China Fund News reporter Fang Li Ye Shijie
Looking back at the development of China's capital market for more than 30 years, it is full of the continuous interweaving of new and old concepts and the improvement and innovation of market ecology, and there are several breakthroughs in system construction that take into account the times and adaptability, all the way to the magnificent and gradual innovation.
As one of the first generation of fund managers dedicated to the stock market in Chinese mainland, Wang Zhihua, who is currently the chief investment officer of Huitianfu Hong Kong with 30 years of experience, can be said to be a witness and witness to the changes in China's capital market.
As early as the early 90s of the last century, Wang Zhihua began his career in the capital market, before 2008, he served as a self-operated investment manager and industry researcher of securities companies, and was also a fund manager of the traditional closed-end funds in the early days of mainland public funds, and spent 15 years in A-shares; After 2008, after the 2007 bull market, he switched to Hong Kong stocks, successively managing China offshore mutual funds at a Chinese asset management company in Hong Kong and a Hong Kong subsidiary of a public fund, and has been managing China offshore mutual funds for 15 years.
With long-term investment experience in the two major capital markets of A-shares and Hong Kong stocks, "veteran" Wang Zhihua has established a unique set of investment concepts. In an exclusive interview with China Fund News, he said that in fact, there is no contradiction between growth and value in investment, and the core is to have a reasonable return on shareholder investment in the long run. He insists on selecting individual stocks from the bottom up and allocating them in a balanced manner.
In Wang Zhihua's view, long-term investment is a way of thinking, two or three years up 10 times the stock is not α but a big β, unless it is a sudden change in technology and business model, 10 times the stock in 10 years is the α. "β how high it rises, it will fall back; α how high it rises, it will also reach a new high, and the core is to choose high-quality stocks."
The veteran, who has been in the industry for more than 30 years, bluntly said that the Hong Kong stock market is "promising". He believes that in the medium and long term, fundamentals will still be the core dominant factor in the medium- and long-term stock price trend of Hong Kong stocks, and with the continuous improvement of fundamentals and the marginal improvement of liquidity expectations, the valuation of Hong Kong stocks is expected to return from the discount characteristics of the offshore market to the reasonable range of the onshore local market in the long run.
30 years of in-depth cultivation of the A-share + Hong Kong stock market
China Fund News: You have nearly 30 years of investment experience in the stock market in Greater China, can you talk about your investment experience?
Wang Zhihua: I officially started my securities investment career in 1993, and I did foreign exchange investment for one year before. At that time, he was engaged in securities analysis and self-operated investment in Shenzhen Securities Company, mainly responsible for investment and research in the secondary market, and also involved the investment in commodity futures. In March 1999, I joined Huaxia Fund, which had just been established for one year. I started as a researcher, and then began to serve as a fund manager of the fund Xing'an in 2001, and then managed a number of funds such as the fund Xingke and Huaxia Blue Chip Core Hybrid.
In September 2007, I quit my job at a public fund in the Mainland and came to Hong Kong in 2008, where I have focused on investing in the Hong Kong market ever since.
China Fund News: From A-shares to Hong Kong stocks, was there anything that particularly impressed you during this period?
Wang Zhihua: There are too many things that impress me. At that time, what made me feel that the big difference was that Hong Kong stocks often reacted sharply in the market after the results were announced, which was very different from the A-share market at that time. Of course, the information asymmetry in the A-share market has greatly improved.
The second thing that impressed me was that the focus of institutional investors in overseas mature markets was quite different from that of investors in the A-share market. The Hong Kong stock market is a typical offshore market, although the main business of listed companies is in the mainland, but the investors are mainly overseas institutions, and there are many types, showing diversified characteristics. From the perspective of investment philosophy and investment behavior, overseas institutional investors not only pay attention to the income statement of enterprises, but also pay attention to the balance sheet and cash flow statement, and pay attention to the substantive source of corporate profits and the quality of growth.
