Label: China, a cyclical stock in the fund financial and economic cycle.

Economic cycle, also known as business cycle, refers to the development process of the national economy from this prosperity to the next prosperity after stagnation, depression and recovery. The existence of economic cycle is mainly due to technological revolution, capital investment, institutional changes and other reasons. Just as the development of an enterprise is influenced or restricted by the development of its industry, the development of the industry is also influenced or restricted by the development of the national economy or the economic cycle. Of course, different industries are affected or restricted to different degrees by the economic cycle. Some industries prosper with the prosperity of the economy and slump with the depression of the economy, which can be called cyclical industries, such as jewelry industry, catering industry, real estate industry and entertainment service industry. Other industries prosper with the economic depression, and slump with the economic prosperity, which can be called countercyclical industries, such as repair industry and pawnbroking industry. There are also some industries that are basically unaffected by the economic cycle and can be called non-cyclical industries, such as accounting, auditing, lawyers, grain, oil and food retail. Therefore, from the perspective of industry risks, industries that are basically unaffected by the economic cycle, that is, non-cyclical industries, have lower risks; Industries that are slightly affected by the economic cycle have lower risks; Industries that are greatly affected by the economic cycle have higher risks; And industries with high periodicity or counter-periodicity have high risks. In short, most industries will be affected by the macro-economy and have certain periodicity, but some industries are more relevant and some industries are weaker. The investment risk in volatile industries is relatively high, but if you step on its rhythm, you can get higher returns.

Choose different investment products in different economic cycles.

In the financial field, the change of industrial allocation in different economic cycles is called industrial rotation. When the economy falls back from the boom period, investment opportunities will shift from investment products (industry, raw materials, etc.). ) to defensive varieties (consumer goods, health care, bulk consumption). The logic behind this is the theory of industrial rotation, that is, different industries are allocated according to different economic cycles. When the macro economy is improving, we should choose some stocks with strong positive correlation in cyclical industries. Most of these stocks are speculative, and their cycle rhythm must keep pace, such as steel, coal, petroleum, nonferrous metals, cement and building materials, chemical industry, construction machinery, automobile manufacturing, real estate, jewelry industry, catering industry, real estate industry, entertainment service industry and so on. When the overall economy rises, the prices of these stocks also rise rapidly; When the overall economy goes downhill, the prices of these stocks will also fall. When the macro economy is improving, we can choose some stocks that have little correlation with the economic cycle in weak cycle industries, that is, so-called defensive varieties. Non-cyclical stocks are companies that produce necessities. No matter what the economic trend is, people's demand for these products will not change much, such as food, medicine, public utilities, commercial retail and so on. They are characterized by stable income, even in difficult economic times.

What needs special explanation is the banking industry. Because of its high entry threshold, most countries have strict restrictions on the issuance of bank licenses. Therefore, although banks are cyclical industries, the reasons for their periodicity are rather special, not because of the fierce competition for increased investment in this industry caused by the high average profit rate of the industry. However, because banks are the capital channel and the largest indirect financing channel of the whole society, they are closely related to the economy of the whole society. Therefore, a country's economic cycle will inevitably obviously affect the banking industry, leading to the banking industry becoming a cyclical industry.

Since May 2004, the accumulated surplus of bulk consumer goods industry is about 4%, and the trend of health care industry is slightly worse. The stocks represented by Kweichow Moutai, Yanjing Beer, Haizheng Pharmaceutical, and Hengrui Pharma are the most outstanding, with cumulative gains of 49%, 25%, 14% and 2 1% respectively. Petrochemical, steel, automobile and other industries belong to cyclical industries, which were reduced by the fund during the industry rotation. At present, these industries are in an underestimation period, which is a good opportunity to open positions in the medium and long term.

As an emerging market, China's economy is expected to undergo another 20 years of industrialization, characterized by rapid economic growth. The possibility of serious economic recession or depression is very low, but the cyclical characteristics still exist. China's economic cycle is more manifested in the acceleration and slowdown of GDP growth. For example, when the GDP growth rate reaches 12%, it can be regarded as a boom period, while when the GDP growth rate falls below 8%, it is a downturn period. At different boom stages, the feelings of industries and enterprises will definitely be very different. In the downturn, the operating pressure will naturally be great, and some companies will even lose money.

Investment strategy of cyclical stocks

Typical cyclical industries in China include basic bulk raw materials such as steel, nonferrous metals and chemicals, building materials such as cement, and capital-intensive fields such as construction machinery, machine tools, heavy trucks and equipment manufacturing. When the economy grows at a high speed, the market demand for products in these industries is also high, and the performance of companies in these industries will be significantly improved, and their stocks will be sought after by investors; When the economy is depressed, the investment in fixed assets declines, the demand for its products weakens, and the performance and stock price drop rapidly.

