CITIC SEC: Global petrochemical supply chain disruption prompts revaluation of pricing power for China's dominant manufacturing industry.

CITIC SEC released a research report stating that at the index level, there is limited room for further valuation repair, and the rebound in corporate profit margins is key to the next stage of the A-share bull market. The disruption in the global supply chain once again brings an opportunity to validate China's pricing power in the manufacturing sector. From the perspective of industrial trends, code inflation and physical scarcity, as seen in China, reflect the enhancement of China's pricing power in the manufacturing sector. Disruptive innovation in AI and disruptions in the global energy supply chain are reinforcing this trend. In terms of allocation, it is recommended to focus on sectors with China's pricing power in manufacturing (chemicals, non-ferrous metals, power equipment, new energy) and continue to monitor undervalued factors (insurance, securities, power). In the short term, rising prices continue to be the most "sharp spear" in the first quarter. The conflict in Iran and the closure of the Strait of Hormuz are expected to temporarily raise the central price of oil, leading to a rightward shift in the cost curve of many cyclical products. This presents several structural opportunities under this narrative. CITIC SEC's main viewpoints are as follows: Geopolitical turmoil coincides with the index reaching a key juncture, spring is a period of confidence rebuild and index decision-making. The second quarter is a key window for confidence rebuilding on the slow bull market path of A-shares. Whether it is at the index level, valuation level, or macro liquidity level, A-shares in the spring stand at a key juncture. The geopolitical turmoil in the Middle East has brought significant negative impacts on the global supply chain and financial conditions, restraining the increase in risk appetite. Confidence has a major impact on investors as the index has been rising for a long time and valuation remains high. It is essential to believe in the consistency of future fiscal and shareholder interests to sustain and control debt levels. The sudden rise in oil prices has provided an opportunity to verify China's pricing power in the manufacturing sector. From last year's enhancement of China's pricing power in the manufacturing sector to now, except for product categories directly driven by AI infrastructure in North America, most of the stock price increases in chemicals, non-ferrous metals, power equipment, and new energy sectors are more reflecting investors' recognition and anticipation of the narrative. It is crucial to look at whether China's advantageous manufacturing sector can actually demonstrate pricing power structurally under the cost impact of the chemical industry due to the conflict in the Middle East. Amid rising global energy costs and weaker financial conditions, undervaluation and pricing power are the two most crucial factors. Undervaluation has consistently been a strong defense during major geopolitical conflicts and disruptions in oil prices. It is imperative to address the uncertainty of inflation and the deterioration of the global liquidity environment as catalysts for style switching this year. In conclusion, it is recommended to firmly focus on China's advantaged manufacturing sector in terms of pricing power.