Minsheng Securities: Suppressive factors are gradually fading, increasing the probability of market rebound.

Minsheng Securities released a research report stating that at present, the suppressive factors are gradually fading away, real estate investment is fluctuating on a lower platform, there are signs of marginal improvement in fiscal expenditure, and more importantly, the continued strong exports and the approaching overseas interest rate cuts are accumulating strength for physical assets represented by bulk commodities to rebound. Similarly, the probability of a rebound in the market in February-April 2024 is increasing. Minsheng Securities recommends: First, after physical assets experience a decline in trading, upstream resource assets will usher in a turnaround: energy (oil, coal), non-ferrous metals (copper, gold, aluminum), shipping (oil shipping, shipbuilding, dry bulk); Second, after the global recession expectations rebound, Chinese manufacturing remains an advantageous industry, expectations for external demand stabilize marginally, while home appliances and household goods, which are in the process of capacity clearance, are driven by emerging market production, intermediate goods (special steel) and capital goods (instruments and equipment, general equipment) are recommended; Third, relative advantage assets under declining capital returns, after adjustments, cost-effectiveness is highlighted, recommending banking, railways, gas, and ports. Main views of Minsheng Securities: Domestic: From weak demand to recovery. Last week (from 2024-09-09 to 2024-09-15, same as full text) all August economic data in China were released, basically meeting the previous market expectations of "weak demand". But we need to see the strength of future demand recovery building up: first, the domestic reliance on "price-for-quantity" exports has not decreased, but has strengthened beyond expectations, with the resilience of exports exceeding investors' expectations multiple times this year; from financial data, thanks to the accelerated issuance of government bonds, the social financing scale in August slightly exceeded expectations, both in absolute value and in percentage terms, the government bond issuance in August 2024 was the highest since 2017, indicating a reversal of the unexpected fiscal contraction in the first half of the year. Under the combined effects of exports and fiscal policy, a temporary trough in total domestic demand may have already appeared. Since 2023, due to the impact of de-financialization and excessive capacity in the midstream, PPIRM is more elastic when prices rise and more resilient when they fall compared to PPI. This means that upstream assets are still better tools to express demand recovery. Overseas: From recession trading to the power reserve stage of secondary inflation. For overseas markets, the resilience of inflation is once again evident, core CPI slightly exceeding expectations, while long-term inflation expectations and short-term inflation expectations are deviating once again: in September, the University of Michigan's short-term inflation expectations in the United States continued to fall to 2.70%, but the 5-year inflation expectations rebounded to 3.10%. Despite the still weak employment data, bulk commodities that had previously traded in a recessionary expectation have begun to stabilize and rebound universally, indicating that the recession trading may have come to an end. From a fundamental perspective, a "soft landing" for the U.S. economy is a high probability scenario: in August, the U.S. fiscal deficit further expanded, significantly higher than predicted and previous year's levels, massive fiscal support ensured the resilience of the U.S. economy; and the interest rate cut itself is also more conducive to the recovery of physical demand. Preparing for the next scenario: The deduction from precautionary interest rate cuts. Using the absolute value of manufacturing PMI as a historical scale, this round of interest rate cuts is closer to historical precautionary interest rate cuts, and it may take about five months (the historical average length) for interest rate cuts to lead to substantial improvements in manufacturing data, although slower than the speed of recovery of manufacturing PMI after low-rate interest rate cuts, the direction alone is not correct: the absolute level of real demand is equally important. Our statistics show that during rate cuts with relatively high manufacturing PMI, even if manufacturing activities do not immediately recover, the magnitude of the withdrawal of bulk commodity prices is very limited: the average change in energy, metal, and mineral indices when PMI is high and interest rates are cut from 1970 to present is -0.40%/-2.94%, compared to -12.29%/-12.71% when PMI is low. Once manufacturing activity rebounds, commodity prices will rise to varying degrees, with energy and gold experiencing higher price increases than other commodities. Overall, considering that the Chinese real estate market has found a new, lower platform, recovery of global physical demand is only a matter of time, the transition of bulk commodities and related stocks from recession trading to interest rate trading is significantly increasing. A turning point may have already appeared. In the past two months, both the market as a whole and physical assets have faced systemic headwinds. During the retreat of physical assets, the market also witnessed a spiral decline, confirming the primary theme of physical consumption. Currently, suppressive factors are gradually fading away, real estate investment is fluctuating on a lower platform, there are signs of marginal improvement in fiscal expenditure, and more importantly, the continued strong exports and the approaching overseas interest rate cuts are accumulating strength for physical assets represented by bulk commodities to rebound. Similarly, the probability of a rebound in the market in February-April 2024 is increasing. We recommend: First, after physical assets experience a decline in trading, upstream resource assets will usher in a turnaround: energy (oil, coal), non-ferrous metals (copper, gold, aluminum), shipping (oil shipping, shipbuilding, dry bulk); Second, after the rebound in global recession expectations, Chinese manufacturing remains an advantageous industry, expectations for external demand stabilize marginally, while home appliances and household goods, which are in the process of capacity clearance, are driven by emerging market production, intermediate goods (special steel) and capital goods (instruments and equipment, general equipment) are recommended; Third, relative advantage assets under declining capital returns, after adjustments, cost-effectiveness is highlighted, recommending banking, railways, gas, and ports. Risk warning: Domestic economic recovery falls short of expectations, overseas economy sharply declines.