"Whether a market is good or not depends on whether small and medium-sized investors can have a sense of gain in it, and at least someone can pay attention to their interests.
Our strategy has always been relatively simple and transparent, and has always followed the principle of 'three lows and one high', that is, low valuation, low attention, low growth, and a high degree of certainty about the improvement of fundamentals.
I really can't find a reason to convince myself that in such a position, I can't see the bottom or where the market inflection point is...... The choice (to sell) is made for these reasons.
Making investments is still based on a high probability of events. ”
The above are the main views shared by Xia Junjie at the 2024 annual strategy meeting of Renqiao Asset Management this afternoon (January 30).
Looking back on his outlook for 2023 a year ago, Xia Junjie summed up 2023 with "gains and losses".
In the volatile and downward market, the reverse positive return has made many investors have higher expectations for Renqiao. Although it will only be a slight loss in 2023, it will break the record of continuous positive returns for many years, so that Xia Junjie expressed his apologies at the beginning of the exchange, "I really feel the pain, so I can retain a deep memory."
In the past two years, Renqiao has not released any new products, and only opened old products.
Xia Junjie reflected that in 2023, the preconceived optimism and the strain that he is not good at, coupled with the increase in the scale of Renqiao, will make his trading awareness and ability tend to decline, and "the action is still slow".
He mentioned that the lack of awareness of the tail risks of many large-cap companies has cost him a lot.
For example, following the logic of industry reversal, Xia Junjie locked in a Hong Kong consumer electronics leader in the first half of 2023, but the final investment results were not ideal, because he underestimated the lower limit of corporate earnings in the trough period and the volatility of Hong Kong stocks.
Real estate is the biggest blood loss point in Renqiao in 2023, and it has been losing blood for two consecutive years, which Xia Junjie classified as "a wrong investment". Some other industries with advantages in the past, such as medicine and insurance, have not performed as expected.
Some industries in the portfolio with low valuations have earned him considerable income in 2023, and operators have performed well throughout the year.
We flipped through Renqiao's monthly product report and could see that Xia Junjie's words and deeds were consistent in asset allocation.
Judging from the Renqiao Jinxuan Zeyuan Phase 5 (established in August 2020) managed by him, the overall position at the end of last year was about 95%, nearly 6% of the portfolio was in A-shares, and about 36% in Hong Kong stocks.
In terms of industry allocation, there are four industries accounting for more than 10%, namely non-bank finance, building decoration, medicine and biology and automobiles, and non-ferrous metals are less than 5%. Among them, the performance of architectural decoration in March and April, as well as the performance of non-silver in July, made Xia Junjie more satisfied.
Looking forward to 2024, Xia Junjie shared his views on the topics that are most concerned about current investment:
First, the trading advantages of quantitative funds will not be eternal, and the characteristics of "can stabilize fluctuations and cannot find value" will bring some problems in the long run, and large-capitalization stocks represented by the SSE 50 and CSI 300 are significantly undervalued, and it will be more difficult to find opportunities in growth in the future, but the opportunities still exist;
Second, looking at the trend of China's real estate in the context of the U.S. real estate cycle, we should not be overly pessimistic about the total transaction volume of the mainland real estate industry in the medium and long term. In the future, the transaction volume of first-hand and second-hand houses will be in a process of ups and downs, and China will be no exception.
Third, "consumption will not be postponed forever, after all, human life is limited", in the future, everyone will usher in a more rational consumption era, and many products with IQ tax will gradually be eliminated. For example, clothing, cosmetics, and even some wine companies, the business model may have to be reshaped. Those products that are cost-effective, practical and functional will stand out.
As an important carrier of consumption, most of the Internet companies have passed the period of rapid growth, but they are still valuable, even according to the pricing system of pure value stocks, they are currently in a state of significant undervaluation. Moreover, many companies are still growing tenaciously by expanding their boundaries and reducing costs and increasing efficiency.
