Interview with Liu Yuanhai of Soochow Fund, the "top three" fund managers of the 2023 public offering year: In 2024, we will find an investment direction around AI, and don't keep holding the investment cultivation cycle

Every reporter: Huang Xiaocong Every editor: Ye Feng

With the end of the last trading day of 2023, the annual performance of public funds has also surfaced.

If you exclude QDII products and Beijing Stock Exchange theme funds, the top three are Oriental Regional Development, Soochow Mobile Internet and Soochow New Trend Value Line, of which the latter two products are managed by Liu Yuanhai.

At the end of the year, the reporter also interviewed Liu Yuanhai of Soochow Fund for the first time to hear how the fund managers who entered the "top three" this year feel about the investment in 2023, and what are his judgments looking forward to 2024?

Looking back at 2023: the pullback after June 20 exceeded expectations

NBD: Looking back on 2023, the products you managed are ranked high, pay attention to what information you mentioned in your quarterly report before, judging that there may be a big opportunity for technology stocks in 2023, what information did you make your judgment based on at that time?

Liu Yuanhai: At the beginning of 2023, in my quarterly report, I thought that there might be opportunities for technology stocks in 2023, mainly for the following two reasons.

On the one hand, from a fundamental point of view, standing at the beginning of 2023, we believe that the AI general artificial intelligence technology represented by chatGPT technology is expected to drive global technology into a new round of innovation and application cycle, and at the same time, superimposed technology and digital economy are expected to become a new growth engine for China's economy in the next 3-5 years or even longer, so we judge that the A-share market may enter the era of technology stocks in the next 3-5 years or even longer, and we are optimistic about the technology stocks in the A-share market in the next 3-5 years or even longer。

On the other hand, from the perspective of stock price, since the CSI TMT Index peaked in mid-2015, the CSI TMT Index is still in the relatively bottom area at the beginning of 2023, and the stock price of the entire TMT sector is at a relatively low level.

From my more than ten years of investment experience, if the fundamentals of an industry are on an upward trend, and the stock price is in the historical relative bottom area, the resonance of the two factors often means that the future investment opportunities in the industry may be worth looking forward to.

NBD: Looking back at the whole year at the end of 2023, what point in time do you think impressed you the most?

Liu Yuanhai: In the first half of this year, the performance of technology stocks represented by chatGPT was relatively bright, but the CSI TMT index saw a sharp correction after peaking on June 20, and the correction was more than we expected. At this time, we are bullish on technology stocks and are facing difficult choices in our investment decisions.

However, after the review of the historical market of technology stocks, we are still firmly optimistic about the market of A-share technology stocks in the next 3 to 5 years, and believe that the short-term correction of technology stock prices is not due to changes in industrial trends, but more caused by market trading behavior. From the experience of the PC Internet era and the mobile Internet era, when the technology industry has a killer product or technology-driven technology enters the innovation cycle, the duration of the technology stock market may be 5 years or even 10 years, and the technology stock index may rise 5 times or even 10 times.

We believe that the general artificial intelligence technology represented by chatGPT is expected to drive the world into a new round of innovation cycle and enter the era of artificial intelligence, and technology stocks in the A-share market are expected to perform well in the next 3 to 5 years or even longer, so we still adhere to the view of bullish technology stocks in the second half of 2023.

Looking forward to 2024: optimistic about AI computing power and applications, electronic semiconductors, and automotive intelligence

NBD: How do you see the A-share market in 2024?

Liu Yuanhai: Looking ahead to next year, it is expected that the economy may stabilize and rise, domestic policies are expected to continue to support, and the global interest rate environment may become more friendly. At present, after a 2-3 year adjustment period, the market valuation level is also at the bottom of history, and AI may also accelerate the development of applications and hardware, storage HBM, advanced packaging, semiconductor industry chain and other industrial trends are relatively clear, satellite Internet, humanoid robots are expected to enter the stage of cashing from 0-1, and at the same time, with the continuous transformation of the mainland's economic structure, the market may also be looking for the next round of technological innovation industry. If energy prices can remain relatively stable, subsequent interest rates may continue to fall, and when the market gradually improves, opportunities in various sectors are also expected to be more diversified, and the long-term growth of the industry itself may receive more attention. The market has also undergone a correction of nearly 2-3 years, and there may be no need for further pessimism in the current position.

In the future, the mainland's high-end manufacturing is expected to gradually accelerate, AI+, the gradual expansion of the satellite industry chain is also a trend, intelligent driving, humanoid robots are also expected to be in a gradual improvement stage, and AI+ has an increasing impact on the manufacturing industry, and the trend of emerging industries is also expected to become more and more clear.

NBD: The AI market is hot in 2023, will it continue in 2024?

Liu Yuanhai: Looking forward to next year at the current point in time, we are still relatively optimistic about the investment opportunities in technology stocks represented by AI artificial intelligence. In the past, every round of technology market originated from the emergence of killer technologies or killer products in the field of science and technology, and promoted global technology into a new round of innovation cycle. Wind data shows that in this process, the technology stock index has risen 5 or even 10 times, and the market has lasted for 5 or even 10 years.

At present, AI artificial intelligence technology represented by ChatGPT technology may have "killer" product characteristics - technical versatility and wide user coverage (to C and to Therefore, AI artificial intelligence technology is expected to drive global technology into a new round of innovation and application cycle, and at the same time, the digital economy is expected to become a new growth driver for China's economy in the next 3-5 years or even longer, so we judge that the A-share market may enter the era of technology stocks in the next 3-5 years or even longer, and we are optimistic about the technology stocks in the A-share market in the next 3-5 years or even longer.

NBD: There are many subdivisions in the technology track, how to grasp the main line of technology investment?

