Cyclic industries are divided into consumer cyclical industries and industrial cyclical industries.

1. Consumer

Consumption cyclical industries include real estate, banking, securities, insurance, automobiles, aviation, etc. Consumer cyclical industries combine cyclical industries and consumption characteristics of the industry. Most of their end customers are individual consumers (banks also include enterprises). Although brand loyalty is low, they still have a certain brand effect.

Although demand fluctuates, it is generally upward. Moreover, it is basically an industry that has just started in China, and the market prospects are huge. Except for automobiles and aviation, they are asset-light enterprises, and their scale is more flexible when the industry boom is low.

2. Industrial

Industrial cyclical industries include non-ferrous metals, steel, chemicals, cement, electricity, coal, petrochemicals, engineering machinery, shipping, equipment manufacturing, etc. These industries are highly correlated with the macroeconomy, which is complex and changeable and basically unpredictable. Moreover, product prices have huge fluctuations and rapid declines, and demand changes rapidly and has a long cycle. Sometimes investors have no time to react at all.

Product costs are significantly affected by raw materials. They are basically asset-heavy enterprises with long input-output cycles. Large capital expenditures during the peak period of the industry’s prosperity bring huge depreciation and amortization, and profits have a negative impact on output. Changes are extremely sensitive. When the industry is at a trough, the flexibility of scale adjustment is small, and there are many unpredictable factors that affect profits. Therefore, profits are highly volatile, and it is also difficult to judge the turning point of the cycle.

Extended information:

Characteristics of cyclical industries:

The characteristic of the market economy in cyclical industries is the equalization of industry investment profits. If a certain industry If the investment profit rate is high, then people will invest. If there are more people investing, the investment profit rate will decrease, and so on.

For example, banks have high entry barriers, and most countries have strict restrictions on the issuance of bank licenses. Therefore, the cyclicality of banks is not due to the high average profit margin of the industry, which leads to an increase in investment in the industry, an increase in enterprises in the industry, and fierce competition. But because banks are the capital channel and the largest indirect financing channel for the whole society, they are closely related to the economy of the whole society.

Therefore, a country’s economic cycle will inevitably significantly affect the banking industry, causing the banking industry to be a cyclical industry.

Baidu Encyclopedia - Cyclical Industries