Text |Bank Screws **Please obtain my authorization, and indicate the author and source).
A friend asked, why the long-term earnings of listed companies are growing, and will there be no growth?
In the past year or so, there are two main reasons that have plagued A-shares at the bottom of the bear market.
(1) U.S. stocks are in a rate hike cycle
In the past two years, one of the main reasons for the sharp and intensive interest rate hikes in the US stock market is to curb high inflation.
After a sharp interest rate hike, inflation in the US stock market has been suppressed and has been reduced to around 3% as of early November 2023.
The Fed's interest rate hike cycle has also come to an end.
The influence of this factor gradually decreases.
(2) The earnings growth of A-share listed companies has stagnated
It can be seen from the net profit data attributable to the parent company of the CSI All-Index that so far in 2022, the overall profit of A-share listed companies has hardly increased.
This is also one of the reasons for the downturn in the market.
Earnings growth is the engine of the best.
If the market wants to be long-term, it still needs to turn the engine.
The earnings of listed companies are not even, some years grow fast, some years grow slowly.
The same is true in real life, opening a restaurant, opening a car wash and gas station, business will also fluctuate.
However, in the long run, listed companies are long-term profitable, which is the main driving force for the long-term upward trend of the market.
There are two main explanations for the long-term growth of listed companies' earnings:
Explanation 1: Inflation Theory;
Explanation 2: Improvement of production efficiency.
Inflation, to put it simply, is that there is more and more money circulating in society, and prices are generally **.
For example, a few decades ago, many restaurants carried the banner "One yuan is full, two yuan is good", and one yuan or two yuan could be enough to eat and drink.
However, now a bun costs a few yuan.
If you want to eat and drink enough, you may have to pay tens of yuan per person. If you want to eat better, you may have to pay hundreds of yuan per person.
And what about the future?Maybe in a few decades, an ordinary meal may cost a few hundred yuan.
We can use CPI to measure inflation.
CPI refers to the consumer index, which measures the overall trend of prices with a basket of 268 categories of basic consumer goods that residents regularly consume.
And a large part of these consumer goods are provided by listed companies.
In other words, listed companies can fight inflation by raising the quality of their own goods and services.
In the figure below, the average earnings growth rate of listed companies is higher than the average year-on-year growth rate of CPI, which is inflation.
Judging from the data of the past ten years, listed companies as a whole can outperform CPI in terms of earnings growth, which will ultimately lead to the long-term.
Technological innovation, urbanization, and globalization will all lead to the improvement of the production efficiency of human society, thereby promoting the long-term profitability of listed companies.
(1) Scientific and technological innovation
Scientific and technological innovation is a core factor driving the improvement of production efficiency.
Previous data have also shown that scientific and technological innovation can be applied to all walks of life, bringing more than 80% of economic growth.
There are two main types of scientific and technological innovation:
The first is incremental innovation, which is a few small optimizations and improvements.
For example, technological advancements between each generation of smartphones.
These subtle advances and innovations add up over time, culminating in a second type of innovation.
The second is disruptive innovation, which is also crucial.
It can subvert the original technology and greatly improve production efficiency.
For example, in the 90s, the Internet was popularized. Around 2010, the mobile Internet began to be popularized.
The popularization of this kind of scientific and technological innovation, which occurs once in more than ten years, will lead to the improvement of the production efficiency of the whole society.
It is important to note that technological innovation does not necessarily bring great opportunities for individual technology companies.
Because technological advancement and innovation require a large amount of capital investment, a single technology company may not be able to survive until the time to make money.
But for society as a whole, scientific and technological progress can increase productivity.
(2) Urbanization
Urbanization can also drive productivity per capita.
There were also statistics in economics before.
People in cities with more than 1 million people are about 50 percent more productive than people living in areas with relatively small populations.
In the past few decades, our domestic urbanization has also ushered in rapid development.
At present, several urban agglomerations such as the Beijing Rim area, the Yangtze River Delta and the Pearl River Delta have been formed.
These areas are areas with a net inflow of population, whether it is employment, Xi, or local asset appreciation, etc., there will be more opportunities than ordinary areas, and will also lead to an increase in per capita production capacity.
However, as can be seen from the above chart, the current urbanization rate in China has reached about 60%, and the gap with the United States, Europe, Japan, etc. is getting smaller and smaller.
After that, the process of urbanization in China will continue, and some large urban agglomerations will still attract many outstanding talents, driving the per capita production capacity of these regions to increase.
However, the contribution to economic growth will gradually become smaller.
(3) Globalization
It mainly refers to the division of labor and collaboration in globalization.
Each country can export industries with comparative advantages to other countries, and communicate with each other to benefit from each other.
However, in recent years, the trend of globalization has slowed down due to mask factors and regional conflicts. To a certain extent, this has affected the speed of development of the global economy.
We don't have to worry too much about the short-term downturn in the market.
In the long run, the profitability of A-share listed companies is the best, which is the main driving force for the market to rise.
There are two explanations for the long-term earnings of listed companies: inflation theory and the improvement of production efficiency.
In the current stage of the market downturn, we can accumulate high-quality and cheap ** assets, and wait patiently for the arrival of the ** stage
Author: Bank Screw**Please obtain my authorization, and indicate the author and source).
PS: Friends who are interested in index**, welcome to read "Index ** Investment Guide" and "Ten Years of Financial Freedom of Regular Investment".