the prices of some commodities have risen to a certain extent. Therefore, it was mentioned in the Central Economic Work Conference that the adjustment of the energy structure needs to take a more balanced approach. However, we believe that China's long-term goal of achieving dual carbon will not change. Our current economic size and environmental conditions no longer allow us to develop according to the previous development model. Therefore, we feel that these structural reforms will continue. Against these backgrounds, we believe that there will be good room for growth for specialized and new enterprises that strengthen the chain and supplement the chain.

I think the world's mainstream economies will experience in 2022 what China experienced in 2021, which is a slowdown in economic growth. Affected by the epidemic, overseas countries will generally see a substantial recovery in 2021. However, because the epidemic has never ended, it is difficult for the overall economy to return to the level before the epidemic.

Recently, we have seen some high frequency data from Europe showing some weakness. On the other hand, overseas governments are facing very big challenges. In the past two years, the balance sheets of major central banks have expanded rapidly. Countries like the United States are also under high inflationary pressures not seen in decades. Therefore, these limit the possibility of further easing by the European and American governments. Therefore, the overall overseas policy is in a dilemma. In the context of global monetary policy, China's central bank appears to be more relaxed and has more room for monetary adjustment. We feel that the overall liquidity of A-shares is relatively advantageous. If we put A-shares in the global stock market, we can see that A-shares are still very cost-effective in terms of performance growth and valuation. This also explains why since 2015, foreign capital has continued to flow into A shares. This data set a new high level in history last year. We believe that the phenomenon of long-term foreign capital inflows into A shares will continue.

Looking forward to the main investment line in 2022, Zhou Wenqun believes that we can focus on the following three opportunities:

1. A leader in the consumer industry that is expected to achieve profit recovery this year. The long-term growth trend of the consumer industry is relatively certain. With the narrowing of PPI/CPI, the profitability of those consumer enterprises with strong bargaining power will recover in the middle and lower reaches.

2. The industry leader with the characteristics of strong and constant strength. Since the epidemic in 2020, the logic of "the strong are always strong" has continued, and it has been reflected in both emerging industries and traditional industries with fierce competition, such as architectural coatings, waterproof materials, catering, chain hotel groups and other sectors. The market share concentration of enterprises has increased. Even in emerging industries with a high degree of prosperity, leading companies have stronger competitiveness.

3. Specialization and specialization in structural growth. Benefiting from China's structural reforms, there is still a lot of room for domestic substitution. There are also many investment opportunities related to domestic substitution in specialized and new enterprises, such as semiconductors, industrial coatings, mechanical parts and other sectors.

In 2021, the pro-cyclical sector of A-shares will perform relatively strongly. In Zhou Wenqun's view, it is possible to remain optimistic about the pro-cyclical sector this year. The reasons include:

1. The policy shift to stable growth has been relatively clear, and it is expected that more policies to stabilize growth will be announced in 2022;

2. After the correction in the second half of last year, the valuation of the pro-cyclical sector has become attractive again, and I am optimistic about those companies that are competitive on the international stage.

U.S. 10-year Treasury yield performance since 2020

Since the beginning of 2022, the yield on the 10-year U.S. Treasury bond has continued to climb, hitting a new high since March last year, which has also put pressure on the highly valued stocks in the market. From the perspective of the US stock market, the worst performance since the beginning of the year is the Nasdaq index, which is concentrated in technology stocks.

In contrast to the A-share market, the recent high-valued “track stocks” have generally performed poorly. For example, the ChiNext Index, which has a relatively large weight in the new energy industry, has fallen for 6 consecutive trading days after entering 2022.

Zhou Wenqun believes that although the impact of the Fed's tightening of monetary policy on the liquidity of A-shares is generally limited, because A-shares are still a relatively closed market, it is expected to play a role in promoting the switching of market styles.

Fidelity International Equity Fund Manager Zhang Xiaomu said frankly that if the prosperity of the industry in 2021 is the most important factor in determining investment returns, then 2022 will usher in a situation where the valuation margin of safety and industry prosperity will resonate, and you can pay attention to big consumption , new infrastructure and other related opportunities in industries. He expects that the market may pay more attention to valuations in the first half of this year, and when valuations return to a reasonable level, prosperity will still be an important factor.