Confused “Electric Fan Market”
After five consecutive days of rises, NIO, a leading electric vehicle manufacturer, has seen two consecutive days of declines in the “hot” market segments of healthcare and cultural tourism. Since the end of November, the new energy vehicle sector has experienced a brief spring with NIO rising continuously for five consecutive trading days and returning to the trillion-worth club. However, it is observed that there has been no clear mainline in the market since the introduction of the new policies, with the secondary market being referred to as the “electric fan market” where various sectors rotate constantly.
Industry insiders hold a generally optimistic attitude towards the new energy vehicle market’s performance in 2023. From a capital perspective, let’s discuss why it is currently an “electric fan market,” and where NIO and BYD are heading. How should we operate under such a market?
The Confusing “Electric Fan Market”
Currently, both buyers and sellers in China’s secondary market as well as individual investors perceive that A-shares have passed the lowest point of the current downturn, with a neutral-to-optimistic attitude in the next one to three years. There are two primary reasons:
Firstly, from a data perspective, the overall market value of A-shares is below the median in recent years, but the risk premium is at a historically high level.
Secondly, from a confidence perspective, having gone through nearly a year of confidence loss, the current series of macro policies have helped to eliminate differences and establish basic confidence in the future.
Against this background, the domestic secondary market has performed well since December, particularly after the public health policy release, which has confirmed the major trend. However, the automobile sector is not as robust as it was, with leading stocks like NIO and BYD performing well, but not rising as high and fast as healthcare and medical stocks have in the past month, which are not the mainline either.
# What is the current A-share stock market?
The current stock market is like a market for electric fans, which many sellers have recently called it an “image”. The so-called market for electric fans means that there is no long-term main trend in the market, and various sectors are constantly rotating. In the last ten trading days, different sectors such as finance, real estate, consumption, and new energy have been rotating, and the “blades” of the electric fan have also been constantly shrinking. That is, the subdivision sectors that are rotating are getting smaller and smaller. The more it is a “market for electric fans”, the more difficult it is for new energy sector to rise, and the more difficult it is for people to make money.
To understand why it has been the market for electric fans recently, let’s take a look at this with Mr. Li.
From the overall trend, the market has already fully expected the implementation of new public health policies, and the short-term epidemic is in the climbing period of infection peak, which directly catalyzes the related industrial chain. Therefore, the medical industry around “public health” is popular. From Hotgen Biotech to Yiling Pharmaceutical, from Mindray to Xinhua Pharmaceutical, they are all soaring, but the sustainability and stability of these sectors are not good.
From the fundamentals, people believe that there is still a large uncertainty in the ability of the economy to cash out after the policy is relaxed, whether the consumption-led economic recovery represented by consumption can really recover, whether the leverage economy represented by real estate can be truly stable, and whether the racing economy represented by new energy can be take a step further. These doubts have had a great impact on the main line of the secondary market.
There will never be two identical days in the A-share stock market, but the rules of the market are constantly repeating. Mr. Li believes that the current market trend is very similar to the end of 2019.
From the beginning of 2020 to the end of 2021, the A-share market experienced two consecutive years of “small bull markets”. In the first quarter of 2020, the medical industry continued to rise, bringing a “small spring” to the stock market. However, in the second quarter, traditional infrastructure rose across the board, and targets of “infrastructure-car” such as China National Heavy Duty Truck reached an historical market capitalization high.
Starting from the 3rd quarter of 2020, the fundamentals began to dominate the trend of A-shares. The familiar automobile-new energy board began to lead A-shares. In a year and a half, a large number of star enterprises emerged, from automobiles to power batteries, from photovoltaics to energy storage. Also, it was at this time that Ningde Times exceeded a market value of 1.5 trillion, BYD exceeded 1 trillion, and Great Wall Motors exceeded 0.5 trillion.## How will “Ning Wang” and “Di Wang” perform in the market?
Despite the absence of a clear trend in the current market, the new energy-car sector has been rotating earlier. On November 30th, the automaker sector was the first to take off, with BYD’s surge of 4.52% and entering into a reversal mode, as well as Great Wall Motor’s increase of over 9%, and Changan Automobile hitting the limit up; then the lithium-ion battery sector followed suit. On December 7th, CATL’s stock price surged by 4.57%, and the total market value returned to the trillion-yuan level, with upstream companies such as Keda Clean Energy and Xinzhou Securities seeing increases of more than 5%.
Currently, there is a large divergence in the market’s view of future trends. Some institutions believe that in 2023, traditional value stocks, represented by finance and real estate, will experience a comprehensive recovery, with traditional economic activities as the mainstay, while others believe that as the economy gradually stabilizes, the market may once again switch from value to growth, just as it did from 2020-2021. Old Li personally tends to favor the latter, and believes that the auto and lithium sectors will continue to rise in December, with BYD and CATL as the market leaders, but they will not be the main trend of the market in the near future.
Tesla is the benchmark for BYD and CATL. In the past three years, Tesla has been the core driver of the market’s rise. Then, CATL and BYD picked up the baton from Tesla, especially in 2020, when Tesla’s and BYD’s market capitalization showed a positive correlation. In 2022, due to the Federal Reserve’s aggressive interest rate hikes and Tesla’s own supply chain issues, its market value has been greatly impacted, falling by more than 50%, and indirectly affecting the performance of CATL and BYD.
