From December 5th to 7th, the Phoenix Finance Summit was held in Beijing, and it is reported that the summit was themed "Breaking the Situation and Rebirth", and many guests from the political and business circles attended by Liang Zhenying, Shang Fulin, Yin Yong, Li Yang, Song Zhiping.
Chen Zhiwu, director of the Asia Global Institute of the University of Hong Kong, said at the "2020 Phoenix Finance Summit" that there should not be too much policy intervention to do a good job in the capital market. Because the more policy intervention, the more capital markets can not distinguish between good companies and bad companies.
Chen Zhiwu believes that after too much policy intervention, good companies and bad companies are punished at the same time, or rewarded at the same time, it is easy to form a capital market where bad money drives away good money. When there is less policy intervention, institutional investors and individual investors are more motivated to make different investments, choose different companies, do more detailed research, and do selection. Because in the case of little policy intervention, the more selective, the better the availability of α. At that time, the entire capital market will become a market for real good money to drive away bad money.
Chen Zhiwu said that policy intervention cannot be too fierce, can not be too much, too much will confuse the capital market and investment strategies.
The following is the full text of Chen Zhiwu's speech:
Hello friends, I am Chen Zhiwu. Because of the epidemic, I can't go to China and attend this very important meeting on the spot, and I'm very sorry. First of all, thank you for inviting me to the Phoenix Finance Summit this year.
This year's COVID-19 pandemic is an extraordinary time, and as vaccines slowly roll out, the coming months could have very deep implications for friends in the investment community. Because value investing has not performed well in the past few years, especially during the epidemic in 2020, this year is a very good and excellent year for investors who are looking for some big high-tech stocks, but for traditional value investing, this year is a very bad year. However, with the stabilization of the epidemic and the slow introduction of vaccines, it has been clear in recent weeks that some pro-cyclical industries have seen value investment in catching up relatively quickly. Many friends may be thinking, value investment has caught up in the past month, pro-cyclical industry has caught up in the past month, is it too late, there is no opportunity to catch up again? Not necessarily, because after the adjustment of the arrangement of cyclical investment, it should be the next one or two years, and there are still opportunities for value investment.
I would like to share with you three points, focusing on some of the things experienced during the COVID-19 epidemic in 2020, about the investment market, about the basic principles of the capital market.
First, I want to emphasize that in the period when policy intervention is very strong and very much, it is often necessary to follow the general trend, that is, to pursue index investment and pursue β, rather than having to make a lot of stock choices. Because the more policy intervention, the more difficult it is to α, spend a lot of time doing a lot of stocks, or specific individual asset evaluation, research, compared with the period of less policy intervention, the value of choosing individual stocks and choosing companies may be much less than usual.
By the end of last month, for example, the overall performance of the global hedge fund industry this year was up 2 percent cumulatively, compared with the U.S. SP500 up 12 percent and the Nasdaq up 35 percent. It can be seen that the broad-cap indices of these stock markets, especially the large-cap indexes of the technology industry, are much better than the average performance of the hedge fund industry, which in itself further illustrates that at a time when policy intervention is very strong, proactive investment arrangements actually outweigh the losses. Because you are doing very hard, it is better to follow the general trend, so the policy market is often the era of β investment, rather than the era of pursuing α, when the benefits of selecting individual stocks and individual assets may not be too much.
This also brings some lessons to the regulators and policy administrators of the capital market. This year's experience tells us that if we want to do a good job in the capital market, there should not be too much policy intervention. Because the more policy intervention, the more capital markets can not distinguish between good companies and bad companies. After too much policy intervention, good companies and bad companies are punished at the same time, or rewarded at the same time, it is easy to form a capital market where bad money drives away good money. When there is less policy intervention, institutional investors and individual investors are more motivated to make different investments, choose different companies, do more detailed research, and do selection. Because in the case of little policy intervention, the more selective, the better the availability of α. At that time, the entire capital market will become a market for real good money to drive away bad money. Therefore, the first lesson of this year is that policy intervention can not be too fierce, can not be too much, too much will confuse the capital market, the investment strategy, and finally it is easy to make the capital market into bad money to drive away the market of good money, this is the first feeling I want to share with you.
The second feeling is that this year, various countries, from the US Federal Reserve to the European Central Bank, to the central bank of Japan, to the central bank of India, including the Chinese Bank, the central banks of various countries, have made a lot of intervention in the capital market and the financial market. Each country competes to see who launches quantitative easing, the amount is larger, the speed is faster, and the governments and financial departments of various countries have also made the capital market rise a lot through substantial fiscal stimulus, but such an operation will bring bad results.