Fourth, Renqiao's future investment in technology companies follows two ideas: domestic companies focus on the innovation cycle and customer structure of the company's products, and overseas companies try to invest in global leaders who can lead innovation, have pricing power, and have a more stable pattern.
Fifth, many people are currently pessimistic about the entry of incremental funds. However, Xia Junjie believes that although the initial amount of personal pension accounts is not large, the long-term potential is huge;
In the Q&A session, Xia Junjie shared his thoughts on dividend index, Hong Kong stock investment, and pharmaceutical non-ferrous AI industry. He said that in the future, Renqiao will consider increasing the allocation of pharmaceuticals, "low valuation, high dividends" will still be the core holdings this year, and consider expanding the scope of investment to overseas markets.
Xia Junjie revealed that Renqiao has just taken back a special account product and renamed it "Renqiao Exploration", and plans to use his own money to do various forms of exploration in the future. It may be to explore overseas markets, or it may be to explore tools, such as hedging.
In this exchange, Xia Junjie's review of 2023 and outlook for 2024 were detailed in the investment memorandum released at the beginning of the year.
This time, the smart investor focused on his Q&A session, and shared it with you in its original form, giving you a glimpse of the latest thinking of this contrarian investor.
Investor-oriented is the most essential thing
Q: In an interview last week, the leaders of the China Securities Regulatory Commission said that it is necessary to highlight the investor-oriented approach so that investors can have a real sense of gain. The State-owned Assets Supervision and Administration Commission (SASAC) has also proposed to include the management of capital contributions in the performance appraisal of the heads of central enterprises. What do you think of this statement, and what impact will it have on the market and investment?
Xia Junjie: This is a very important matter, and I think the level of leadership that came up with this policy is quite high. It is only natural that the investment market is investor-oriented.
A very important judgment of whether the market is good or not is whether small and medium-sized investors can have a sense of gain in it, at least there should be a fair treatment, and someone can protect their interests. At the very least, someone has to look at his interests.
In the past, when I was researching, I often encountered the management of some companies, who did not have a very good attitude towards investors, and were unwilling or disdainful of communication.
In fact, if this is not good, it will also be countered by the market to a certain extent.
First, if you do this, you will never have a strategic investor who will be with you for a long time, and you will never get this kind of partner.
The reason why the value retention rate of shared bikes is so low is that none of the people who use it feel that they actually own it. When all your small and medium-sized shareholders don't think together and work together, your company will definitely be useless for a long time.
Second, all excellent companies must have great respect for investors.
I believe that with such a culture, it will be difficult to respect our customers, suppliers and even employees in the future. This kind of behavior will eventually make the business rotten.
It's something very essential. Personally, I value it very much, and I hope that these things can be implemented eventually.
In the era of low-growth investment, dividends are even more important
Question: Many central state-owned enterprises and enterprises with Chinese characters have performed relatively well in the past short period of time, how do you view the future trend of the dividend index? Will they continue to hold or buy in the future?
Xia Junjie: In the keynote session, I mentioned that in the future, in a low-growth investment era, this kind of dividend is very important.
You didn't care about three or five points of dividend income before, but in the future I think everyone should care, and this income may be a very important part of your return.
On the one hand, I think it depends on the current policy orientation, whether it is the China Securities Regulatory Commission or the State-owned Assets Supervision and Administration Commission, both require enterprises to do more dividends, buybacks, etc., and use practical actions to return investors.
On the other hand, what else can this sector track?
This kind of dividend company may be more common in Hong Kong, objectively speaking. Hong Kong's Hang Seng Index now has a dividend yield of 5 points, and an index has a dividend yield of 5 points! If it can be sustained, these stocks in Hong Kong will theoretically be better.
Hong Kong stock investment is still relatively attractive
Q: In the past period, the overall performance of Hong Kong stocks has been weak, and many investors are pessimistic about Hong Kong stocks. Renqiao still has a position in Hong Kong stocks, how do you view the investment opportunities in the Hong Kong stock market?