With Tesla’s Chinese factory ramping up its production in 2023, it is expected to be able to deliver 800,000 vehicles domestically, alleviating Tesla’s fundamental problems and in turn driving changes in the domestic market. The most promising company in the domestic market at present is BYD. Everyone will notice that in 2022, BYD’s market value had the smallest pullback in the new-energy sector and also had the best rebound sustainability in the automotive sector.
The secret to maintaining BYD’s market value without retreat this year is its scale. From January to November, BYD’s sales volume was second only to FAW Volkswagen among domestic automakers, and it is expected to overtake it next year; in the new energy sector, BYD’s sales volume this year accounts for more than one-fourth of the national new energy vehicle market, with a massive scale.Recently, there have been one telephone conference after another regarding BYD profits. Li, the CEO, believes that “from December to next year, BYD’s valuation code will become profits.” In fact, starting in the second half of this year, BYD has been focusing on profit optimization by increasing the average selling price of single cars through price increases, raising profits and lowering supply chain costs through platform reuse. If profits are high next year, market value will rise, and if profits are not high, market value expectations will not be too high.
As an upstream company, CATL’s market value elasticity is much larger than that of BYD. CATL’s high profit margin and market share are the unchanged valuation code. It can be said that as long as new energy vehicles grow, CATL will stabilize, and as long as CATL stabilizes, the new energy industry chain will stabilize too.
Since December, the biggest change in the upstream of the new energy industry chain is that the market value of the original upstream material companies no longer soared because the upward shift of upstream raw material prices is limited, and market expectations of upstream raw material companies have also dropped significantly.
Obviously, the darkest part is the most difficult to pass before dawn.
How to seize market opportunities at the end of the year?
Recently, many sell-side agencies have been promoting new energy vehicle-related targets, but many buy-side fund managers believe that it is difficult for everyone to make money in the short term. Although the upward trend of the market remains unchanged, the current market cannot be judged by fundamentals.
A few months ago, the market’s decline could not be explained by the normal cycle fluctuations of corporate profits and liquidity, the reason being that there was a lack of confidence and everyone was worried about the future. Now, the market’s rise cannot be explained by the normal cycle fluctuations of corporate profits and liquidity, the reason being that there is a difference in the market’s mainline for the future.
When can the market’s mainline be determined? Overseas market barriers have been cleared and the overseas market has begun to trade with the Federal Reserve’s tapering off of interest rate hikes. Looking at interest rate futures, the rate of interest rate hikes by the Fed in December will slow down, and the magnitude in the first quarter of next year will continue to decrease, which is a positive influence on the global and Chinese markets.
From the perspective of the domestic market, the economic work conference on December 6 boosted market confidence, and the policy deployment for the end of the year is already quite clear. Another economic work conference will be held on this Thursday, which will largely determine the direction at the end of the year and in 2023.
So, the question is, how should retail investors operate under the uncertain situation of the current main trend?
Old Li thinks that the best solution is to stay silent and wait until the electric fan trend is over. Under the electric fan trend, various sectors rotate quickly, and no sector can rise continuously for more than three trading days, making it easy for everyone to miss out, even if holding a long position. After the electric fan trend is over, the market’s main trend may still be unclear. Some institutions believe that the rotation of industry sectors may follow the path of “finance-real estate-consumer growth stocks,” with the current consumer sector in relay while the growth sector continues to lie dormant. However, no one can be sure whether the consumer sector can fully realize its potential, let alone the upside space.
Looking at all the sectors, only new energy vehicles have maintained a high level of prosperity, with battery companies continuing to expand their lithium battery production capacity, and downstream energy storage and new energy vehicle demands are clear. This sector’s fundamentals are not at all problematic, and the top picks are Ningde Times and BYD.
For friends who have already entered the market, risk control comes first, and profits come second, so be strict in controlling the drawdown. Based on the investment results, losses from downward drawdowns are much higher than gains from upward payouts. In the current market conditions, once the drawdown exceeds 20%, basic fundamentals must be considered. However, Old Li believes that the likes of Ningde Times and BYD will not see drawdowns at this level.
The Chinese market is very different from overseas markets. Overseas capital has better liquidity and stronger short-selling mechanisms. However, the Chinese market’s clustering effect is stronger. From the current situation, although the market has no reason to abandon the new energy sector with better fundamentals, the market is likely to gather in the value stock field to speculate on familiar companies like Guizhou Moutai and Wuliangye. By then, new energy may not necessarily have the best returns.
Old Li has always said that value and growth are a pair of seesaws. Currently, we cannot see the direction of 3-6 months later in the medium and long term. But what we can be sure of is that standing at the starting point of a new round of long-term bull market, the first step in market deduction must be the restoration of risk preference, with rapidly converging businesses with large drops, such as Ningde Times and BYD. The second step is the rebound of economic and profitable businesses, and then we will wait and see whether new energy can take the lead.# Markdown 标题
这是一个段落，其中包含一些 加粗文本 和一些 斜体文本 以及一个链接到 百度 的链接。
下面是一个无序列表：
- 第一项
- 第二项
- 第三项
下面是一个有序列表：
- 第一项
- 第二项
- 第三项
下面是一个 HTML 表格：
| 姓名 | 年龄 | 性别 |
|---|---|---|
| 张三 | 20 | 男 |
| 李四 | 30 | 女 |
下面是一段代码：
print('Hello world!')
以上是一个 Markdown 文档的示例。
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.