At the same time, as a long-term investor who buys and holds, he also pays more attention to shareholder returns, such as dividends and repurchases of listed companies, and medium- and long-term investors pay more attention to the cash returns of shareholders for the purpose of holding, which is completely different from short-term investors who buy low and sell high and win the stock price difference.
From this point of view, the PE that the market is concerned about is only a result, P/E = D/E÷ D/P, D/E is the dividend ratio, D/P is the dividend yield, pe low is often the result of the low dividend ratio, and often the result of the rise in risk-free returns leading investors to demand higher stock risk compensation (that is, higher dividend yields). Valuation with cash returns is much simpler, more intuitive and more essential than valuation with PE. For overseas investors, the ratio of dividends paid and the dividend yield may be more important to them.
This is also very obvious in the US stock market. According to Goldman Sachs statistics, the average cash return ratio of the US S&P 500 constituent stocks in the past 140 years (dividend + repurchase as a percentage of net profit) exceeded 70%, and this proportion reached 88% in the past 40 years, which is one of the most fundamental guarantees of the long-term bull market.
Our listed companies should give shareholders the most cash returns, not who will raise the most money from shareholders. A US electronics giant has been listed for 40 years, from the secondary market equity financing all added up to less than 200 million US dollars, the current annual cash return to shareholders is as high as 100 billion US dollars (repurchase + dividend), every quarter payouts. A software giant in the United States, listed for more than 30 years, the total amount of equity financing in the secondary market is less than 100 million US dollars, and the market value of 2 trillion US dollars is endogenous growth.
China Fund News: You have a lot of experience in the two markets of A-shares and Hong Kong stocks, can you talk about the difference between these two markets?
Wang Zhihua: First of all, the investor structure of these two markets is very different. A shares are mainly domestic individual investors, and institutional investors account for less than half; The proportion of individual investors in the Hong Kong market is very small, and the proportion of institutional investors has reached 80% or 90%. Secondly, most of the participants in Hong Kong market institutions are overseas institutions, and mainly European and American funds. Among the outstanding shares, the proportion of local investors is very small.
The difference in investor structure has created various differences in the markets of the two places, including investment philosophy, which has also led to differences in investment behavior and investment objectives, and investors in the two places have different requirements for the company and expectations of returns.
Insisting on Balanced Stock Selection Investment growth and value are not contradictory
China Fund News: Your experience in the industry also has an impact on your investment philosophy and investment methods, can you introduce your investment philosophy?
Wang Zhihua: My main idea is to choose a high-quality company that can bring reasonable cash returns to shareholders in the long run.
There is often a debate between growth and value in investment, but in my opinion, investment growth and value are not contradictory, and the core is shareholder return. Growth stocks require a lot of investment in the growth stage, but all growth has only one purpose, that is, to better return shareholders in the future. Just as people don't grow physically after they reach the age of 30, any company will have a process from growth to maturity. The management of listed companies needs to work hard to make more profits, this is the first step, it is the responsibility of the CEO, the second step is to continue to distribute profits to shareholders in a reasonable proportion, return shareholders, capital allocation is the responsibility of the CFO, this is a complete process, the first step is not enough. The long bull of the stock is determined by the major shareholders and management, and it cannot be decided by the minority shareholders.
A really good business model does not need to repeatedly raise funds from shareholders, on the contrary, it will continue to return shareholders; Conversely, if a company repeatedly does a large proportion of stock financing in the secondary market, it either shows that the business model needs to continue to burn money, and the return on invested capital (ROIC) cannot support endogenous sustainable growth, or the management believes that the valuation is too expensive, the stock price is too high, and equity financing is the most expensive financing method, because good stocks can rise many times, and the cost of equity dilution is too high.
China Fund News: So what type of investor do you think you are? Do you screen companies based on the dividend yield you mentioned earlier? How do you position value stocks and growth stocks?
