The market will be very difficult in 2022. At the beginning of the year, we can only see that the domestic economy will adjust to a certain extent with the weakening of external demand and the consistent downturn in domestic demand. However, war, epidemic control and the Federal Reserve's unexpected interest rate hike are completely unpredictable. This has led to several miscalculations this year. In fact, in the past two years, investment risks are more due to domestic and international political factors, starting from education and training in 2021 to the end of 2022 when epidemic control is lifted.
Looking ahead to next year, we believe that the political fluctuations will be greatly reduced compared with this year, especially the fluctuations in domestic industrial policies. In the short term, there will be no policy oppression on an industry again, and the main tone of 2023 will be to recover and build up strength. The complete lifting of epidemic control has also boosted the recent substantial increase in market risk appetite. But we also think the recovery may not be as dramatic this year. Before the epidemic, China's economy was faced with the dilemma of shrinking demand, which was short-term caused by the decline of real estate consumption before the epidemic (non-policy factors), as well as the increase of unemployment and household debt caused by the epidemic. The proportion of household consumption in China's GDP is about 40%-45%, which is naturally lower than that of developed countries and many developing countries. Therefore, in 2023, when both government and household consumption are constrained, without a large amount of external stimulus, economic growth should be slowly restored. In this macro context, top-down stock-picking doesn't necessarily work, despite the relatively cheap valuations of many companies. On the contrary, we need to focus more on the fundamentals of enterprises this year, because stable macro environment is the best environment for down-to-earth enterprises, while low valuation and expectations are the best opportunity to intervene.
On the other hand, many sectors dependent on external demand and government (or state-owned enterprise) investment, as well as parts of the energy sector, are bearish opportunities this year. But in any case, in an environment of weaker global growth, where black swans could emerge at any time, cautious optimism will be the order of the year.