bear's long journey
In the development of human history, there are several economic cycles that coexist and intertwine with each other, and jointly affect the ebb and flow of the economy. They are:
★ Kitchin cycle (3 to 4 years) driven by manufacturer inventory investment;
★ Jugra cycle driven by equipment replacement and capital investment (9 to 10 years);
★ Kuznets cycle driven by the real estate industry and construction industry (15 to 25 years);
★ Kondratiev cycle (50 to 60 years) driven by technological innovation.
■Real economic indicators have become important signal guides for the Jugla cycle.
Driven by equipment replacement and capital investment, the cyclical replacement of production equipment drives the cyclical changes in fixed asset investment , which in turn leads to the formation of the Jugla cycle. There will be several leading signals.
★ Economic recovery has generated demand for equipment investment. At the beginning of 2020, the global public health crisis caused by the new coronavirus caused severe damage to the production of various countries, causing the growth rate of GDP to hit a new low. Countries quickly initiated monetary easing and fiscal support, stepped up efforts to stimulate consumption and corporate investment, and started a new round of economic growth.
Consumer product sales have grown significantly. With the advancement of vaccination and the relaxation of epidemic prevention and control in various countries, the global economic order is restored, and consumer demand will recover quickly. Strong household consumption strengthens companies' expectations for economic improvement, which will inevitably lead to a new round of corporate investment and equipment updates.
The growth rate of total import and export volume continues to grow. External demand industrial chain is the main driving force for economic recovery and equipment investment. Under economic globalization , foreign trade has also become an important source of investment. Foreign trade has a great influence on economic growth . For a long time, China's economic growth has been driven by exports.
★Manufacturing investment and industrial chain upgrading and reengineering have opened a new round of equipment investment cycle. The upgrading and reengineering of the industrial chain opens a new round of equipment investment cycle. Since the growth rate bottomed out in early 2020, the output of major industrial equipment has rapidly improved with the resumption of production. Most of them returned to positive year-on-year growth around the third quarter of 2020 and continued to maintain strong growth. In December 2020, the cumulative monthly output of excavators, generator sets and industrial robots increased year-on-year by 36.7%, 30.3% and 19.1% respectively. The active monetization of the supply side of midstream production equipment shows strong demand in the downstream of the industrial chain. The demand for expansion of production capacity and equipment replacement is growing. The industry's confidence in the mid- to long-term manufacturing boom is gradually restored.
★ Price changes are sensitive to equipment investment and can capture Jugla cycle formation. Since 2020, the Biden infrastructure plan has moved forward several times, which has triggered a rapid rise in copper prices in the short term. During the Jugla up-cycle phase, prices are more sensitive to equipment investment. On the one hand, consumer demand is gradually increasing, stimulating CPI to rebound from the bottom of the previous cycle; secondly, on the production side, raw material prices on the supply side are rising, and the demand side is facing tight supply and saturated production capacity, stimulating PPI to start a new round of recovery.
★The credit extension cycle is closely related to the equipment investment cycle. The scale of investment in equipment is closely related to the ease of credit extension in the financial sector. Theoretically, when the central bank releases liquidity to the market, the money supply M1 and M2 increase. The scale of credit has entered a period of expansion, and the scale of social financing and loan balances of financial institutions have increased. After companies obtain loans, they invest to update production capacity, driving an increase in equipment purchases. The growth in equipment output is transmitted upward along the industrial chain, triggering an increase in raw material prices.
Bulls and bears alternately play the leading role
■A new round of Jugra cycle begins
★The three main lines of U.S. renewal, carbon neutrality, and supply chain reconstruction drive the start of a new round of cycle.
Biden’s $2 trillion infrastructure plan officially came to the forefront. The infrastructure plan is mainly invested in revitalizing the US manufacturing industry (700 billion), new infrastructure (400 billion), traditional infrastructure (70 billion), etc. The demand for renewable energy has increased significantly, green infrastructure investment has become a key area of focus, and the construction of clean energy infrastructure has been accelerated.
In the context of great power competition, the trend of restructuring the global supply chain has become prominent. Developed countries in Europe and the United States are accelerating remanufacturing in order to consolidate the advantages of traditional manufacturing and vigorously develop high-end, high value-added industries; China is vigorously promoting industrial chain reengineering and value chain improvement to tackle the "stuck" problem of key technologies. Under the guidance of policies, investment in high-tech and emerging industries will enter a new round of substantial growth cycle.
★A new cycle has begun, and the main indicator signals appear.
First, the combination of strong economic stimulus and strong recovery signals drives the start of a new Jugla cycle.
Second, the manufacturing investment boom has also entered a new cycle.
Third, the price increase of PPI and commodities has been the first to be confirmed.
Fourth, the upgrading and rebuilding of the industrial chain has opened a new round of equipment investment cycle.
Fifth, the intensity of credit extension also captures the start of a new cycle.
Since 1980, China has experienced four complete Jugra cycles, with an average length of about 10 years. As a representative of the mid-cycle, the Jugra cycle mainly depicts the changes in the equipment investment cycle of the economy. Domestic related research mainly divides the cycles based on indicators such as the growth rate of fixed asset investment, manufacturing investment, equipment investment, and the prosperity index of 5,000 industrial enterprises. Based on the above indicators, we can divide China's economy since 1980 into four complete Jugra cycles, with an average duration of 10 years.
China’s new Jugla cycle may have quietly begun. After the investment peak of 4 trillion yuan in 2012, the growth rate of China's equipment investment has declined for 10 consecutive years. According to historical experience, it is estimated that a new Jugla cycle may start around 2019. However, due to the impact of the Sino-US trade war in 2018 and the outbreak of the new crown epidemic in 2020, the turning point of the cycle has not yet appeared. At this point in time, we believe that China’s new Jugla cycle may have quietly begun in 2021.
The relationship between the Jugra cycle and inflation is not direct, but the bottoming out of inflation can be seen in the four upward cycles, and the transmission time varies from time to time. The start of the Jugla upward cycle is expected to drive A shares into an upward channel. At the industry level, the materials and equipment industry performed better during the Jugra upcycle. The main reason is the peak of equipment investment, strong demand for materials and equipment in related fields, and stronger performance of related listed companies.
The opening of a new round of economic cycle means that the bears have gone and the bulls have returned.
In short, real economic indicators have hinted that a new round of Jugra cycle has quietly begun. China will relax epidemic control in December 2022, which will have a delayed effect in time. The Jugra cycle that should be started may be late, but it will never be missed. The stock market is a barometer of the economy, and the long winter of decline will surely pass. At the end of the cold weather, spring will return to the earth, and spring flowers will bloom.
