On January 9, the first China ESG Forum Roundtable session invited representatives of the financial and retail industries to exchange views on the theme of "ESG Investment Practices and Challenges". Ni Hong, Quantitative Investment Director and Managing Director of the Asset Management Department of China International Capital Corporation Limited, attended and expressed his views. He proposed that ESG investment is the trend of the times and should be judged from different time levels.
Ni Hong (Photo by Cao Haipeng)
Ni Hong believes that ESG cannot generate stable cash flow in the short and medium term, and it cannot become a very effective alpha factor, which is more like a style factor in the short and medium term. Data in recent years show that the global ESG ETF inflows have shown a trend of sustained and rapid growth, and the scale has grown from less than 10 billion US dollars five years ago to more than 200 billion US dollars now, and it is expected to flow at least 100 billion US dollars per year in the future. The influx of investment funds will inevitably bring about the return of the underlying stocks, so in the long run, ESG as an alpha factor is in line with the long-term investment philosophy.
Round table (Photo by Zhao Yuntian)
Ni Hong proposed that quantitative investment is based on a large amount of data, using mathematical models for systematic investment, and the process includes three steps of income forecasting, portfolio construction and algorithmic trading. The key to income forecasting is to find alpha factors, that is, to find and excavate the laws and principles of stock price fluctuations, and to predict stock returns; building a portfolio refers to the combination of stocks with different alpha factors at the style level, these style factors include stock industry factors, market value factors, growth factors, etc. Quantitative investment generally requires the stock portfolio to achieve a style balance; algorithmic trading is to automatically submit stock trading to the stock exchange through machine algorithms, and optimize transaction costs.
Ni Hong suggested that ESG investment can use ESG high-quality companies as a pool of stocks in similar industries, indices, etc., and select stocks with excess returns from them, which can bring better returns to investors.