In 2023, we can see that infrastructure and manufacturing have played an active role in fixed investment, while the real estate sector has dragged down economic growth to some extent. The year was marked by a full normalization of economic activity, with policies stimulating domestic demand and unleashing consumption. While solving the hidden debts of local governments, the proactive fiscal policy has also played a role in stabilizing the economy.
However, despite the steady growth of infrastructure projects and the relatively stable growth rate of fixed asset investment in the manufacturing industry, the real estate industry's fixed asset investment, land purchases, new construction starts and construction area have all continued to decline. While the "guaranteed delivery" policy has driven significant improvements in property completions, the sector is still putting pressure on economic growth.
Looking ahead to 2024, external demand may no longer be a significant dependency on economic growth. Although the impact of the tightening monetary policy in Europe and the United States on the economy will gradually appear, and the global economy may show weakness, in the case of policy changes, the volatility of external demand may be greater. Although the decline of the RMB exchange rate can improve exports, with the adjustment of the global industrial structure, the role of exports in driving China's economy may gradually weaken.
Therefore, in the case of the continued downturn in the real estate industry, boosting domestic demand will still be an important direction of the policy in 2024. Policies need to continue to exert efforts in 2024 to promote the return of the real estate industry to the track of long-term healthy development. At present, the decline in the real estate industry has lasted for a long time, which will not only suppress the demand for housing purchases, but also may form a vicious circle of declining real estate wealth effect and insufficient release of consumer demand. In addition, the downturn in the real estate industry will also affect local land revenue, which in turn will increase the pressure on local debt.
To alleviate this, real estate and the economy need to be stabilized. ** The goal is clear, and there is already a complete policy system, which has advantages in terms of forward-looking, systematic and timely. The implementation of these policies in 2023 has been intensified, and it is expected that the policy effects will continue to appear in 2024 under the unified leadership mechanism.
On the other hand, there are some favorable conditions in China's real estate market. For example, the urbanization rate is not very high, which means that there is still a lot of demand for improved housing and room for depreciation of existing housing. In addition, the level of household debt is not high, which means that there is still room for improvement in residents' ability to buy homes. Finally, the leverage ratio of real estate companies is also declining, which provides favorable conditions for the healthy development of the industry.
Considering the above factors, we have reason to believe that real estate and the economy can return to a new balance in 2024. In this process, the pulling effect of the proactive fiscal policy will be more obvious. However, the existence of local ** debt pressure may limit the extent of its fiscal strength. Therefore, it will become particularly important to increase input-output and asset value in order to solve the problem in the long term. Higher asset values and excellent project yields will attract more capital investment, thereby improving the efficiency of monetary policy and helping to achieve a new balance between property and the economy.
The increase in the concentration of the building materials industry is a long-term trend of the industry. In the industry downturn in 2022 and 2023, excellent companies may face greater operating pressure, but this will also accelerate the survival of the fittest in the industry. This will be conducive to the faster increase in the market share of leading and excellent companies. Therefore, the investment strategy should focus on these companies with strengths, as they may gain more market share in the industry downturn.
Before the new equilibrium is formed, we can pay attention to some early-cycle industries such as cement, water reducers, building waterproofing and pipes. These sectors are likely to show greater resilience in performance as a new equilibrium is formed. In addition, attention should also be paid to the valuation improvement brought about by asset optimization and quality improvement. Under the new equilibrium, we can expect a double hit in valuation and performance for leading and excellent companies.
Of course, there are some risk factors to be aware of. If the effect of real estate policy regulation is less than expected, or the impact of geopolitical conflicts on the economy and policy is more than expected, it may have an impact on investment strategy. Therefore, it is necessary to fully consider various possible risk factors when making investment decisions.
Note: The data and opinions in this article are provided by Dongxing Non-Metallic team and are for reference only.
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