Weekly views from GF Securities’ macro research team【20210419】
Author：GF Securities' Macro Research Team
Mixed economic data in March to widen divergence in expectations
1Q21 economy in line with estimates; weaker industrial performance in March should widen divergence in policy expectations China's real GDP increased by 18.3% YoY in 1Q21, largely in line with market expectation, a moderate rate that falls short of the upper-end of the expected range (around 20%), as industrial value-added did not continue the rapid growth seen in 2M21. The weak industrial performance should be due to the production that was resumed earlier than usual as people were encouraged to stay put during the Chinese New Year, companies’ profit constrained by rapid growth in costs, and tighter financing environment. China’s economic sentiment is likely to remain strong bolstered by exports, consumption, FAI and property sales. For the stock and bond markets, weak industrial performance in March has caused short-term expectations to diverge further and a decline in new social financing could lead to slightly higher expectations of policy easing.
Guo Lei, April 16, 2021
How supply contraction has driven upswings in cyclicals
A new round of supply contraction set to begin amid the push for carbon neutrality; cyclical sectors are expected to see improved sentiment and valuations The outperformance of cyclicals has been driven by supply contraction since 2010. Historically, it took time for the market to be convinced that policies to constrain supply would be implemented in earnest. The stock price rallies in cyclical sectors lagged behind price hikes in industrial goods or improved capacity utilization ratio. Stock price upside is determined by fundamentals and valuations, while the bull-runs ended due to policy easing or demand softening. Yet, given this round of supply contraction is related to the carbon neutrality target which is set to be implemented with persistence, capacity utilization ratios and industry concentration are both high, and the supply and demand gap is widening due to economic recovery, cyclical sectors including steel, cement, aluminum and chemical fiber are expected to see improved sentiment and valuations.
Dai Kang, April 13, 2021
The impacts of Biden's upcoming infrastructure policy
Biden has outlined his infrastructure and tax hike plans but there are headwinds for implementation, which may lead to slightly higher fiscal deficit ratio and an end to the US stock bull-run. The White House has lately released the American Jobs Plan, meaning a policy mix of tax hikes and infrastructure construction has taken shape. Yet the plan is facing headwinds as some Democrats are against tax hikes, the infrastructure plan has to be bundled with tax hikes, and some parts of the plan may be shelved. We expect the infrastructure building and tax hikes to benefit the US economy and employment in the next ten years, which should increase fiscal deficit and may defer fiscal surplus until 2030. The new policies that aim at narrowing the income gap should drive up the US risk-free interest rate. The higher inflation and tax hike policy should put an end to the US stocks’ long bull-run, yet the boost from infrastructure will not be enough to drive a full-blown bull-run in the commodity market.
Zhang Jingjing, April 12, 2021
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