On the afternoon of March 22, 2024 (Friday), the seventeenth issue of the "Financial Globalization in the Era of Dual Circulation" series of salons hosted by the Hong Kong Top 100 Research Center and co-organized by Hong Kong Finet and Uweb was held in the form of online live broadcast + on-site sharing.
The meeting specially invited Dr. Yang Delong, consultant of the Hong Kong Top 100 Research Center and managing director of Qianhai Open Source Fund, to share his wonderful views, and the following is a transcript of his speech:
It is my pleasure to share with you today some forward-looking analysis of the current economic situation and the capital market. We analyze from both domestic and international perspectives. This week can be said to be a super week for central banks, starting with the Bank of Japan announcing the end of its 17-year negative interest rate policy and the start of interest rate hikes, officially bidding farewell to the era of negative interest rates. The Bank of Japan's interest rate hike has had a certain impact on the global capital market. Judging from the Fed's statement, the Federal Reserve decided not to raise interest rates at the interest rate meeting in March, but did not start to cut interest rates, but remained unchanged at the high interest rate level of 5.25%~5.5%. The Fed said that the timing of the rate cut could be in May or June, and the number of rate cuts could be three times. If it cuts rates by 25 basis points at a time, then the Fed could cut rates by 75 basis points this year. The Fed's interest rate cut will have a greater impact on the global capital market, because once the Fed starts to cut interest rates, it will trigger a pullback in the dollar index, which will promote the appreciation of non-US currencies, including the RMB. Generally speaking, the process of RMB appreciation will bring global capital inflows, so it is beneficial to the trend of A-shares and Hong Kong stocks.
Now, however, the Fed is also faced with a dilemma. If interest rates are cut too early, it may lead to a resurgence of inflation, and if interest rates remain high without cutting interest rates, it will affect the economic growth rate of the United States, which in turn will affect American residents and businesses. So now the Fed is actually in a dilemma, but the trend of rate cuts seems to be certain. At present, the three major US stock indexes have hit new record highs, mainly due to the strong performance of technology stocks.
U.S. technology stocks, represented by Nvidia, showed a new high trend, which offset the possible impact of the downturn in economic growth to a certain extent. The Japanese stock market has seen a certain correction after hitting a new high. If the Bank of Japan continues to raise interest rates later, the impact on Japanese stocks may be greater. Because Japan's benchmark interest rate is still the lowest in the world, with a benchmark interest rate range of 0 to 0.1%, Japanese money is low-cost for many funds. If there are multiple rate hikes, it may make the level of interest rates too high.
In addition, gold prices have also hit record highs recently, and the reason behind the record high gold prices at home and abroad is that in addition to the expectation that the Federal Reserve will cut interest rates, a very important point is the turbulence of the international situation. So now the Russian-Ukrainian conflict has a long-term trend, and it has not yet reached the negotiating table, and the Palestinian-Israeli conflict is still ongoing, which will affect the mood of safe-haven funds. Therefore, the impulse of safe-haven funds to buy safe-haven products such as gold in the early stage, coupled with the increase in gold reserves by central banks of various countries, including the People's Bank of China, has also increased the demand for gold, so the new high in gold prices has its profound background.
Judging from the domestic economy, there is no doubt that the mainland's economy will recover this year and continue to grow. Last year, the mainland's GDP grew by 5.2 percent, which was achieved from a low base the year before. This year's government work report proposes that GDP growth should reach about 5%, so in order to achieve such a growth rate, we need to continue to make efforts in this regard. Since the mainland's economic growth in the first two months has not yet reached this target, further efforts are needed in this regard.
On the one hand, we will continue to exert efforts in fiscal policy, and this year we may raise funds through infrastructure projects with a focus on ultra-long-term government bonds. On the other hand, more demand is being unleashed by promoting large-scale equipment refreshes and trade-ins of home appliances. Now the CPI is just over 0, and the price trend is still relatively low, mainly due to the lack of demand. It's important to find ways to boost demand right now. Real estate investment has been negative for many years, so the growth rate of infrastructure investment has been dragged down by real estate. This year, in order to boost the performance of real estate, but also to prevent overheating, including in real estate sales to be relaxed in a timely manner, including the first and second tier cities, the restrictive sales policy for real estate should be gradually canceled to attract more rigid demand.
