Jin Bin, Chairman of Maple ridge Capital: Most of China's blue-chip stocks are still attractive

Jin Bin, Chairman and Investment Director of Maple Ridge Capital

Most of the world's stock markets have seen a good return in 2019, with the Chinese market performing particularly well. However, polarization is more obvious, with consumption and growth styles leading the rise, and undervalued stocks lagging behind significantly. Since most of the undervalued stocks are more closely related to economic growth, this shows that while China's economic growth in 2019 exceeded the pessimistic expectations of the market at the beginning of the year, investors' concerns about the decline in growth have not eased.

Standing at the current point in time, from the perspective of global comparison, combined growth potential and valuation, most of China's blue-chip stocks still have greater attractiveness, especially the Hong Kong market. Pessimism about the economy and society has suppressed the valuation levels of some of the best companies in the industry, which may be an opportunity for long-term value investors. Chinese people are industrious and attach importance to education, which is the biggest driving force and guarantee for the long-term development of society, and investors may underestimate the resilience of China's economy.

The biggest risk at the economic level is that markets may be underestimating inflationary pressures. Many people think that the economy is not good, prices have long-term downward pressure, and the rise in CPI is only a short-term accident. But the downward cycle of global prices and interest rates over the past four decades comes against the backdrop of rapid economic growth. This is due to the continued decline in costs due to technological advances and the fact that free trade has enabled resources to be allocated more efficiently on a global scale. Now it's all the other way around. In this context, companies that can continue to improve their operational efficiency may be invaluable.

Fengling Capital has always insisted on choosing those high-quality enterprises with upward fundamental trends in the medium and long term, and buying when the valuation is reasonable or even undervalued. This seemingly conservative strategy, although the short-term explosive power is not necessarily strong, but in the medium and long term, the sustainability is stronger, and often can obtain a better risk-reward ratio. Looking forward to 2020, we are optimistic about three types of investment opportunities: one is some high-quality enterprises in traditional industries that are dragged down by economic growth and their valuations are suppressed; second, some industries where operating and operational efficiency can continue to improve, the market is worried about price competition, and the valuation is below a reasonable level; third, some high-quality enterprises with excellent business models, broad long-term prospects and reasonable valuations. We mainly guard against two risks: one is to misvalue the cyclical profitability of enterprises as the long-term growth of the trend; the other is to give excessive valuation levels to enterprises with medium and long-term potential, and overdraft the potential upward space.

This article originated from China Fund News