The Central Economic Work Conference was held in Beijing from December 10 to 11. The meeting generally maintained the relatively positive tone of the previous Politburo meeting. In the short term, over the past decade, large-cap stocks have often outperformed in the seven days following the conference.
In terms of sector performance, based on average excess returns over the past five years, social services, utilities, coal, and media have shown relatively higher excess returns in the seven-day post-conference period. For the medium to long term, it is recommended to focus on next year's major project arrangements under the conference's directive to "stabilize and revive investment."
Key incremental insights from the Central Economic Work Conference include:
1. The economic assessment added the phrase "strong supply but weak demand," indicating heightened attention to demand-side weakness, with subsequent policies likely targeting demand stimulation.
2. The narrow fiscal deficit ratio may remain at 4% next year. The conference emphasized "maintaining necessary fiscal deficits, total debt, and expenditure while strengthening fiscal management." Compared to last year's explicit expansionary measures, this year's wording suggests limited incremental fiscal support. However, mentions of "addressing local fiscal difficulties" and "appropriately increasing central budget investment" imply continued fiscal stimulus, keeping the deficit ratio at 4%.
3. Monetary policy prioritizes "promoting stable economic growth and reasonable price recovery," suggesting these goals will take precedence in 2025.
4. Expanding domestic demand remains a top priority for 2025. Specific measures include: - Boosting household income through an "urban and rural resident income growth plan." - Promoting trade-in policies, though the term "optimize" (vs. last year's "expand") hints at limited funding increases. - Unleashing service consumption potential by removing unreasonable restrictions. The conference also addressed recent investment declines, proposing to "halt the investment downturn and moderately raise central budget investment."
**A-Share Investment Implications:** - **Industrial focus:** Major projects in 2025—the first year of the 15th Five-Year Plan—are expected to drive investment stabilization. - **Consumption:** While the income growth plan signals positivity, the absence of "expansion" suggests constrained policy support for trade-ins. - **Historical trends:** Large-cap stocks typically outperform post-conference, with sectors like oil & petrochemicals, communications, and electronics showing higher gains. Social services, utilities, coal, and media have delivered stronger excess returns. - **Policy themes:** Conference-highlighted sectors (e.g., 2023’s low-altitude economy, 2024’s anti-involution measures) often receive intensified support the following year.
**Risks:** Incomplete policy understanding, weaker-than-expected support, and geopolitical uncertainties.
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