Industrial: grasp the main contradiction and maintain a multi-dimensional thinking

One, grasp the main contradiction and maintain a multi-headed mindset Recent market fluctuations have again appeared. On one hand, the Trump 2.0 trade continues to unfold, with the US dollar and US bond prices sharply rising, dragging down global risk asset performance and causing disturbances domestically. Trump's election has brought about inflation expectations, combined with Federal Reserve Chairman Powell's statement this week that there is no rush to cut interest rates. In recent weeks, the US dollar index has risen rapidly from 103.4 on November 5th to 106.7 on November 15th, reaching a new high since November last year. At the same time, the yield on the 10-year US bond has also risen to over 4.4%. As a result, market risk appetite has decreased and global risk assets have generally fallen. On the other hand, after experiencing a significant increase in the market in the previous period, there is now pressure to realize certain expectations in the short term due to a series of important events both domestically and internationally. We have seen that in early November, under the game of loose policies in the market, the Shanghai Composite Index quickly rose from 3272 points and briefly broke through 3500 points. After the sharp rise, it is inevitable that there will be a phase of volatile fluctuations. In our report on October 20th, titled "Reiterate the Reversal Logic, Maintain a Multi-Headed Mindset," we had already hinted that this round of increase may consist of several phases of "rapid rises, large fluctuations" in a volatile market, gradually lifting the bottom and moving forward. Looking ahead, the impact of Trump's trade on global asset classes will gradually be absorbed, but more importantly, the increasing positive factors internally are the main contradictions in the current domestic market. Since the end of September, we have repeatedly emphasized that under the new policy direction of "focusing on key points and taking initiative," the market logic has reversed, and continuous policy combinations will bring about a benign cycle for the stock market environment and the Chinese economy. This logic is still being continuously validated. Firstly, with the continuous implementation of countercyclical policies, macroeconomic data in October indicate that the economy is building on the recovery effects from September, with several bright spots added. The Chinese stock market and economy are gradually entering a virtuous cycle: 1) In terms of consumption, policy stimulus combined with "Double 11" promotion activities led to a rise in commodity consumption in October, driving rapid growth in social retail sales; 2) In terms of investment, the demand for equipment updates in October rebounded, infrastructure and manufacturing maintained rapid growth, and the industrial structure continued to optimize; 3) In terms of real estate, sales and prices continued to improve in October, with the sales area of real estate returning close to zero year-on-year, and resale housing prices in first-tier cities rising for the first time in nearly 13 months on a monthly basis; 4) Financial data show that in October, the growth rates of M1 and M2 significantly increased, and the signal of "broad credit" is beginning to show. Resident medium and long-term loans have marginally improved, but new fiscal deposits indicate weaker seasonal signals for fiscal expenditure acceleration. 5) In terms of market expectations, the manufacturing PMI for enterprises returned to the expansion range in October, the non-manufacturing business activity expectation index entered a high prosperity range, the employment market for residents continued to improve, and the consumer confidence index rose by 1.2 percentage points compared to the previous month, marking the first increase after six consecutive months of decline. At the same time, various stable growth policy measures are still being intensively implemented, continuously confirming that this round of policy changes is a sustained spring breeze. On November 11th, the Ministry of Natural Resources issued a notice on the use of local government special bonds to reclaim and repurchase unused land, instructing local authorities to actively screen land plots and reserve projects to expedite the deployment of special bond funds. This policy signals the first shot of fiscal support to stabilize the real estate market. On November 12th, the State Council announced the decision to amend the , adding two days to statutory holidays starting from 2025, which will further stimulate consumer demand. On November 13th, announcements regarding tax policies to promote the stable and healthy development of the real estate market and lower the lower limit of the land value added tax prepayment rate were successively released. Through measures such as increasing the stamp duty discounts on housing transactions and lowering the lower limit of the land value added tax prepayment rate, the tax burden on homebuyers and real estate enterprises will be reduced, effectively stimulating housing transactions. On November 15th, the Ministry of Housing and Urban-Rural Development and the Ministry of Finance recently jointly issued a notice, expanding the policy support scope for the transformation of urban villages from the initial 35 super-large cities to nearly 300 cities at the prefectural level and above. Therefore, within the framework of the reversal logic, what we need to pay attention to is how long this round of momentum will last. In the face of temporary volatility, it is still advisable to maintain a multi-headed mindset and actively respond. Around the reversal logic, for capital markets and balance sheets, as well as for the Chinese economy to form a positive cycle, a longer market trend is needed, rather than short-term profits. The turnaround of the Chinese economy will not happen overnight, so the temporary turbulence and differentiation