On the other hand, it is to increase financial support for real estate enterprises to avoid the risk of capital chain rupture or even bankruptcy, so as to resolve the systemic risk of the real estate market. When the growth rate of real estate investment is difficult to perform well, government investment must play a stimulating role, and local debt risks must also be resolved in a timely manner. At present, there are not many local governments that have funds for infrastructure construction, so the central government should give certain support in terms of funding sources and build some important infrastructure related to the national economy and people's livelihood.
It should be said that the traditional infrastructure is very mature, and high-speed rail and highways are already the world's leading. There is still a lot of work to be done in terms of new infrastructure in the future. For example, the information superhighway and the construction of 5G base stations are all future directions. There are also popular artificial intelligence and large models, which also require a lot of energy and money to do. New energy vehicles have become an advantageous industry in the mainland, and the development of new energy vehicles requires the construction of supporting charging piles, which is also part of the new infrastructure. Through the construction of new infrastructure, the mainland can get more development in scientific and technological innovation.
Just now, Mr. Jia Kang has explained in detail some important connotations of new quality productivity. My understanding is that the key to new quality productivity lies in empowering traditional industries with scientific and technological innovation, and creating more economic growth points by promoting the development of new economy enterprises.
The key points of new quality productivity are "new" and "quality". Among them, "new" represents scientific and technological innovation, and "quality" represents high quality. Compared with traditional productivity, new productivity is mainly empowered by technology. When the Internet appeared, we realized Internet+, that is, using the Internet to improve the production efficiency of traditional industries and stimulate more growth.
Now, artificial intelligence is emerging, and many industries will realize AI+ in the future, using AI to empower traditional industries and improve the production capacity and efficiency of traditional industries. This will bring more breakthroughs for future development, which is conducive to achieving sustainable growth, and then achieving GDP growth of around 5%. In terms of policy this year, it is expected to gradually increase efforts. At a time when the market is divided between long and short and many people still have confidence, we should remain confident and patient. If the economic growth rate is lower than expected in the next few months, the policy may continue to exert force, and the policy is worth looking forward to.
Considering that the current A-shares and Hong Kong stocks are at the bottom of history, while the stock markets of the United States, Europe and Japan are at a record high, when global capital considers the cost-effectiveness and risk-return ratio, some funds may flow out of the high-level European, American and Japanese stock markets this year and enter the A-share or Hong Kong stocks for bottom-buying. This is a very important aspect this year, because when global capital seeks investment opportunities, it is not only looking at the foreign market, but also the Chinese market. Recently, a number of international investment banks, including Goldman Sachs and Da Mo, have expressed positive views on China's stock market, showing their recognition of the current value of high-quality assets in A-shares and Hong Kong stocks.
Northbound funds also showed a net inflow after the Spring Festival, which is a positive sign. Now the A-share market has appeared eight consecutive days after the completion of the policy bottom and the market bottom, and after the national team has stepped up its efforts to rescue the market, it has successfully stood at the 3,000-point mark. However, after standing above 3,000 points, the market is still divided between long and short, resulting in a trend of repeated shocks, which once again tested the support of 3,000 points. Historically, 3,000 has been broken and climbed several times, but the market has been running much less below 3,000 than above it, and the downside is less than the upside. Therefore, the market is actually still at the bottom of history at 3000 points, so there is no need to worry too much.
Valuations in the current market are still very low, with a P/E ratio of around 12x, which is a very low P/E level from a historical perspective.
If we look at this layout in the medium to long term, now is still a good time to deploy some high-quality stocks or funds. Of course, at the moment, I call on everyone to continue to increase their efforts to enter the market, completely reverse the trend of the market, and form a bull market trend. In this way, more investors will be attracted to the capital market.
In fact, there is no shortage of investment funds among Chinese residents. According to statistics, in the past three years, banks have added nearly 20 trillion yuan in new resident deposits each year, and an increase of 60 trillion yuan in three years. The large increase in residents' deposits shows that there is a lack of confidence in investment and consumption. Once the A-share market and the Hong Kong stock market get out of the structurally advantageous market and form a money-making effect, it will inevitably attract a large transfer of residents' savings.
