Liquidity levels are ahead of the general manufacturing sector

Another question that needs to be answered is the relationship between cyclical changes in general manufacturing fundamentals and their market performance. Since the expected sustainable growth rate is relatively stable, the valuation center of the sector is often determined by the fundamental expectations in the short term, so the market valuation level will change when the expectations emerge. As credit expansion and inventory changes are significantly forward-looking, the current characteristics of credit lending and inventory reduction represent the confidence of economic recovery and market recovery, and in a certain cycle, there will be changes in individual indicators are more leading, so the market performance of the general manufacturing sector is often ahead of fundamental changes. In inventory and M2, we choose the change of M2 to compare with the excess return of general equipment, because M2 also represents the tightness of liquidity and is closely related to the stock market. From the historical data, compared with the change of general manufacturing fundamentals, the change of M2 is more related to the excess return of general manufacturing sector. M2 is not only ahead of the general manufacturing fundamentals, but also has a strong lead on the general manufacturing sector’s excess return.

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Where the current general manufacturing recovery stands

The inventory cycle leads the general manufacturing cycle by about five quarters

Through the inventory level, we can judge the recovery progress of the general manufacturing fundamentals. At present, industrial enterprises have gradually completed the transition from active destocking to passive destocking, and inventory will continue to be eliminated throughout the year. Compared with the finished goods inventory of industrial enterprises, the finished goods inventory PMI and raw material inventory PMI can be further divided into four inventory cycle stages: passive destocking – active restocking – passive restocking – active destocking. At present, PMI of raw material inventory has begun to decline, while PMI of finished goods inventory is still rising, which indicates that in the case of declining sales of finished goods, enterprises take the initiative to reduce raw material procurement. In addition to the inventory decline cycle in 2015, due to the supply-side reform, the inventory of finished goods and raw materials rose and fell at the same time, and there was an active destocking stage in 2008, 2012 and 2019. During this period, the growth rate of finished goods inventories of industrial enterprises continued to decline, and then entered the passive destocking stage, and the recovery cycle came. According to the historical law, with the decline of the inventory of finished products, the inventory cycle will enter the passive destocking stage, and the inventory destocking time is expected to remain at least 1 year or so, and the industrial enterprises will gradually recover.

According to the lead time of inventory levels, general automation is expected to usher in a new round of growth cycle in the fourth quarter of 2023. According to the previous analysis, the growth rate of finished goods inventory of industrial enterprises is usually significantly ahead of the prosperity of the main products of general automation. In order to measure the lead time, we compare the correlation coefficient between the inventory growth rate of different leading months and the growth rate of general equipment, and comprehensively compare the situation with metal cutting machine tools, metal forming machine tools and industrial robots. It is concluded that the growth rate of finished goods inventory of industrial enterprises is generally about 15-16 months ahead, and the growth rate of finished goods inventory of industrial enterprises in May 2022 has declined at an inflection point, and has continued to decline since then, so we expect that the fourth quarter of 2023 general automation equipment will usher in a comprehensive growth inflection point.