Summary of Conference Call Notes Industry Overview - The discussion centers around the impact of the appreciation of the Renminbi (RMB) on the Chinese economy and its potential to lead to a bull market in 2026, marking a significant turning point for China as it transitions from a period of economic stagnation to prosperity [2][4][8]. Key Points and Arguments 1. **RMB Appreciation as a Catalyst** - The appreciation of the RMB is seen as a key opportunity for China to transition towards prosperity, with expectations that it may break previous highs of 6.8 and potentially reach 6.3 in the coming years [2][4]. 2. **Strong Export Capacity** - The long-term appreciation of the RMB is attributed to China's robust export capabilities, which emerged as the country entered its industrialization maturity phase around 2018. This pattern has historical parallels in the U.S. post-1945 and Japan post-1975 [2][4][5]. 3. **Capital Reflow** - Approximately 16 trillion RMB that flowed out during the depreciation phase is expected to return, supporting the appreciation trend even if corporate currency settlement decreases in the future [4][6]. 4. **Economic Recovery in 2026** - 2026 is projected to be a pivotal year for the Chinese economy, benefiting from potential Federal Reserve rate cuts and the possibility of quantitative easing (QE) by the People's Bank of China (PBOC), which would help restore cash flow and balance sheets in the real economy [8][11]. 5. **Asset Recovery** - The cash flow statements and balance sheets of China's real sector are gradually improving, aided by anti-involution policies and expected QE measures, which could lead to a return to the prosperity cycle that began in 2019 [11][12]. 6. **Investment Recommendations** - There is a strong recommendation to invest in RMB-denominated assets, particularly in sectors such as non-ferrous metals, new consumption, and high-end manufacturing. The A-share market is expected to reach new highs, and there is optimism for the Hong Kong stock market as well [9][13][14]. 7. **Concerns Over Export Constraints** - Concerns that RMB appreciation might hinder exports are deemed unfounded, as the strong export capacity is the cause of appreciation rather than a consequence [5]. 8. **Long-term Economic Strategy** - The necessity of timely debt resolution is emphasized, drawing lessons from Japan's economic stagnation in the 1990s. The discussion highlights the importance of addressing debt to maximize profits and ensure economic stability [12]. Additional Important Insights - The anticipated shift in U.S. monetary policy towards QE could create favorable conditions for the RMB, allowing the PBOC to implement its own QE strategies to alleviate domestic corporate burdens [12]. - The overall sentiment is optimistic regarding RMB-related assets, with strategic asset allocation advised to navigate future market changes effectively [14].

Core Insights - The report emphasizes the importance of macroeconomic research as a critical component of the investment system, suggesting that many past concerns about the Chinese economy were overblown, and a new narrative focusing on innovation and industrial manufacturing is emerging [1] - It highlights the cyclical nature of stock valuations, indicating that understanding undervaluation and overvaluation is essential for successful investment strategies [1] - The steel industry is currently positioned at an absolute undervaluation, presenting a significant opportunity for value investment, with expectations of recovery in capital returns as capacity utilization improves [4] Industry Trends - The report notes that the steel industry is entering a long-term decline phase following industrial maturity, characterized by stable demand and low capital returns, with a projected capacity utilization rate of 82% in 2026 [4] - It discusses the cyclical trajectory of the steel industry, indicating that the current low capital returns are conducive to supply adjustments and potential mergers within the industry [4] - The report anticipates that the marginal recovery in capacity utilization in 2026 will further enhance capital returns in the steel sector, contingent on effective policy implementation [4] Investment Strategy - The report recommends focusing on companies that are likely to benefit from improving capital returns, such as Baosteel, Hesteel, Nanjing Steel, and Xinyu Steel, as they are expected to provide significant investment value despite having moved away from absolute undervaluation [4] - It emphasizes the need for a detailed approach to selecting specific stocks within the steel sector, as the overall market dynamics shift towards a more stable economic environment [4] - The report suggests that the investment strategy should adapt to the changing economic landscape, where excess capital in society will influence market trends and stock valuations [4]

Investment Rating - The industry investment rating is maintained as "Buy" for key stocks in the steel sector [6]. Core Insights - The steel industry is entering a golden period in the capital market, characterized by capital surplus during the industrialization maturity phase. This phase is expected to enhance market valuations and profitability for leading companies [2][4]. - The report highlights a significant increase in profits for the black metal smelting and rolling industry, reaching 46.28 billion yuan, a year-on-year increase of 1370%, marking the highest growth rate among all industrial categories [2]. - The report emphasizes the importance of supply-side policies, particularly the "anti-involution" policy, which is expected to accelerate the reduction of excess supply and improve industry profitability [2][4]. Supply Analysis - Daily average pig iron production slightly increased to 2.407 million tons, with a marginal rise in long-process production [12]. - The capacity utilization rate for 247 sample steel mills is reported at 90.2%, reflecting a 0.2 percentage point increase from the previous period [18]. - The total inventory of five major steel products continues to accumulate, with a week-on-week increase of 3.0% [25]. Demand Analysis - Apparent consumption of five major steel products decreased by 1.7% week-on-week, indicating a seasonal decline in rebar demand, while hot-rolled demand showed improvement [41][52]. - The average weekly transaction volume for construction steel was 102,000 tons, down 1.1% from the previous week [43]. Price and Profit Analysis - The comprehensive steel price index increased slightly by 0.1% week-on-week, with the current index at 126.2 [72]. - The immediate gross profit margins for long-process rebar and hot-rolled products are reported as negative, indicating cost pressures despite slight price increases [72][74]. Key Stocks - Recommended stocks include: - Xinguang Steel (600782.SH) - Buy - Nanjing Steel (600282.SH) - Buy - Hualing Steel (000932.SZ) - Buy - Baosteel (600019.SH) - Buy - Jiuli Special Materials (002318.SZ) - Buy - Liugang (601003.SH) - Buy - Yongjin (603995.SH) - Buy - Changbao (002478.SZ) - Buy [9].