Zhitong Finance and Economics learned that Soochow ** released a research report saying that the current downward space at the numerator end is limited, and the denominator end is trending downwardThe valuation repair of growth stocks will begin. On the numerator side, the growth style-related sectors represented by core assets have limited room for further downward movement in fundamental expectations: on the one hand, many growth branches may enter the upward channel of prosperity in 2024; On the other hand, the low-level branch of the economy has already shown signs that the fundamentals are expected to bottom out or marginally improve, and the downside space of the economy is relatively limited. On the denominator side, U.S. Treasury yields have entered a downward cycle, and U.S. interest rates have fallen from high levels. Although the resilience of the U.S. economy has disturbed the expectation of interest rate cuts, the long-term downward trend of U.S. Treasury interest rates remains unchanged. After the start of interest rate cuts, the monetary policy divergence between China and the United States has converged, and the valuation of growth stocks has almost certainly improved.
Foreword:
Previous reports have repeatedly pointed out that with the high US dollar interest rate falling, the A-share style switch is expected to occur, and the growth style may welcome the valuation repair.
The main points of Soochow ** are as follows:
1) The trend of A-shares is based on internal policy and fundamental expectations, as well as external changes in Treasury yields. The current core asset has exceeded the decline based on fundamental understanding.
U.S. Treasury yields have a significant impact on the style of A-shares. Since 2016, due to the increase in the volatility of external demand and U.S. bond interest rates, and the decrease in the volatility of domestic demand and treasury bond interest rates, the A-share large-grade style rotation is more correlated with U.S. bond interest rates, which is manifested as: U.S. bond interest rates have risen and value has prevailed; U.S. Treasury interest rates are falling, and growth is dominant.
Since 2023Q3, the typical growth style represented by core assets has been relatively weak; Small-cap and low-volatility dividends outperform: On the one hand, the decline of the dominant style of public offerings and northbound: since 2023, the widening of the interest rate gap between China and the United States has led to the outflow of foreign capital, while the style of public funds is similar to that of northbound funds, and since 2023, new public offerings have continued to be cold, so some typical growth sectors have been greatly retraced by the denominator (U.S. bond interest rate), the numerator (industry fundamental expectations), and the capital side; On the other hand, the dominant style of new capital is dominant: small-cap stocks, including quantitative and private equity, which are favored by active funds, and high-dividend varieties with heavy insurance funds outperform**.
The decline in typical growth sectors exceeds the market's understanding of fundamental expectations, which means that once the valuation repair of growth stocks begins**, the trading odds will be significantly attractive. According to the analysis of the previous report, the fundamental fundamental expectation determines the stock price trend, and the "fundamental fundamental expectation" + other more factors "jointly determine the fluctuation range of the stock price, if the stock price fluctuation exceeds the expected fluctuation range of the fundamentals, there will be a chance to repair, and the previous overshoot of the stock price means that the odds of the repair ** transaction will rise.
2) At present, the downside of the numerator is limited, the denominator is trending downward, and the valuation repair of growth stocks will begin.
On the numerator side, the growth style-related sectors represented by core assets have limited room for further downward movement in fundamental expectations: on the one hand, many growth branches may enter the upward channel of prosperity in 2024; On the other hand, the low-level branch of the economy has already shown signs that the fundamentals are expected to bottom out or marginally improve, and the downside space of the economy is relatively limited.
On the denominator side, U.S. Treasury yields have entered a downward cycle, and U.S. interest rates have fallen from high levels. Although the resilience of the U.S. economy has disturbed the expectation of interest rate cuts, the long-term downward trend of U.S. Treasury interest rates remains unchanged. After the start of interest rate cuts, the monetary policy divergence between China and the United States has converged, and the valuation of growth stocks has almost certainly improved.
The capital situation is improving, and the valuation repair of growth stocks is about to begin. The downward trend of U.S. bonds has helped to calm the arbitrage of foreign investors, and there has been a U-turn inflow trend in the northbound since late January, and the return of incremental funds will improve the liquidity of the market, and the growth style is expected to usher in valuation repair.
Risk Warning:
The Fed cut interest rates at a slower-than-expected pace; geopolitical risks; The economic recovery slope is less than expected; Uncertainty about industry fundamentals.