Wang Zhihua: I am a balanced investor, and both growth stocks and value stocks will be laid out. From the bottom up, the style of different stages of the market changes rapidly, for example, in the short term, if the market's interest rates increase, then growth stocks will be under pressure to a certain extent; If inflation makes the discountable portion of future cash flow less, then the valuation of value stocks will be improved, and the original high valuation of growth stocks may have a certain return.
In general, with shareholder returns as the core, I will consider the major changes and business opportunities in the social industry pattern from a longer-term perspective. I will not invest all my money in companies in the early stages of growth, nor will I invest all my money in value stocks that are mature, both of which are more balanced stock selection methods.
China Fund News: Can you talk about your specific requirements for growth stocks? For example, what do you focus on when screening growth companies?
Wang Zhihua: Investment must invest in the greatest business opportunities. From a macro and long-term perspective, science and technology promote human progress, and the biggest business opportunities always appear in the field of new technologies that can greatly change human production and lifestyle.
In the first 50 years of the nineteenth century, almost all public companies in the U.S. stock market were financial real estate stocks; In the second 50 years of the nineteenth century, the largest proportion of the market capitalization of the Us stock market was railway stocks, and the United Kingdom was a port stock, which benefited from the improvement and popularization of the steam engine of the first industrial revolution; After the second industrial revolution, the largest proportion is oil energy stocks, which benefit from the discovery and wide application of electricity and the invention of automobiles, which have led to the outbreak of oil energy demand; After the third industrial revolution, the largest proportion is the IT technology-based computer sector, railways, oil, computers are actually different stages of the "technology stocks", each cycle lasted more than 50 years, through the entire generation.
Looking back at the history of changes in the global industry pattern in the past two hundred years, the long-term direction is undoubtedly the new economic sector. This requires us to use a macro picture from a historical height "top down" to find big business opportunities and tracks that can have a huge impact on our production and lifestyle, and also to find investment opportunities in the new economy and new technologies, such as AI, intelligent electric vehicles, new energy, life sciences and other fields through "bottom-up" mining.
China Fund News: You have been investing for such a long time, how do you insist on macro policies and the general environment and the market "wind and grass"?
Wang Zhihua: I insist on looking at investment with a long-term perspective, long-term investment is first of all a way of thinking, stocks that rise 10 times in two or three years are not α but big β, unless it is a sudden change in technology and business model, stocks that rise 10 times in 10 years are α. β how high it rises, it will fall back; Α how high it rises, it will reach a new high. Thinking about long-term investment, to think about whether the company is scalable and sustainable, the analysis of the business model is the core, followed by the recognition of the company's core competitiveness, and finally the construction of the financial model.
In addition, most of our clients are overseas investors, who are less eager to make quick profits and pay more attention to stability. Our products are also relative benefits, not absolute benefits.
China Fund News: Can you talk specifically about how you choose high-quality targets "from the bottom up"?
Wang Zhihua: How to choose high-quality targets is the homework of our investment research team every day, and it needs to be repeatedly learned. In terms of selecting companies, under the premise that the future can conform to the general direction of long-term industrial changes, we will attach importance to studying the core competitiveness, strategic policy, and execution of the entire company.
We also attach great importance to the ability of management, many things need to be done by people, and we will examine the integrity and scope of management. In addition, the company's internal mechanism is also very important, including corporate culture, talent team building and salary system will be concerned.
China Fund News: In April 2018, The Stock Exchange of Hong Kong added Chapter 18A "Biotechnology Companies" to the Listing Rules of the Main Board, allowing biotech companies with no income and no profit to submit listing applications. They are clearly incapable of providing reasonable shareholder returns in the early stages.
Wang Zhihua: The number of Hong Kong stocks in this type of company is very small, accounting for only a very small proportion, and it is also a very small number in terms of market value, and the stock price fluctuations are also very large, but there are many excellent companies. The direction we are considering is what has just been mentioned, and ultimately it depends on whether it can provide shareholder returns. At present, the domestic biomedical industry is in the entrepreneurial dividend period, and the resurgence of "returnees" and the huge market still have many investment opportunities. We are currently focusing on a small number of companies with the most competitive head.