In the past, residents' savings flowed to the property market, and in the future, I think the capital market will rise, and the stock market can bring a steady stream of incremental funds to the stock market, which is a major trend. However, to attract residents' savings to the capital market, we must let everyone see the reform of the capital market so that the market is an open, fair, and just market. There has been good progress in cracking down on violations of laws and regulations.
Now, Wu Qing, chairman of the China Securities Regulatory Commission, has carried out a series of reforms since taking office. On July 15, the China Securities Regulatory Commission issued four policy documents, strictly supervising from IPO to listed companies, encouraging listed companies to repurchase cash dividends to give back to investors, and at the same time cracking down on violations of laws and regulations. These measures are all institutional reforms for the long-term healthy development of the capital market, which may release institutional dividends.
On the other hand, the market should form a money-making effect and form an upward trend. In fact, this condition is now in place, because the economy is recovering, and investor confidence is gradually recovering. If it can rise by 10~20% at this time, many stocks may rise by 30~50%, which will drive more investors to increase the allocation of high-quality stocks or funds in A-shares and Hong Kong stocks. Of course, while saving A-shares, I also recommend taking care of Hong Kong stocks, because the linkage between A-shares and Hong Kong stocks is very strong, and the price difference between A-shares and Hong Kong stocks is relatively large. If the performance of Hong Kong stocks is weak, it will also drag down the performance of A-shares.
By increasing the holdings of some important index ETFs of Hong Kong stocks, such as the Hang Seng Technology Index and the Hang Seng International Index ETF, it can drive Hong Kong stocks to rebound and form a linkage with A-shares. This will consolidate the results of the A-share rescue and make the structural bull market of A-shares and Hong Kong stocks more stable.
We have always advocated the concept of value investing. In fact, the essence of value investing is to choose a good industry, a good company, and then choose a good price to buy. However, under normal circumstances, good industries and good companies are not cheap and will be sought after by many people. Therefore, if you want to get a good price, you must wait until the market falls irrationally and continues to be sluggish, and then you can generate a good price. A-shares and Hong Kong stocks have continued to fall in the past two or three years, and the prices of many high-quality stocks are only three to four percent off their highs, which is the time to buy a good price. Every May Day, I try to go to Omaha to attend the Berkshire Hathaway shareholders' meeting, and on May 4 this year, the shareholders' meeting will be held as scheduled, and I will also bring some investors to the United States to attend the meeting. But sadly, Munger was unable to attend this year because he left us last November, but Munger's thoughts are alive and well.
We hope that through this global investment hot event, everyone will strengthen the concept of value investment and insist on value investment. Because in the long run, value investing is the magic weapon to achieve long-term investment success. Doing value investing allows us to seize the historical opportunity and lay out these good companies at the bottom. An important connotation of value investment is contrarian investment, that is, when the market has a relatively large decline and the price of good companies is relatively low, dare to go against the current, including some good funds, but also dare to reverse the layout. Of course, value investing is easier said than done, especially after the market has continued to fall, and many people are not confident. At this time, whether you have the courage to reverse the layout actually determines success or failure.
We can simply look at the fact that many stocks are actually companies with good fundamentals and leading positions in the industry. In the long run, their performance growth will drive the stock price to a new high. So this year, a main investment line is the valuation repair of a good company, for example, its current price is three folds of the high, and even if it is repaired to six folds of the high point this year, it will be doubled. If it can reach a new high in two to three years, it will triple in two to three years, and the annualized income will be very impressive. Therefore, in order to obtain excess returns, reverse layout is a very important method.
But in order to achieve reverse layout, there are still three aspects that need to be paid attention to, which is also said by Templeton, a well-known value investment master. The first is to wait for the market to be extremely pessimistic, and to invest contrarianly when it is desperate. In fact, I have seen it before the Spring Festival, and before the Spring Festival, there was a thousand shares in the market, and many investors were very desperate. Later, this trend was reversed after the national team increased its rescue efforts, so it must have been a good point for reverse layout at the time.
