The market opened higher and experienced fluctuations yesterday, with the three major indices each rising over 1%. The STAR 50 Index climbed more than 3%. The total trading volume for the Shanghai and Shenzhen stock exchanges reached 2.01 trillion yuan. By sector, concepts such as pharmaceuticals, computing hardware, and computing power leasing performed actively. On the downside, power and high-speed rail sectors declined. At the close, the Shanghai Composite Index was up 1.46%, the Shenzhen Component Index rose 1.7%, and the ChiNext Index advanced 1.96%.
In today's brokerage morning briefings, Huatai Securities expressed the view that over a month of strait controls have deepened supply disruptions in Asia's petrochemical chain. Huaxi Securities suggested continuing to explore undervalued sectors. Guojin Securities believes that recession trading is gradually approaching.
Huatai Securities noted that control measures in the Strait of Hormuz for over a month have led to widespread production cuts in Asia's petrochemical industry chain due to oil supply disruptions. Rising costs and tightening supply have driven up product prices across the board. International diesel and jet fuel price spreads have increased significantly. The ethylene/propylene chains face challenges in passing on costs due to insufficient demand, while the aromatic chain shows differentiated performance based on varying demand resilience of its products. Asian countries face different risks depending on their strategic petroleum reserve levels and alternative energy sources, with China's supply chain disruption risk being relatively low. Meanwhile, contraction in industry capital expenditure and dual carbon controls will promote optimization of the supply structure. This supply disruption is expected to accelerate the optimization of Asia's petrochemical industry landscape. As future uncertainty diminishes and downstream restocking demand is released, it is expected to drive profit improvement for chemical products. In the long term, this event will accelerate China's strategic pace towards energy self-sufficiency. It is anticipated that the development of oil demand substitution routes such as modern coal chemicals, green hydrogen, and new energy will likely accelerate, thereby gradually reducing dependence on imported oil and gas.
Huaxi Securities emphasized that the low-valuation style continued to outperform in the first quarter. The reasons include high overall market valuations and pressured risk appetite, leading to investor caution towards high valuations. However, the logic of market stabilization persists, and exiting directly might mean missing potential rebound gains. In this context, funds tend to seek out undervalued catch-up opportunities. For the second quarter, they recommend continuing to explore undervalued sectors. From PE and PEG perspectives, power equipment and media sectors deserve continued attention. Their PE (TTM) percentiles since 2016 are 67% and 68% respectively, with both PEG ratios at 0.91. From a PB perspective, focus on agriculture, animal husbandry, and large financial sectors, as their PB percentiles are mostly below 20%, while their ROE figures are all above 8%. For non-ferrous metals and coal, which have relatively high PB percentiles, their performance will depend on whether inflation can continue to exceed expectations.
Guojin Securities indicated that recession trading is drawing nearer. Recession trading implies that equities and commodities still face the possibility of fundamental value deterioration, but bonds might be the first asset class to bottom. Oil prices breaking through key integer levels (USD 115-120) could act as a trigger for comprehensive recession trading. Beyond that, any deterioration in the situation across dimensions such as halted negotiations, strait disruptions, escalation of bombings, or involvement of Gulf states are potential triggers for full-scale recession trading. In short, an end to the conflict would be signaled by observing when, at what cost, and to whom the strait reopens partially. However, any form of partial reopening cannot prevent a global economic slowdown compared to pre-war levels. Recession trading is not merely a case of crying wolf. Stocks, bonds, and commodities are gradually pricing in the probability of a recession, and too many uncontrollable factors are accumulating.
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