Minsheng Securities: Pay attention to whether tariffs are implemented on February 1st. In favorable conditions, it is recommended to focus on underpriced cyclical sectors

According to the Zhitong Finance APP, Minsheng Securities released a research report stating that after the continuous alleviation of overseas negative factors, the A-shares have welcomed a rebound. From the relative valuation compared to the US stock market, the current pricing is not extreme. However, it is important to note whether the future "consensus expectations" regarding overseas tariffs, inflation, and interest rate cuts will be falsified, with the recent observation point being February 1st, when it will be determined whether the tariffs declared by Trump will be implemented. If everything remains on the current positive track, investors are recommended to pay attention to the cyclical sectors that are undervalued, which may still be driven by the recovery of production activities and the bottoming out of profits in the next 1-2 quarters.

The core viewpoints are as follows:

1. Overseas negative factors have landed, better than expected.

Trump's actions in his first week in office alleviated global investors' concerns about tariff risks, inflation, and interest rates, which ultimately manifested as a decline in the US dollar index, an increase in US stocks, and a rise in COMEX gold approaching previous highs. For Chinese assets, external risks also experienced significant fluctuations this week, ultimately tending to decrease: first, regarding tariffs, Trump's statements shifted from "imposing a 10% tariff on Chinese goods" to "preferring not to impose tariffs on China"; secondly, dialogues between China and the US occurred intensively this week without unexpected setbacks, marking a good start to the diplomatic cycle with the Trump administration. Under these positive factors, the RMB exchange rate showed a significant rebound (7.328→7.241), and in the A-share market, the overseas trade chain regained attention. Domestically, the "Implementation Plan for Promoting Long-term Capital into the Market" clarified the sources of incremental funds and established the concept of long-term investment and protection of small and medium investors. We believe this will strengthen the pricing power of long-term funds such as insurance and continuously narrow the valuation differentiation between various sectors, enhancing the synergy between the primary and secondary markets and changing the correlation between major asset classes.

2. The A-share market after the dust settles is indeed relatively cheap compared to the US stock market.

After the "924" market in 2024, we adopted the ratio of the US dollar-denominated CSI 300 Index to the S&P 500 Index to measure the pricing of the two countries' economic development levels against the backdrop of the continuously changing China-US relations due to the dynamic changes in market expectations of the Federal Reserve's monetary policy. In the past two weeks, this ratio has risen and approached the level of September 26, 2024, but there is still a difference from the previous high. At the current stage of declining global risks, even if there are potential fluctuations in the future, the CSI 300 still has a 16% valuation protection relative to its most optimistic relative pricing level on October 8th, which is the source of resilience for A-shares.

3. Consensus expectations and future observations: Will the tariffs on February 1st be implemented?

The market's consensus expectations may be: (1) US inflation smoothly declines and the probability of Federal Reserve interest rate cuts increases, with recent significant declines in oil prices, combined with the smooth decline of the US core inflation in December, opening up space for the Federal Reserve to cut rates, while Trump's remarks at the Davos Forum also urged global central banks to lower interest rates; (2) The pace of tariff implementation by the Trump administration is relatively slow, as in his first week in office, Trump did not take any actual tariff actions, including against countries threatened with additional tariffs such as China, Canada, and Mexico, and the stock market responded positively this week There is a mutual exclusivity among Trump's various commitments, requiring careful prioritization, and tariffs are at the intersection of these. Observing whether tariff actions are implemented is an effective indicator for predicting his policy path. If tariff actions are indeed implemented and funds are raised through this, then the next goal of the Trump administration may be to promote domestic tax cuts in the United States and support for productive investment. In this scenario, the stabilizing effect of the U.S. domestic economy on other global regions may weaken, and there may even be a sustained dollar tightening due to inflation falling short. The market's "consensus expectations" may be challenged, and the rebound of A-shares will also be hindered.

Four, if the "tailwind" continues in spring, consider cost-effectiveness and marginal changes.

The key nodes for the recovery of production activities and the verification of profit bottoming may arrive in the next 1-2 quarters: On one hand, during each previous round of counter-cyclical adjustment policies represented by infrastructure investment, electricity consumption and PMI would rise accordingly, leading to corporate profit recovery. Currently, the growth rate of infrastructure investment is at the cusp of surpassing the compound growth rate of the past three years. Considering that 2025 is the last year of the "14th Five-Year Plan," the dual driving effect may be reflected in the post-Spring Festival return-to-work surge. On the other hand, if the favorable tailwind continues, U.S. fiscal support for "productive investment," housing supply, and the current stabilization of the Eurozone manufacturing sector may lead to over-expected overseas investment activities. Coincidentally, compared to the pricing around September 26, 2024, the market is relatively pessimistic about specific sectors mainly concentrated in the manufacturing cycle and physical workload cycle assets. We recommend sectors that may benefit from the potential marginal changes in the aforementioned cyclical areas, from materials and energy types: industrial metals, precious metals, coal, oil, and construction materials, to midstream and downstream equipment (transportation equipment, power equipment), agricultural chemicals, and chemical products, consumer sectors like white goods and tourism, as well as undervalued industries related to economic expectations: banks, transportation, etc.

Risk Warning: 1) Domestic economy may underperform expectations. 2) Significant downturn in overseas economy. 3) Calculation errors