Pessimistic correction, copper bulls are ready to go

  • Jan, 29th 2019

Macroeconomic policies strengthened counter-cyclical adjustment, and some of the copper end consumer industry's weak pattern improved, market pessimism eased, and copper prices may rebound in the short term.

Last week, the copper fell, but rebounded again after gaining support at the $5,900/ton integer mark. We believe that as macroeconomic policies strengthen counter-cyclical adjustments, investors' past extreme pessimism will be revised, and copper prices will rebound or continue in the short term.

Macro-policy strengthens counter-cyclical regulation, market sentiment is slightly improved

China's economy has downward pressure, and China's economic growth rate fell to 6.4% in the fourth quarter of 2018, the lowest since the global financial crisis Level. At the same time, China's manufacturing industry has entered a contraction zone and the manufacturing boom has declined. The official manufacturing PMI for December 2018 was 49.4, down 0.6 percentage points from November. The new order index was 49.7%, down 0.7 percentage points from the previous month, and the expected index of production and operation activities was 52.7%, down 1.5 percentage points from the previous month, both of which were lows during the year.

In response to the economic downside risks, the decision-making level implemented steady growth measures to ease market pessimism. First, the central bank announced a reduction in support for the real economy, which was reduced by 0.5 percentage points on January 15 and January 25, respectively, and net long-term funds of about 800 billion yuan. Second, the implementation of inclusive tax relief for small and micro enterprises. Policies, and expand the coverage of small-scale and low-profit enterprises; third, relax foreign market access, clear the access restrictions for foreign investment in areas other than the negative list of foreign investment access; fourth, the new tax law will be fully implemented, 2019 will It is possible to implement a larger tax cut and reduce the fees and increase the consumption level of residents.

Real estate continues to cool down other end-consumer industries or turn better

Copper major consumer terminal industry performance differentiation, of which the real estate (000736) market continues to tighten, but the growth rate of infrastructure investment has stabilized and rebounded The market expects the auto appliance industry to support policies or curb the weak consumption pattern, and the market pessimism has eased.

Real estate sales were sluggish and investment gradually declined. In the second half of 2018, the cumulative year-on-year growth rate of commercial housing sales continued to decline, with a year-on-year growth rate of 1.3%, the lowest in the past two years. At the same time, as of 2018At the end of the year, the completion of real estate development investment increased by 9.5% year-on-year, the lowest value in the year, reflecting that the real estate policy is still tight.

However, the local debt limit was issued ahead of schedule, and the growth rate of infrastructure investment showed signs of stabilization. At the end of 2018, the National People's Congress authorized the State Council to release the local government's new debt limit of 1.39 trillion yuan in advance in 2019. The funds will be put in place in advance or the infrastructure and government-related consumption expenditures will be advanced in advance in 2019, and the special debts will be issued in advance, and the growth rate of social welfare is expected to gradually improve. Expectations for the growth of infrastructure investment growth have increased. From the point of view of grid investment, since the beginning of 2018, the cumulative rate of decline in grid investment has been continuously narrowed, and it has turned positive to 0.6% by the end of the year. The bidding data showed that the volume of telecom bidding increased in 2019, rekindling the expectation of increased grid investment.

Consumption of automobile appliances fell, and the market expects that stimulus policies may be implemented. Since July 2018, automobile sales have continued to decline year-on-year, and annual automobile consumption has shrunk by 2.76%. At the same time, the growth rate of household appliances consumption continued to decline. Among them, the growth rate of air-conditioner sales dropped from 14.26% in the middle of the year to 5.84% at the end of the year, and refrigerator consumption continued to shrink. The National Development and Reform Commission believes that Chinese residents have strong consumption potential and will formulate measures to promote the consumption of hot products such as automobiles and home appliances.

Conclusions and Recommendations

In summary, macroeconomic policies have strengthened countercyclical adjustments, and some of the weak copper end consumer industries have improved, making market pessimism somewhat relieved, and copper prices are short-term. Or there may be a rebound. In operation, investors are advised to make tentative purchases in the short term, with strict stop loss and take profit. (Author: Guotai Junan Futures)