I don't know if you have noticed that after the coronavirus crisis, the wealth of the rich has increased a lot this year, while the wealth of the poor has not increased much this year. The reason is very simple, the central banks and financial departments of various countries continue to release water, and constantly rescue the market and the economy through fiscal stimulus, which makes the US stock market continue to reach new highs and the price of the bond market continues to rise. The financial assets of other countries have also risen a lot as a result of policy interventions, resulting in the breaking of very important historical laws.
As far as I know, many historians have done a lot of research on the changes in the wealth gap and income gap in human history in the past few hundred years, one or two thousand years, and they have found that in human history, every time there is a great plague, the price of assets in general, especially the price of financial assets, will fall a lot. It shows that when the great plague occurs, the rich people are affected, and their wealth will be greatly affected, while those who do not have money have no assets and no wealth, so if the assets shrink, the impact on them will not be much.
But in 2020, the modern governments, modern central banks, and modern ministries of finance in various countries can take the initiative to intervene in the market, and as a result, the great plague not only did not make the wealth gap and income gap smaller, but also further widened the wealth gap because of the intervention policy and quantitative easing policy.
Everyone is wondering whether the future world order, geopolitics, and relations between countries will become more peaceful after the end of the new crown virus, or will it be worse and conflict-ridden, especially whether domestic populism in various countries will rise and whether the political order will improve. If you hope that after the epidemic, the populism in various countries, the domestic political structure, and the social unrest in the country will be calm, I think your wishes will be difficult to achieve, and you will be disappointed.
The reason is that under the pressure of the new crown virus, various countries have further widened the gap between the rich and the poor through quantitative easing and finance, and after the income gap and social grievances have increased, in the next 5 or 10 years, I think the social situation in various countries will be worse and not optimistic. Because this year, various countries have done too much stimulation and rescue in order to solve short-term challenges, and the result has laid a lot of bad volts for the political situation and state-to-state relations of various countries in the next 5 or 10 years. This year, financial assets have risen a lot, and you will feel very happy and happy. But don't forget that there may be more risks, more crises, in the future. This is a very big lesson that I have felt and experienced this year.
The third point, which is very prominent under the epidemic this year, is to let people see that the modern economy is actually a winner-take-all economy. If before the epidemic, everyone did not feel a very strong winner-take-all economy, then I believe that one of the most prominent feelings in 2020 is the situation of the leaders of various industries eating the whole industry.
This can be seen by the performance of the stock. As of the past few days, the stock of Tesla in the United States has risen almost 5.5 times, Amazon's stock has risen 70% this year, and the stocks of Netflix, Google and other head companies have risen by more than fifty percent, and some have risen by more than thirty percent, all of which are much higher than the large-cap index. In an environment like this year and in the future, which may be winner-take-all, the more you follow the bulls, the better the return on investment may be.
Of course, this has a lot to do with technological change, and without technological change, the winner-take-all situation would not have been possible to this extent. In the 1960s and 1970s, there was no television in Chaling, Hunan, and there were no videotapes or audio tapes. Chaling who sings the best, people are willing to spend money to buy tickets. But with tv, no one is interested in local singers and sports stars anymore, and everyone watches the best singers in the province and the best basketball games in the province. Further with CCTV, and other provincial and municipal TELEVISION stations across the country, who are the best singers and the best basketball players, everyone is only willing to watch them.
Further to the past 20 years, with the continuous sublimation of globalization, the television stations in various countries have been opened, and the film industry has also been opened, so that today, everyone is only willing to watch the blockbusters of Hollywood stars, watch basketball games and only watch the basketball games of the United States NBΑ, and pay little attention to local, county, regional, municipal, provincial, and even professional basketball games in China. From these personal experiences, because of technological changes, a winner-take-all situation has been reached. What used to work within a county, then in the province, then in the whole country, has now become the effect of using technology on a global scale to maximize the investment that winner-take-all can bring. During the new crown virus this year, especially let everyone see more based on physical outlets to consume and online shopping consumption, the impact of winner-take-all is very large.
As an example, it turns out that you opened a grocery store in the Asian Games village in Beijing, and things can sell well. But no matter how well you open and market in the Asian Games Village grocery store, people who live in Shanghai, who live in Tianjin, who live in Wuhan, it is not easy for them to come to your Asian Games Village grocery store to buy things. This is because consumption based on physical outlets requires a plane or high-speed train and then a car. But if you open an online store, it doesn't matter whether the consumer is in Shanghai, in Wuhan, in Tianjin, in Harbin, or in Beijing. That's why the income gap and the wealth gap are getting bigger and bigger, which has a lot to do with technology.
On the other hand, from the perspective of investment, with the support of the modern economy and modern technology, winner-take-all lets people follow the leaders of various industries, especially the leaders of the Internet industry, follow them to invest and invest in them, which will be the best choice in the long run.
Okay, that's it, thank you.