Summary

There are too many contradictions in market expectations for the 2022 economy and earnings next year. With endogenous factors such as the disappearing talent dividends, China’s economy is entering a new era of slower growth from 2020. Unlike the past, the central government now is less willing to intervene with aggressive stimulus measures to effect economic growth. In the medium term, A-shares' valuations are still optimistic but these fail to price in the economic downturn the country is facing ahead.

The market PB multiple remains at relatively high historic levels while the PE reading is at medium levels. The market ROE is relatively high, in line with current high prosperity. The slowdown of the economy will be a major risk for market correction in the future but in the short run, the market is still exuberant in mood, and chasing market winners should still remain an effective strategy over the next 1 to 2 months. In terms of monitoring sentiment, a continuous slowdown of market turnover should be a key area to closely follow in future.

Overall, try to look for sectors with a brighter future amid an uncertain market. In 2022 Horizon Insights recommends waiting for better opportunities in the next growth industries, while the recovery of the service sector is a key area of potential.

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