Data show that in July, the CITIC Primary Index of cement, steel, building materials, and construction rose by 15.20%, 9.61%, 7.64%, and 5.97% respectively. During the same period, the Shanghai Composite Index rose slightly by 1.02%.
Is the reason for the strength of cyclical stocks a rapid rebound in performance or a significant improvement in the industry environment?
Zhang Yongzhi, manager of Huashang Ruifeng Hybrid Fund, believes that the current rise in cyclical stocks is mainly a repair of the more pessimistic expectations in the early stage.
Zhang Yongzhi said that the early market sentiment and capital were not good. Under this situation, although the performance of cyclical industries maintained a good growth rate, the market had insufficient confidence in the sustainability of profitability, resulting in the valuation of cyclical industries.
Levels continue to decline.
Data shows that the 2018 semi-annual reports of cyclical industries are generally promising, with the performance of the cement and steel industries showing relatively significant year-on-year growth.
“If we carefully study the fundamentals of these cyclical industries, we will find that the continuous improvement in the profitability of cyclical industries in the past two years is mainly not from the rapid growth of demand, but from the two-year industry reshuffle in 2014 and 2015.
The supply-side structural reform in 2016 and the environmental crisis since 2017 have largely restricted the elasticity of supply," Zhang Yongzhi said.
Looking to the future, will the market for cyclical stocks continue?
Is the industry's profit margin still sufficient?
Zhang Yongzhi said that considering that the impact of supply-side structural reforms and environmental protection storms on supply will continue to exist, as long as demand does not decline significantly, the profits of cyclical industries are expected to continue, and he believes that cyclical stocks will be extremely undervalued from history.
The transition from value to reasonable valuation.