Liu Yuanhai: From the perspective of the main line of investment, we believe that the main line of investment in A-share technology stocks may still focus on the main line of AI, and we are relatively optimistic about the following three major investment opportunities that benefit from the development of AI technology: AI computing power and applications, electronic semiconductors and automotive intelligence.

First of all, there are three reasons for AI computing power and applications. First, from the perspective of historical experience, the probability of the stock price adjustment and time in place of the AI sector since June is relatively large; second, the performance of AI computing power began to be released in the third quarter, and the growth in the next two years is relatively certain; third, after the third and fourth quarters, AI multi-modal large models and AI applications are expected to be launched one after another, and the development of the AI industry is expected to enter a new stage of development.

Secondly, electronic semiconductors. From the perspective of historical experience, the general electronic semiconductor cycle is about four years, that is, the upward cycle of the industry is about two years, and the downward cycle is also about two years. The latest round of the global electronic semiconductor cycle is from June 2019 to the middle of this year, just four years, from the perspective of the time cycle, the global electronic semiconductor industry is expected to enter a new round of cycle. According to the Semiconductor Industry Association (SIA), global semiconductor sales in October 2023 were -0.7%, significantly narrower than -4.5% in September. Judging from the mesoscopic data of the industry, the inflection point of the global electronic semiconductor industry may have appeared, and the industry boom has shown a bottoming out trend.

In addition, both domestic and overseas leading IC design companies basically indicate that the inventory of electronic semiconductors has bottomed out, and demand has gradually recovered in the fourth quarter. At the same time, generative AI mobile phones and PCs are expected to drive a wave of replacement, thereby catalyzing the recovery of the electronic semiconductor industry. And the current A-share electronic semiconductor industry index is in the relative bottom area in recent years. Looking forward to the future at the current point in time, we are gradually optimistic about the investment opportunities in the A-share electronic semiconductor industry.

Finally, the car is intelligent. We judge that the level of automotive intelligence in the future may be the key to the competitiveness of vehicle manufacturers, and the trend of domestic automotive intelligence industry is expected to enter the 1-N growth stage from the 0-1 cultivation stage next year. From the perspective of investment experience, the growth stage may be a relatively good period for industry investment, so the investment opportunities for automotive intelligence may also be worth paying attention to.

Talk about investment: Cultivate the cycle as a theme, fast in and fast out, don't hold it all the time

NBD: What is your investment philosophy?

Liu Yuanhai: My investment philosophy is to dance with the times, grasp the alpha of the times, and strive to find the dominant industry in each era. I define myself as an industry trend investor, specifically, by dividing the stage of the industry. In my investment framework, it is generally divided into three stages according to the industry penetration rate: cultivation, growth and maturity. Many industries have the indicator of penetration: when the industry penetration rate is within 10%, especially 5%, the industry is basically in a cultivation cycle. When the penetration rate exceeds 10%, it enters the growth stage.

The cultivation stage is basically that the market expects that a certain industry may be very good in the future, and the industry is just in a cycle of technology cultivation, and the stock price is expected to rise in the last round. But when it rises to a certain extent, the market finds that it will not be able to cash in the next year or many years, and the stock price may all fall back. Therefore, in the cultivation cycle, do it according to the investment idea of the cultivation cycle, don't buy it all the time and fall back in the end, and ride a roller coaster.

The growth cycle is the most critical cycle, and we can be relatively positive for the industry in the growth stage, because this stage is likely to see a significant increase in performance, which will bring about an increase in the company's future profits.

I am an industry trend investor, and when I do industrial research investment, I attach great importance to the maturity of each industry, because the investment logic is different at each stage. The cultivation cycle is to do it according to the theme, fast in and fast out. Growth cycle, there may be opportunities to share in the overall earnings realization.

NBD: The investment in technology stocks fluctuates greatly, and some technology stocks have high valuations, how to grasp them?

Liu Yuanhai: As far as the pricing of technology stocks is concerned, after years of experience, I should not only pay attention to dynamic PE, but also pay attention to the medium and long-term market capitalization space. In the early days of investing in tech stocks, I focused on dynamic PE, which is based on sell-side or my own earnings forecasts, and ended up missing out on some quality stocks. Later, I also reflected that when the boom industry enters the boom cycle or the technology industry enters the boom cycle, I will finally find that the profit forecast may exceed market expectations.

A relatively reasonable pricing model is to give a medium and long-term market value space. We can measure a medium-term market size, and then give a company a reasonable share, a reasonable profit margin to calculate its medium and long-term profits, and then give a reasonable valuation level to calculate the future market value space, and then compare with the current market value space, it is possible that the market value space can reach two or even three times, so don't care too much about PE.

NBD: Growth stocks, especially the technology industry, have always been more volatile, and there are many stocks that have risen well in the first half of this year, and they have returned to the starting point of the beginning of the year in the second half of the year. What do you think about this volatility and how do you control volatility and risk?

Liu Yuanhai: The technology industry is a high-beta industry, and the stock price volatility of technology stocks is significantly higher than the market volatility. Due to the large imagination of the technology industry, when the market risk appetite is high, the market may usually reflect future expectations in stock prices in the short term. When the market is bad, because the performance cannot keep up with the stock price performance, the stock price correction may be relatively large.

When it comes to drawdown control, I usually take two approaches to lower drawdowns. First, in the selection of individual stocks, I usually focus on the leaders of the subdivided industries. From an empirical point of view, in the context of the upward trend of the industry, the probability of leading stocks outperforming the industry index is relatively large. But when the market is falling, the leading stocks tend to fall less than the small caps. Second, I will set a medium- to long-term target market value for technology stocks. If the price of a technology stock rises sharply due to an increase in market risk appetite and reaches or approaches my target market capitalization, I would consider taking profit somewhat.

National Business Daily