after the rapid rise is actually a positive interaction between the stock market and the economy. Only with an upwardly volatile market trend can we go further. Two, actively layout the cross-year, focusing on two major themes that can withstand turbulence 2.1, Long odds at the end of the year, focusing on the direction of new quality productivity represented by the "new reserve forces" From historical experience, the end of the year is a traditional bullish window for the market. Liquidity easing and increased risk appetite are the main drivers. Looking back on the market in the past 16 years, the market started in the fourth quarter for 10 of those years. On average, both the broad market indexes had negative returns in August and September. But starting from October, the market performance gradually saw a reversal, with a significant increase in index success rates. Factors such as liquidity easing, the proximity of important year-end meetings, the game-playing for stable growth expectations, and increased risk appetite due to the blank period of listed companies' earnings all contribute to the festive market movements at the end of the year. For this year, with the release of third-quarter reports and the market entering another earnings blank period, combined with the intense policy combination since the end of September, the upcoming December political meetings and the Central Economic Work Conference are expected to provide clearer planning and guidance for future economic work, making the cross-year market outlook worth looking forward to. In terms of structure, before further incremental policies are implemented and fundamental improvements take place, the focus should be on stocks that benefit from liquidity easing and end-of-year expectations trading. Among these, the direction of new quality productivity represented by the "new reserve forces" serves as a focal point. It not only is a combination point for long-term promotion of economic dynamics and short-term policy support, but it also has a high probability of reversing the dilemma in performance next year, making it potentially profitable.The main direction focused on the market.2.2 Potential M&A restructuring directions: policy revitalization of "dormant" assets, boosting the stock market, achieving high-quality debt, and high-quality development This year, against the backdrop of continued tightening of IPOs, M&A restructuring, as an important way to optimize resource allocation and stimulate market vitality, has seen continuous improvement and optimization of related policies. From the beginning of the year when the Securities Regulatory Commission held a symposium to support M&A restructuring and issued multiple policies to support listed companies in enhancing investment value through M&A restructuring, to the release of the new "National Nine Articles" by the State Council in April to further encourage M&A restructuring, the "Eight Regulations on the Sci-Tech Innovation Board" issued by the Securities Regulatory Commission in June, and the "Sixteen Articles on M&A" since September 24, as well as the draft of the "Restructuring Measures" for public comment, which emphasizes M&A restructuring as an important way for market value management of listed companies, it is evident that the country attaches great importance to the important role of M&A restructuring in high-quality development, resource allocation, and industrial integration. With policy optimization continuing, the pace of M&A restructuring of domestic listed companies has also significantly accelerated this year, especially in the second half of the year. Structurally, it is mainly concentrated in the direction of new productive forces such as machinery, medicine, electronics, chemicals, and new energy, as well as the acceleration of industrial integration. As of November 15, this year, A-share listed companies have disclosed 1,189 first-time M&A restructuring transactions, with a transaction amount exceeding 570 billion yuan. The pace of M&A integration has continued to accelerate in the second half of the year, and the transaction amount is now comparable to that of the first half of the year. In terms of industries, the bidding parties are mainly concentrated in industries accelerating industrial integration such as machinery, medicine, electronics, chemicals, and new energy. Meanwhile, industries with large transaction amounts include defense, transportation, and non-banking. On the other hand, as M&A restructuring moves towards professionalization and high-quality development, two trends are emerging in the M&A restructuring market: 1) Speeding up of state-owned enterprise restructuring: The proportion of transaction amounts by state-owned enterprises as bidding parties has increased from 47.2% in 2016 to 70.7% this year (as of November 15); 2) Continuous increase in the proportion of M&A transactions by Shuangchuang and Beijing Stock Exchange: The proportion of the number of M&A transactions participated in by Shuangchuang and Beijing Stock Exchange listed companies as bidding parties has increased from 6.4% in 2010 to the current 39.3%. Therefore, looking ahead, new productive forces and industrial integration are expected to become the two core clues of M&A restructuring. Under the current main line of "strengthening supervision to prevent risks and promote high-quality development," technological innovation and industrial adjustment will become important targets of M&A restructuring. Focus on new productive forces represented by national defense and military industries, TMT, biomedicine, new energy vehicles, advanced manufacturing, etc., as well as potential industrial integration directions led by state-owned enterprises in securities, steel, non-ferrous metals, utilities, and other industries. Risk warning Economic data fluctuations, policy easing below expectations, Fed interest rate cuts below expectations, etc. This article is reproduced from XYSTRATEGY, GMTEight edited by Chen Wenfang.