Which industries have better prospects for "anti-involution"?

Anti-involution - one of the hottest terms this year, is also becoming an important direction for current policies.

Although the direction of the policy "anti-involution" is clear, the fate of different industries is heading towards diverging paths. On July 12, a report from Huatai Securities indicated that the effectiveness of "anti-involution" will significantly vary across industries. Industries with severe losses, such as photovoltaic batteries, have clear short-term bottoming opportunities; state-owned enterprise-dominated industries like steel and coal are looking for higher-level unified guidance; while industries with a high proportion of private enterprises, such as home appliances and machinery, have uncertain capacity prospects.

Huatai Securities expects that companies in the photovoltaic and battery industries have a high willingness to cooperate, which is likely to form a short-term price bottom, but whether it can be sustained depends on whether companies can continue to cooperate and whether mergers and reorganizations can proceed smoothly; industries like steel, coal, and complete vehicles are looking for higher-level unified guidance, with more elasticity on the demand side; industries like home appliances and machinery, where private enterprises have a high proportion and profits still have room for persistence, have uncertain capacity prospects.

The more severe the losses, the more willing to "anti-involution": for example, the battery and photovoltaic industries

The more severe the losses, the more willing to cooperate; state-owned enterprise-dominated industries respond the fastest; the prospects in areas densely populated by private enterprises remain to be seen - Huatai Securities' five-dimensional indicators reveal the survival rules of industries under the "anti-involution" policy, which include enterprise ownership structure, industry concentration, profit status, cost curve, and demand prospects.

In terms of enterprise ownership structure, Huatai Securities believes that industries with a higher proportion of state-owned enterprises have advantages in policy coordination, with higher cooperation in energy consumption control, elimination of backward production capacity, production reduction, storage funds, and mergers and acquisitions. As of 2024, the proportion of state-owned enterprises in the coal industry is as high as 84%, 64% in the steel industry, and 41% in the military industry, while the proportion of state-owned enterprises in industries such as photovoltaic equipment, home appliances, and pharmaceuticals is relatively low, at only 6%, 16%, and 16%, respectively.

Regarding industry concentration, a higher concentration indicates stronger control by leading enterprises, lower communication and coordination costs, and effective production reduction through consensus actions. The concentration in the machinery, automotive, and home appliance industries is relatively high, reaching 79%-80%, while the concentration in photovoltaic equipment, wind power equipment, and light manufacturing is relatively low.

In terms of profit status, the profit status of enterprises is the primary factor influencing their willingness to cooperate. The more severe the losses and the lack of improvement expectations, the stronger the motivation for cooperation. The proportion of loss-making enterprises in the agriculture, forestry, animal husbandry, and fishery industry is as high as 73%, while the proportions for photovoltaic equipment and battery industries are 46% and 41%, respectively, indicating a relatively high willingness to cooperate, possibly already at the bottom of the cycle, while the proportions of loss-making enterprises in home appliances (12%), automotive (16%), and motors (17%) are relatively low

These differentiated patterns will directly affect the formation time of the "price bottom" in various industries and the sustainability of policy effects.

Three Types of Industries Have Different Prospects: Photovoltaics and Batteries Expected to See Short-Term "Price Bottom"

Based on the above analysis, Huatai Securities categorizes the industries into three types.

1. Industries such as photovoltaics and batteries have relatively weak profit performance. We expect that the willingness of enterprises to cooperate may be relatively high. Combined with factors such as enterprise Capex, they may currently be at the bottom of the cycle, and the opportunity for a short-term "price bottom" to form is relatively clear. However, the number of enterprises, the proportion of private enterprises, and concentration also imply that there may be fluctuations in supply-side capacity. The variable lies in whether enterprises can continue to cooperate after price recovery and whether mergers and reorganizations can proceed smoothly, while the elasticity depends on demand expectations.

2. Industries such as steel, coal, and complete vehicles have a relatively high proportion of state-owned enterprises. If there is higher-level unified guidance in the future, it is expected that production cuts will proceed smoothly, making it easier to form a "price bottom." However, the demand outlook for industries such as steel and coal still depends on real estate trends, while demand for complete vehicles depends on consumer policy arrangements and endogenous momentum, indicating that their price elasticity remains to be observed. Attention should be paid to incremental information regarding real estate, urban renewal, and policy finance.

3. Industries such as home appliances and machinery have a high proportion of private enterprises, and profits still have room for persistence. The willingness of enterprises to cooperate in capacity reduction may still need to be observed. We believe that the overall anti-involution effect and price trends in these industries are still unclear. In addition, most of these industries belong to end products (consumer goods and capital goods), and the strength of endogenous demand (rather than the intensity of policy subsidies) is also a key influencing factor.

"Anti-involution is not the end, but the starting point of a new cycle," the report points out. After the short-term pain, only a true recovery in demand can achieve the transmission loop of "policy bottom → price bottom → profit recovery → capacity optimization."

Market Chain Reaction

This industrial change is triggering a repricing in the capital market. Huatai Securities points out that the "anti-involution" policy has a more direct impact on bulk commodities. From the perspective of basis rate, there are opportunities for basis recovery in high discount varieties such as coking coal, alumina, rubber, and industrial silicon. From the cost perspective, varieties such as polysilicon, industrial silicon, lithium carbonate, and glass that are close to or below the cash cost line may have the first opportunities for recovery.

The stock market presents a threefold logic: the photovoltaic and battery sectors focus on the turning point of capacity clearance, the steel and coal sectors bet on policy intensification, while leading home appliance and machinery companies attract risk-averse funds due to resilient end demand. However, Huatai Securities reminds us: "Greater elasticity needs to wait for the demand side to take over. Currently, it is advisable to grasp structural opportunities rather than trend-based markets." ”

Volatility in the bond market may increase. Historical experience shows that the early stage of supply-side reform often presents a combination of "price bottoming + production convergence," with limited room for interest rate increases. However, if this round of policies resonates with real estate relaxation, the risk of adjustment in the bond market will significantly rise.

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