In addition, some non-essential consumer goods industries also have distinct cyclical characteristics, such as automobiles, high-grade liquor, high-grade clothing, luxury goods, aviation, hotels and so on. Because once people's income growth slows down and the uncertainty of expected income increases, the consumption demand for such non-essential goods will directly decrease. Financial services (except insurance) is closely related to industry and commerce and household consumption, and also has obvious cyclical characteristics. Simply put, the industry that provides daily necessities is non-cyclical and the industry that provides daily necessities is cyclical.

These cyclical enterprises constitute the main body of the stock market, and their performance and share price rise and fall due to the changes in the economic cycle, so it is not difficult to understand that the economic cycle has become the fundamental reason for leading bull and bear markets. In view of this, the key to investing in cyclical industry stocks lies in accurately grasping the timing. If you can intervene before the bottom of the cycle, you will get the richest return on investment, but if you buy at the wrong time and place, such as when the cycle reaches the top, you will suffer serious losses, and you may have to wait for 5 years or even 10 years to usher in the recovery and upsurge of the next cycle. Although it is as difficult to predict when the economic cycle will bottom out as it is to predict whether gambling will win or lose, some effective methods and ideas can be summarized in investment practice for investors to learn from. Among them, interest rate is the core factor to grasp the timing of cyclical stocks entering the market. When interest rates are running at a low level or falling continuously, cyclical stocks will perform better and better, because low interest rates and low capital costs can stimulate economic growth and encourage all walks of life to expand production and demand.

On the contrary, when the interest rate level rises gradually, cyclical industries lose their willingness and ability to expand because of the rising cost of capital, and the performance of cyclical stocks will get worse and worse. Investors should pay attention to the fact that when the central bank first cut interest rates, it is usually not the best time to intervene in cyclical stocks. At this time, when the economic boom is the lowest, some things are difficult to return. The effect of initial interest rate cut is not obvious, and cyclical stocks will continue to fall for some time. Only after repeated interest rate cuts will cyclical industries and stocks regain their vitality. Similarly, when the central bank started to raise interest rates, investors did not have to rush to leave, and cyclical industries and stocks would continue to prosper for some time. Only when the interest rate level kept rising and approached the previous high point, cyclical industries would obviously feel the pressure, and then investors began to consider turning.

Investors should not be too superstitious about the price-earnings ratio, because investing in cyclical stocks is often misleading. Just because a cyclical stock has a low P/E ratio doesn't mean it has investment value. On the contrary, a high P/E ratio is not necessarily overvalued. Take steel stocks as an example. In the downturn, their P/E ratio can only be kept in single digits, and the lowest P/E ratio can be less than five times. If investors compare it with the average market price-earnings ratio and think it is "cheap", they may face a long wait, miss other investment opportunities and even suffer greater losses. In good times, such as the first half of 2004, the price-earnings ratio of steel stocks can reach more than 20 times. At that time, if you saw the rising price-earnings ratio and didn't dare to buy steel stocks, then you missed a round of rising prices. Compared with P/E ratio, P/B ratio is not sensitive to profit fluctuation, but it can better reflect the investment value of cyclical stocks with obvious performance fluctuation, especially for those capital-intensive heavy industries. When the stock price is lower than the net assets, that is, the P/B ratio is lower than 1, you can usually buy with confidence, and the industry and stock price may recover at any time.

In the whole economic cycle, the cyclical performance of different industries is still different. When the economy turns to an inflection point in the trough and just begins to recover, basic industries such as petrochemical, construction, cement and paper making will benefit first, and the stock price rise will also start ahead of schedule. In the subsequent recovery and growth stage, capital-intensive industries such as machinery and equipment, cyclical electronic products and related parts industries will perform well, and investors can switch positions to buy related stocks. At the peak of economic prosperity, business flourished. At this time, the protagonists are all non-essential consumer goods, such as cars, high-end clothing, luxury goods, consumer electronics, tourism and so on. If you switch to such stocks, you can enjoy the feast of the last economic cycle.

Therefore, in a round of economic cycle, the allocation of industry stocks that benefit the most at different stages can maximize the return on investment. Finally, comparing the balance sheets of these companies can help you find the best performing stocks when choosing those stocks that are about to usher in the industry recovery. Those companies with healthy balance sheets and relatively abundant cash will have stronger expansion ability in the early stage of industry recovery, and their share price performance will usually be more eye-catching.