Industrial: What changes in the A-share market in March are worth paying attention to?

EROE ROEROEROEROE 3ROEThe fundamental strengths of asset E have significantly improved, making it the top-performing asset with the highest excess returns in 2016-2017 and 2019-2020.According to the composite indicator of total demand that we have constructed, it can lead the non-financial ROE (TTM) of the entire A-share market by about 6 months, indicating that the current total demand is at a historical low. Based on the consumption, investment, and export-related indicators in the 188 economic tracking framework, we calculated the rolling one-year percentile for each and combined them equally to construct indicators that depict changes in consumption, investment, and export demand, and then combined the three types of indicators into a composite total demand indicator. The total demand indicator leads the non-financial ROE (TTM) of the entire A-share market by about 6 months and is currently at a historical low. It serves as an important leading indicator for predicting the turning point in ROE, so it still needs to be closely monitored in the future. Considering that the improvement in total demand still needs to be observed, and the signal for the turning point in ROE has not yet appeared, for the selection of high-profit quality assets, we mainly consider the stability of the ROE of various industries during the past three years of the market-wide ROE decline period and the recent reporting period level. Also, we consider the consensus expected net profit and revenue growth rates to find directions that are likely to see structural demand improvement in the future. Specifically, the following criteria are used for screening secondary industries: (1) the latest reporting period ROE TTM percentile over the past three years is greater than 50%; (2) the average ROE TTM over the past three years is greater than 5%; (3) the average ROE TTM over the past three years minus one standard deviation is greater than 0; (4) the composite growth rate of expected net profit and revenue in the next two years is greater than 10% but not exceeding 30%. From the screening results, the current focus of attention in high-profit quality assets mainly lies in the consumer healthcare industry, including liquor, beverages and dairy products, Chinese medicine, kitchen and bathroom appliances, home appliance components, lighting equipment, home furnishings, entertainment products, automotive components, professional services, cosmetics, electric power equipment, and gas. Dividend Assets: Focus on the CICC strategy dividend low-volatility enhanced portfolio Recently, dividend assets have lagged behind in the rebound, confirming our judgment in the February low-volatility dividend timing framework that there is "absolute return, but relative return weakening". However, in the medium to long term, we still remain bullish on the allocation value of the dividend sector and its attributes as a "new base asset". On the one hand, the dividend low-volatility sector's dividend yield is still high, showing that even after experiencing an increase, the sector still has a high cost performance. The dividend yield indicator of dividend low-volatility assets shows a clear positive correlation with the market performance of dividend low-volatility in the next one year. As of March 1st, 2024, the dividend yield of the dividend low-volatility index is 5.58%, still relatively high, indicating that dividend low-volatility assets still have a high cost performance. From a funding perspective, the dividend sector may still be driven by both incremental and stock funding. On the one hand, insurance funds are one of the important sources of incremental funds in the future market. The dividend low-volatility sector, with stable profits and abundant cash flow, is naturally favored by the insurance funds who pay attention to investment safety margins. After the implementation of the new accounting standards in 2023, the trend of increasing allocation to the dividend low-volatility sector in the FVOCI accounting item is accelerating. On the other hand, as of 2023Q4, whether from the absolute percentage of holdings or the over-allocation ratio, actively biased equity funds still underweight dividend assets, leaving room for increase in positions. Risk Warning: Pay attention to significant economic fluctuations, unexpected policy changes, etc. This article is reprinted from the WeChat public account "XYSTRATEGY", authored by the CICC Strategy Team; Edited by GMTEight: Xu Wenqiang.