Guo Lei from Guangfa Macro believes that firstly, there is a phase of accelerated construction after the acceleration of government investment, bond issuance, and project implementation; The second is to improve the supply-demand relationship, by improving the supply-demand ratio to increase the price center and reduce the real interest rate; Thirdly, the first official communication between China and the United States after the Geneva talks released a positive signal. If these three clues ferment, it will drive the synchronous improvement of fundamentals and risk appetite. In last week’s report ‘The lower limit has been raised, but the upper limit still needs to be opened’, we believe that for equity assets, since April, the market has gradually priced the ‘lower limit’ of fundamentals based on the two logics of countercyclical policy ‘hedging’ and trade environment ‘reversal’ after a one-time risk provision. The key to the next stage is whether we can further promote positive changes in the areas where domestic demand is weak, in order to further open up the “upper limit”. So, how can the upper limit of fundamentals be further opened up? At present, there are three clues that are beginning to emerge: firstly, government investment. After the acceleration of bond issuance and project implementation, there is a logical stage of accelerated construction. April is the stage of accelerated bond issuance. Special treasury bond have been issued since April 24, including special treasury bond with bank capital injection and ultra long term special treasury bond, the latter one month earlier than last year; The addition of special bonds has also accelerated slightly.
May is the stage of further acceleration of project implementation, and in mid May, the two offices issued the “Opinions on Continuously Promoting Urban Renewal Action”; On May 20th, the National Development and Reform Commission stated that it aims to complete the list of all ‘double’ construction projects for this year by the end of June. After the acceleration of bond issuance and project implementation, there is generally an acceleration in construction. From the perspective of the operating rate of petroleum asphalt, there has been a preliminary upward trend since May. It is worth further observation whether the characteristics of starting construction at the end of the second quarter and the beginning of the third quarter will become more significant. Why is this clue more important? From the economic data in April, the long board of the economy is the update of equipment and tools under the “two new” policy, as well as the sales of household appliances and mobile phones; The weak points are mainly in real estate and narrow infrastructure. fixed assets investment is only 3.6% year-on-year in a single month and shows signs of deceleration. If the investment in dual projects and urban renewal accelerates, the marginal driving elasticity of the total amount should be relatively large.
The second is the supply-demand relationship, with a new round of intensive policies to manage low prices and rectify “internal competition”. On May 9th, the first quarter Monetary Policy Implementation Report of the People’s Bank of China pointed out that “in terms of price regulation ideas, we also need to shift from managing high prices to managing low prices, from supporting scale expansion to high-quality development, and from preventing monopolies to preventing disorderly competition.” At the press conference on May 20th, the National Development and Reform Commission pointed out that “some enterprises are caught in ‘involution’ competition, and some sell at low prices, ultra-low prices, or even below cost prices.” We need to “accelerate the elimination of inefficient and backward production capacity in industries such as refining and steel; scientifically demonstrate new production capacity projects in industries such as coal chemical and alumina, prevent blind new construction; strengthen industry self-discipline, and guide new energy vehicle and photovoltaic enterprises to pay attention to technology research and development.” Why is this clue so important? We know that one of the characteristics of the economy in the past two years has been a nominal growth rate lower than real growth, a lower price center level, which further leads to higher real interest rates. The high real interest rates have led to an increase in debt burden, low willingness of enterprises to invest, and low willingness of residents to consume. To solve the problem of high real interest rates, lowering nominal interest rates is one way, but the space has gradually become smaller; Improving the economic “supply-demand ratio” to increase the price center is another path. From a historical perspective, once the price confirms a moderate upward trend, micro activity will significantly increase. The third is the economic and trade relations between China and the United States. After the Geneva talks, Chinese and American officials had their first phone call.
According to the website of the Ministry of Foreign Affairs, on May 22, 2025, Vice Foreign Minister Ma Zhaoxu had a phone call with US Deputy Secretary of State Randolph to exchange views on China US relations and important issues of common concern. Both parties agree to continue communication. The Global Times quoted CNBC as saying that this is the first phone call between China and the United States after the Geneva economic and trade talks, which is a positive signal. Why is this clue more important? Because it is one of the main uncertainties at the macro level. Once it improves, the fundamentals and risk appetite will simultaneously improve, forming a double-click. Note: This article has been edited. Author: Guo Lei, Source: Guo Lei Macro Tea House, Original Title: “Guangfa Macro Team: Waiting for the Fermentation of Three Clues” Risk Warning and Disclaimer: Market Risks, Investment Needs to be Cautious. This article does not constitute personal investment advice, nor does it take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are relevant to their specific situation. Based on this investment, the responsibility shall be borne by oneself.