The Industry Rotation Strategy Based On M2 And Credit Spread With The Instance Of SWS Nonferrous Metal And Food And Beverage Indices

Industry rotation is the considerable component of sector rotation in the practice of stock market investment.Considering the various sensitivity to macroeconomics among different industries,investors can change their positions with a “top-down” method which is based on macroeconomic factors,and the efficient strategies of industry rotation can provide investors with excess returns consequently.This paper applies the idea of Merrill Lynch Investment Clock as reference to divide the entire economic cycle into different stages.From the exogenous variables of stock market,this paper chooses M2 as the representative of the quantitative dimension of the monetary conditions and credit spread as the representative of the price dimension.The ascending year-on-year growth rate of M2 indicates the easy monetary policy,and the descending growth rate vice versa.The narrowing credit spread implies the easy credit policy,and the widening credit spread vice versa.Therefore,an entire economic cycle is divided into 4 different stages: easy monetary + easy credit,tight monetary + easy credit,easy monetary + tight credit and tight monetary + tight credit.Take the investing practice in A-share market into consideration,this paper selects SWS nonferrous metal index as the representative of cyclical industries with a property of aggressiveness,and selects SWS food and beverage index as the representative of non-cyclical industries with a property of defensiveness.Based on the two industry indexes,this paper presents the strategy of rotational investment with the correspondence of different stages of economic cycle.The study proofs that the turning point of the year-on-year growth rate of M2 is 1 month beforehand the excess return of cyclical to non-cyclical industries,and the turning point of credit spread is 5 months beforehand.Furthermore,both two different rotational investing strategies as contrast outcome the buy-and-hold strategy,which indicates that the rotational investing strategies based on the monetary policies and credit work in the A-share market.