Xia Junjie: In 2021 and 2022, we made money in the Hong Kong stock market, but we lost money last year.
Objectively speaking, Hong Kong stocks have caused us certain fluctuations, and in the past year or so, Hong Kong stocks have indeed made a negative contribution.
However, we will still stick to the investment in Hong Kong stocks, because the current Hong Kong stock market provides lower valuations;
Secondly, the dividend yield of many companies in Hong Kong stocks is much higher than that of the A-share market. There are a large number of central state-owned enterprises, the market value may be only 1/3 of some domestic enterprises, or even lower, these companies are definitely more valuable.
If you want to observe when the future inflection point of the market will come, the Hong Kong stock market may be clearer than A-shares.
The adjustment of positions follows the principle of "three lows and one high".
Q: What is the basis for the contrarian strategy to judge the position and under what conditions will the position be adjusted?
Xia Junjie: Our strategy has always been relatively simple and transparent, and has always followed the principle of "three lows and one high", that is, low valuation, low attention, low growth, and a high degree of certainty in the improvement of fundamentals.
All of our actions, such as opening positions and selling stocks, follow this standard.
When the market position is relatively low, we can screen out a lot of companies according to this standard, and our position will be relatively high at this time.
When the market point is relatively high, there will be fewer companies that can be screened according to this standard, and our positions will be required to be lowered.
The future of the pharmaceutical industry will be stable rather than explosive
Q: How do you judge the pharmaceutical industry at present?
Xia Junjie: We have a configuration for medicine, and it may increase in the future.
In the pharmaceutical industry, I believe that the most certain type of asset in the future is the total number of varieties that can represent the entire industry and determine the benefits in the stage of China's overall aging. Because the rate of population aging is fixed, the growth rate of demand for drug dosage and other aspects is relatively certain.
Investing in such a volume-oriented industry should be stable growth in the long run, and it cannot be expected to be an explosive growth. If you believe that the industry is growing steadily, there are still plenty of stocks to choose from.
This is my first idea for the pharmaceutical industry, and it is also one of the core positions of our current allocation of medicine.
Another way of thinking, I think we also need to look at some growth stocks with high valuations in the past, after two years of sharp valuation drops, now slowly enter a visible area.
Although some stocks are still in the process of falling by inertia, these companies are still competitive companies. As long as you don't expect them to grow by 30 or 40 percent a year, and turn them down, I believe that these companies are still valuable somewhere, and it is achievable to share in their mid-to-high growth.
Therefore, in the future, we will also find some targets from the bottom up in this area.
There is pressure on the gold price and will reduce the allocation to gold
Q: Do you continue to be bullish on non-ferrous metals and precious metals-related opportunities, and what do you think they will do in the future?
Xia Junjie: In the past two years, our investment in precious metals has been quite successful, but it has also decreased a lot.
The core reason is that if there are no geopolitical events this year, the United States should still be in a state of partial deflation.
Gold is pegged to real interest rates in the United States, so there is pressure on gold prices, at least this year. In this case, the allocation to gold is reduced.
Moreover, even if the price of gold can rise, the correspondence between the price of gold and stocks may change.
Both the research side and the product side are expanding, and the future is not limited to the Chinese market
Q: You mentioned in your investment memorandum that you will be familiar with more asset classes and explore different investment strategies and tools in the future.
Xia Junjie: This year, whether it is from the research side or the product side, we are making adjustments. Recently, there has been a large-scale combing, and there is a real need to integrate some companies in other markets.
In short, we still need to expand our research capabilities beyond the Chinese market.
Although it may not be a good time to expand the market at present, because other markets are "high", only our market is still lying in the "pit", but a lot of work needs to be done in advance.
As a result, our researchers, including myself, are "forced" to study some of the overseas companies, but this also requires a combination of each person's circle of competence and the suitability of the strategy itself.
