What is a traditional cyclical industry?

The characteristic of cyclical industries is that product prices fluctuate cyclically, and the market price of products is the basis for corporate profitability. In a market economy, the basis for product price formation is the relationship between supply and demand, not cost. Cost is only a stabilizer for the lowest price of a product, but it is not the basis for decision-making. The characteristic of the market economy is the equalization of industry investment profits. If the investment profit rate in a certain industry is high, then some people will invest. If there are more people investing, the investment profit rate will decrease, and so on.

The characteristic of cyclical industries is not the cyclical fluctuations in product prices, but the cyclical fluctuations in the prosperity of the industry. The most obvious ones are cement, real estate, textile and other industries.

Banks have high entry barriers, and most countries have strict restrictions on the issuance of bank licenses. Therefore, the cyclicality of banks is not caused by the high average profit margin of the industry, which leads to an increase in investment in the industry, an increase in the number of companies in the industry, and fierce competition. But because banks are the capital channel and the largest indirect financing channel for the whole society, they are closely related to the economy of the whole society. Therefore, a country's economic cycle will inevitably significantly affect the banking industry, causing the banking industry to be a cyclical industry.