Hong Kong stock valuations will gradually repair
China Fund News: The low valuation of Hong Kong stocks has been said for many years, what are your views on this?
Wang Zhihua: Hong Kong's offshore capital market is a product of special historical conditions, which reflects more the fundamentals of China, the world's second largest economy, and liquidity is affected by both domestic and overseas. Successive major events such as the Sino-US trade war, the new crown epidemic, and strong supervision in different industries have had a greater impact on the trend of Hong Kong stocks, making Hong Kong stocks repeatedly become a global valuation depression.
With the launch of stock interconnection and recent ETF interconnection in recent years, the familiarity of domestic investors with the Hong Kong stock market continues to increase, and the investor structure of the Hong Kong stock market may also undergo fundamental changes in the future, and the proportion of domestic investors will become larger and larger, which is also the process of long-term onshoreization and localization of the Hong Kong stock market, and the valuation of Hong Kong listed companies is expected to be gradually revalued in the future, and the valuation will slowly recover. Of course, Hong Kong stocks are still an international market and will not be separated from the reasonable valuation center of the global stock market.
In the medium and long term, fundamentals will remain the core dominant factor in the medium- and long-term stock price trend of Hong Kong stocks. With the continuous improvement of fundamental factors and the marginal improvement of liquidity expectations, the valuation of Hong Kong stocks is expected to return from the discount characteristics of the offshore market to the reasonable range of the onshore home market in the long run. In the short term, since 2022, the macro policies in overseas markets have been from loose to tight, and the performance of listed companies has declined quarter by quarter; China's macro policy is from tight to loose, fiscal and monetary continued to exert force, the performance of listed companies rose quarter by quarter, and the direction of the two cycles at home and abroad was just the opposite, which is the investment opportunity that Hong Kong stocks are worth paying attention to at present.
China Fund News: What investment directions and opportunities do you think are in the future market of Hong Kong stocks?
Wang Zhihua: Investing in the Hong Kong stock market can be considered to buy and hold in the medium and long term. In the current inflation cycle, because inflation has raised the cost of capital and increased the discount rate, the value sectors dominated by traditional economies such as energy, raw materials, utilities, and finance have made them more popular with investors in the short term, while the long-term growth sector based on future cash flow as the main valuation basis has been suppressed.
However, from an ultra-long perspective, the inflation cycle has never been a long-term phenomenon, the science and technology cycle is the enduring normal state of life, the development of the financial market continues to promote technological progress, technological progress promotes the improvement of production efficiency, and continuously reduces production costs; Globalization is a great tide that no one can stop in human history, but it is adjusted by short-term factors at different stages, which will only change the phased form and degree of globalization, and will not change the long-term direction of globalization.
In the long-term investment layout of Hong Kong stocks, we can consider both value companies with better dividend returns in the mature period and growth companies with bright future prospects in the growth period. In simple terms, in the GICS industry classification standard, 11 industries can be divided into four categories according to the criteria of income sensitivity to GDP and the average multiple of stock market valuation: the first category of critical growth (IT, optional consumption, industry); The second category of critical values (finance, real estate, energy, raw materials), these two types are suitable for holding in the economic upswing stage, which is an offensive strategy; The third category of Defensive values (telecommunications, utilities); The fourth category of Passive growth (pharmaceutical, essential consumption), which is more suitable for holding in the economic downturn, is a defensive strategy.
Risk Warning: The views and judgments involved in this article only represent our views on the current point in time, and based on the uncertainty and volatility of the market environment, the views and judgments involved may be adjusted or changed subsequently. This article is for communication purposes only and does not constitute any investment advice. Investment is risky and you must be cautious when entering the market.
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