Since the beginning of this year, one of the biggest tasks of our investment research has been the sorting out of this work, which is a very detailed matter.
On the product side, we took back the previous special account and renamed it "Renqiao Exploration", hoping to use our own funds to carry out various forms of exploration, not only limited to overseas investment, but also include other tools, such as hedging, etc., but only stay in the exploration stage.
Once this aspect is mature, or a circle of competence is formed, and there is a certain methodology, it will be gradually exported to the products I manage.
To make an investment, it is still based on a high probability of events for layout
Q: At present, the market as a whole is more pessimistic, if the market continues to be irrational (down), what will be the impact on the extreme market environment and product risk control?
Xia Junjie: If the market continues to be pessimistic, or even goes to extremes, it will be difficult for us to avoid this situation well. This may still be the case even if this is repeated in the future.
As I said earlier, I really can't find a reason to convince myself that in such a position, [because] I can't see the bottom, or I don't know where the market inflection point is, I don't have confidence...... The choice to make (to sell stocks) for these reasons may not be acceptable to me.
Of course, we will pay close attention to all the risk control requirements of these products, risk control is our first "hard gate", and we will never let this "hard gate" have problems, such as some risk events.
However, I admit that it was a very painful process. If it happens, it should be a very unlikely thing.
However, the investment should still be laid out according to the event with a high probability. If you always follow the layout of events with a very small probability, the investment results are accidental, and this is not a sustainable business.
To be honest, I've been in this industry for many years, and every time there is a bear market, I've seen someone who has managed to escape it perfectly.
In 2008, some people escaped, in 2015 the stock market crash was also avoided by people I know, and in 2018, some people I knew did not suffer losses, including ourselves.
But all these people I know, in the end, are the same. No one has such a strong ability to choose the right time, dodge in the high position, and come back in the low position. Those who hide in the past will either be planted in other locations in the future, or they will never come back when they are at the bottom.
Therefore, making an investment is still based on a high probability of events.
Opportunities in AI should be actively sought, but market capitalization and valuations still need to be matched
Q: You mentioned the issue of investment involution of AI companies, what work will be done on the investment and research side, and will you pay attention to investment opportunities in this area?
Xia Junjie: These companies in the United States are definitely leading the way in AI at the moment. The country started slowly, it was relatively backward, and it was currently subject to some restrictions, which is the current status quo.
But no matter what, if AI has great development in the future, there will definitely be an explosion of large-scale downstream application scenarios. So in the long run, it will indeed change a lot of business formats and industry structures, as well as all aspects of our lives.
But the premise is that it must be a very intelligent AI.
In the early days, we will pay more attention to where the application scenarios will fall. Some of the heavier scenarios that can be seen now are still on the hardware side, such as AI mobile phones, AIPC and AR, etc., and we need to pay attention to whether there are some relatively big breakthroughs.
Intelligent driving is a very important direction. Although our intelligent driving construction logic is different from Tesla's logic, I believe that AI will be a general direction in intelligent driving in the future.
So, in these areas, we should actively look for opportunities, but we still need to match market capitalization or valuation.
In the future, it will definitely be more difficult to find growth stocks, and it is likely that the final growth will be found. It is necessary to be both diligent and cautious.
"Low valuation, high dividend" remains a core position this year
Q: In addition to the Internet, are there any other areas of concern, and what new directions will be focused on in the future?
Xia Junjie: Looking at the overall portfolio, we do care more about valuation constraints, so these assets with low valuations and high dividend yields are still our core holdings this year.
In terms of incremental layout, there are some very good growth companies in the pharmaceutical field, and there are also some companies that were very good in the past in the consumer field. As [these companies] continue to squeeze their valuations, these companies are basically being abandoned.
At this time, I think it is necessary to take another look at whether these companies can be included, including Internet companies, which are areas that need to be studied in the future.