The second point is that we must reverse the layout of good companies and good assets, and ensure that the company can survive and wait until the economy recovers. In this way, these companies will rise back in the future, or even reach new highs.
The third point is that after the reverse layout is done at the bottom, it must be held for a long enough time, and you can't expect a relatively large rise in the short term.
Templeton has been very successful in value investing throughout his life, and his average holding time is 4 years, so we have to be a little more patient and a little more confident at this time. On the one hand, you must dare to lay out at the bottom, and on the other hand, you must choose a good company to lay out, and you must hold it for a long enough time. In this way, you can really get a good return on your investment. So doing value investing is actually a test of everyone's mentality and patience.
In fact, there is not much clue about which companies are good. From the perspective of economic transformation, the industries that can continue to grow in the future are mainly concentrated in three areas: one is the consumption field, the other is the new energy field, and the other is the technology field. These three areas are the main touchpoints for future growth.
We are all part of the market. But why are some people able to make money in these advantageous areas, while others can't? In fact, it is mainly a question of mentality, that is, do you dare to buy these good companies when they are on sale, and do you dare to lay out them when everyone is talking about stock changes?
Recently, I have also been to many places to give reports to high-end customers of banks, and I have also learned about everyone's investment sentiment, and I really lack confidence. Many people have no confidence in future investment, and even the recent subscription of some funds at 0 yuan actually reflects that the mood of investors is already at the freezing point.
I have shared with you a very important reference indicator before, which is the issuance of new funds. That said, investor sentiment is actually a good contrarian indicator. When investor sentiment is particularly low, when it goes to the freezing point, it is often when the price of good assets is cheap, and it is time to do value investment. On the other hand, when everyone is in high mood and wants the market to rise every day, this is often a time when the bubble is relatively large. We have seen the past few times when new fund issuance was particularly hot, and that was the high point of the market. For example, the 5,000 points in 2015 and the high point of the market in February 2021 are basically sold out on Mondays, and even more than 10 billion on one day. Conversely, when the market fails to issue new funds, and many people are reluctant to enter the market, it is an opportunity.
So I will give you an 8-word investment motto: people abandon me to take, people chase me to abandon. When everyone is afraid to touch stocks, we must dare to lay out, and when everyone is chasing stocks, we must stay away from them. This is a very important method of value investing, which has been tried and tested in the market. Because the A-share market is still dominated by retail investors, the herd effect is very obvious. And in the long run, most investors lose money, and a small number of investors make money.
So if you follow the crowd and follow everyone else, you don't dare to buy when others dare not buy it, and you also seek it when others are chasing it, then you are the majority of the people who lose money. The metaphor I wrote before, to be an unsocial sheep, don't follow the crowd, then insist on independent thinking, insist on reverse layout, so that you can truly achieve value investment.
So at this stage when the current market is already in a stage of repeated shocks near 3000 points, it is recommended that you also watch more and move less, maintain a good attitude, and wait patiently for the market to pick up.
I believe that with the strengthening of the expectation of economic recovery, with the continuous increase in policy level, and the national team's efforts to rescue the market, the market will usher in a second wave of upward attack after a short adjustment, and some high-quality leading stocks or high-quality leading funds that have been wrongly killed will usher in an opportunity for valuation repair. Then the Year of the Dragon should be a year with a stronger money-making effect compared to other years, so everyone must maintain confidence and patience.
The continued downturn in the market over the past three years has fully reflected various pessimistic expectations. The so-called only three things, then this year the market will continue to develop and usher in a better transformation effect. I also wish you all good luck and good return on investment in the Year of the Dragon.
Adhere to value investment, from a global perspective, the masters of value investment are generally longer-lived. Munger has said before that value investing is actually better and simpler. We will focus more on the long-term value of the company and less on the short-term stock price fluctuations, which will avoid anxiety and be able to maintain good sleep quality, so that we can maintain our health and live longer.
Therefore, I also wish everyone to stick to value investing, maintain a good attitude, maintain good health, and fight a beautiful turnaround in the Year of the Dragon.
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