中国股票策略：反内卷行动的潜在市场反应-2015 - 16 年供给侧改革的经验借鉴-China Equity Strategy_ Potential market reaction to anti-involution drive_ Lessons from 2015-16 supply-side reform

Summary of Key Points from the Conference Call Industry Overview - The focus is on the Chinese market, particularly the new energy vehicles (NEV), solar, coal, and cement sectors, in the context of the anti-involution initiative aimed at reducing unhealthy competition and improving corporate profitability [2][3][7]. Core Insights and Arguments 1. Anti-Involution Initiative: - The initiative is gaining momentum, with calls for industries to self-regulate to avoid damaging competition. This is expected to improve supply-demand dynamics, drive price recovery, and enhance corporate profitability [2][3]. - China's Producer Price Index (PPI) fell by 2.8% YoY in the first half of 2025, marking the 33rd consecutive month of declines, alongside a 9.1% YoY drop in industrial profit in May [2][12][14]. 2. Market Reactions: - Historical parallels are drawn to the 2015-16 supply-side reform, which led to price increases in materials and a re-rating of relevant sectors. Sectors addressing unhealthy competition, such as solar and power batteries, have recently rebounded [3][4][21]. - Stock prices initially reacted positively to new policies during the supply-side reform, providing excess returns relative to the broader market for 1-2 months [4]. 3. Commodity Price Correlation: - Stock prices initially moved in tandem with commodity prices and production changes, but later decoupled. Significant price increases for relevant commodities occurred during two periods in 2015-16 [5][26]. 4. Corporate Profitability: - The coal sector's profitability improved significantly in the second half of 2016, with nearly 90% of capacity turning profitable by the end of Q3 2016, compared to 8% in November 2015 [6][31]. 5. Differences from Previous Reforms: - The anti-involution push is expected to have a smoother and longer-lasting impact on stock prices compared to the supply-side reform, focusing more on downstream industries where non-state-owned enterprises (non-SOEs) are prevalent [7][9]. Indicators for Investors - Investors should monitor: - Specific capacity controls and recovery in product prices (e.g., polysilicon prices) - Capacity utilization rates in relevant businesses - Rebound in PPI - Indicators such as industrial profit growth and the proportion of profitable businesses, which may lag behind stock price movements [10][36]. Additional Important Insights - The report emphasizes the need for clearer guidelines and stronger support for domestic demand as the anti-involution initiative progresses [10]. - The potential risks facing China's equities include a hard landing in the property market and slow structural reform progress, which could shock the market if not adequately addressed [38]. This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of the current state and future outlook of the relevant industries in China.