Yunzhou Capital
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Carry forward the past and forge ahead into the future - do a good job in investing in the era of "high-quality growth".
Carry forward the past and forge ahead into the future, and do a good job in investing in the era of "high-quality growth".
In the past few years, the stock market has continued to adjust, and at the same time, the past "growth investment" has encountered great challenges, how do we deal with this situation? The challenges of the times are something that everyone has to face, and today I would like to give my answer.
We fully recognize that this is an era of high-quality development, and it will be a huge opportunity to base the investment framework on balanced growth, select stocks from the perspectives of prosperity and quality, and obtain the return on investment of high-quality listed companies.
We are very confident in the market, firstly, the extreme optimism at the beginning of 2021 was incorrect, but now the extreme pessimism on China's economy and China's high-quality listed companies is also wrong. Second, the low-speed GDP growth does not mean that the equity market has no opportunity, we look at the United States Apple, when the revenue growth rate is not high, but the stage when the stock rises more - the core is "high-quality growth", with profits, cash flow, buybacks and dividends. Third, the outperformance of the passive index in the past three years is phased, the economy has completed the structural transformation, and the future active stock selection will still create excess returns - the reason is also very simple, our economic road is bustling, there are not many businesses that can flourish for a long time, and making good business choices can obtain a return rate that is far better than the market.
Investment framework and stock selection ideas
When it comes to investment frameworks and how to pick stocks, I've long adhered to two principles. First, there is only one correct way to select stocks in the world, which is value investment, that is, to recognize the law of change in enterprise value, analyze the value of enterprise stocks, invest in enterprises and then form a portfolio. Second, in terms of investment portfolio, we need to do a good job in understanding the background of the times and continue to iterate - we have made adjustments in stock selection, so that we can move towards a long-term correct understanding of corporate value, and then go positive and stable.
In the past, we only focused on economic growth, emphasizing the rapid explosion of the industry, the breakthrough of the technology curve, and the policy support for a small range of industries. In the context of the new era, the rapid outbreak of large-scale industries has become scarce, and the breakthrough of the technology curve is also very local, and most industries have entered a mature stage. In addition to economic growth in the future, we will select growth stocks from the perspective of "high quality", and select stocks with low valuations from the perspectives of business essence and shareholder returns. The dual perspectives of prosperity and quality to support stock selection and portfolio.
Based on the changing background of the times, we adjusted the investment stock selection framework to balanced growth Long Only after summarizing the lessons learned. First, we will find opportunities in a balanced way across industries, and will not be limited to the technology field. The second is to select individual stocks and return to the source of corporate value. The third is to move towards a long-term investment path, and select stocks from the perspectives of industry prosperity investment and high-quality growth of enterprises. We hope to do a good job of focusing on stock selection long investment, the current overall market position is relatively low, on this basis to do stock selection long investment, we are confident to achieve better returns in the future.
Looking forward to the era of "high-quality growth".
China's economy has bottomed out in an L-shape. The bright spot for the economy in the first half of the year came from exports, from our strong manufacturing sector. However, in the second half of the year, exports are facing double challenges, one is what stage has the replenishment cycle of Europe and the United States begun in the second half of 2023? U.S. housing and consumption data have all begun to decline in the second quarter of this year. Second, in the 2024 election year, trade protectionism will spread around the world, China's strong exports will encounter widespread trade barriers, and considering the downward trend of real estate for more than three consecutive years, the adjusted rental yield of housing prices in various places will begin to level with the yield of 10-year government bonds, so the L-shaped bottom of the economy can basically be judged.
But it is too early to judge "Tai Lai". The crux of the current domestic economy is the lack of domestic demand and persistent price deflation.
First of all, the problem of insufficient domestic demand, the main body of spending money is residents, enterprises, local governments and the central government, in the situation of weak spending willingness of residents and enterprises, fiscal stimulus policy is needed, but due to the debt constraints of local governments and the central government's "strong tendency to delay stimulus", fiscal force in the second half of 2024 needs to be cautiously optimistic.
Second, the core of the problem of continued price deflation is that China, as the world's largest producer, produces goods that are either sold for export or consumed domestically. The current state of affairs is that exports are subject to tax increases (similar to price cuts), domestic demand is sluggish, and upstream raw material prices are rising more – the result is greater margin pressure on midstream manufacturing, such as photovoltaics, lithium batteries and other industries.
Of course, China is a huge economy, and there are still structural highlights worth paying attention to, one is exports, despite facing trade barriers, but the Belt and Road Initiative, Asia, Africa and Latin America, overseas factories and other multinational enterprises with Chinese characteristics continue to expand. The second is a small number of fiscal expansion directions of domestic central enterprises and governments.
In terms of the stock market, both A-shares and Hong Kong stocks are in a position of low historical valuations, and more importantly, the capital market reform of the "National Nine Articles" has brought about a new era of changes. The "National Nine Articles" emphasize the improvement of the quality of listed companies, and the second is to promote institutional investors to do long-term "patient capital". When the regulatory authorities comprehensively promote the improvement of the quality of listed companies in terms of shareholder returns, and at the same time, the investor group also establishes a bidding mechanism for stocks from the perspective of shareholder returns - rather than short-term growth, thematic concepts, small market capitalization, high volatility, etc., when the "bidding mechanism" of our market is fully centered on value investment, this marks that we are beginning to move towards a mature market, although we will experience pain in the short term, this is a good thing in the long run.
We are currently focusing on investment opportunities in three directions:
The first is the Internet industry under high-quality development. China's Internet industry has experienced serious involution and labor pains in the past few years, but now this group of enterprises is moving towards a better state. 1) Begin to reduce ineffective involution and improve the quality of development. 2) Increasing shareholder returns has become common, whether it's share buybacks or dividends. 3) The investment and application of domestic Internet giants in the field of AI is second only to that of American technology giants in the world, and the effects of AI applications have begun to appear in 2024.
The second is the high-quality development of central and state-owned enterprises. The improvement of ROE and dividend rate of central and state-owned enterprises will be a long-term process, and in the era of low and medium economic growth, more stable central and state-owned enterprises will be a long-term source of investment opportunities.
The third is the end-to-end application of AI. The explosion of AI computing power in the cloud is the most important investment opportunity in the AI industry in 2023-2024. Looking forward to the second half of 2024 to 2025, the implementation of AI on the end side is the focus of attention, which is mainly reflected in the rapid growth of demand in the field of consumer electronics on the end side, as well as the second stage, that is, the explosion of AI 2C applications after the penetration rate of AI mobile phones increases by 2026.
In the era of high-quality growth, we follow a balanced growth framework and look for good investment opportunities that we can understand in several promising directions. It is difficult to predict how the market will go in the second half of the year, but we can do a few things that can be done well, find a few that we can understand, and at the same time have reasonable valuations, industry opportunities, and opportunities for the company's revenue and earnings growth, and believe that we can ultimately obtain a better return on investment.