China Fund News reporter Fang Li Cao Wenjing
The A-share market has recently ushered in a long-awaited surge, but the market has adjusted again after the National Day, and the Shanghai Composite Index has lost 3,300 points. Under the ups and downs, investor sentiment fluctuates, and the divergence between long and short is also increasing. Is the future "long bull" market expected? Which sectors can become the main investment line of this round of market in the future? Is it still a good time to "get in the car"?
In this regard, a reporter from China Fund News interviewed seven fund managers, they are Wang Guizhong, research director and fund manager of Harvest Technology, Gao Nan, chief equity investment officer of Yongying Fund, Li Yin, professional director of investment management department I of China Merchants Fund, Yuan Hang, deputy general manager and fund manager of equity investment department of Penghua Fund, Lei Zhiyong, deputy director of equity investment department of Morgan Stanley Fund and manager of Da Mo Digital Economy Fund, Liu Weiwei, manager of China-Europe Times Win-Win Fund, and Fan Jiarong, fund manager of Southern Development Opportunities One-Year Hold.
The interviewed fund managers believe that the market liquidity has improved significantly under the boost of intensive policies, and the sharp decline after the market has risen and fallen is a normal decline. Combined with the current valuation and future growth expectations, A-shares have very high investment value in the world's major securities markets, and are optimistic about AI, pro-cyclical, biomedicine and other sectors. They also reminded investors to look at market changes and fluctuations rationally and insist on rational investment.
Policy shift
A-share valuations quickly recovered after the overfall
China Fund News: After a period of large-scale growth, the A-share market adjusted last week and fell below 3,300 points. How do you view the recent sharp rise and fall of the A-share market?
Li Yin: The recent sharp rise and fall in the market reflects the large divergence of the overall expectations of the two parties on the future. We believe that after a short period of sharp ups and downs, the market will gradually return to a relatively balanced state and gradually stabilize, entering a relatively volatile stage. There are a number of new variables to be observed in the future, including economic fundamentals and the continued rollout and implementation of future policy packages.
Lei Zhiyong: The A-share market swept away the decline and achieved a sharp reversal before and after the National Day, the direct reason is the intensive catalysis of blockbuster policies, and the essential reason is the undervaluation and underallocation of assets. Boosted by intensive policies, market liquidity has improved significantly. The sharp fall after the "Wulianyang" is a normal decline after a rapid rise, and there is no particularly significant negative effect, and there may still be phased systematic valuation repair opportunities in the future.
Gao Nan: This round of rising market is mainly due to the rapid recovery of A-share valuations after the over-fall in the context of policy shifts. In the past two years, the market has continued to be sluggish, the total demand of the domestic economy is weak, and the market confidence is insufficient. This round of policies includes the central bank's support for liquidity by cutting the reserve requirement ratio and interest rates, as well as the statement of the Political Bureau of the CPC Central Committee on countercyclical adjustment at the meeting of the Political Bureau of the CPC Central Committee in September, as well as the introduction of innovative tools that directly support the stock market, which has effectively boosted market confidence. In this context, the entry of incremental funds has pushed the market up rapidly. However, after rising for several days, on the one hand, some profit funds have taken profits, and the withdrawal of overseas funds has also had an impact; On the other hand, some investors are worried about the strength of the follow-up fiscal force, which has led to the market rising and falling.
Wang Guizhong: The recent introduction of a series of policies has a sustained effect on boosting market confidence and improving and repairing market valuations. More importantly, China's economy has solid fundamentals, and the development of many industries has a clear development logic. From the perspective of valuation, although the overall valuation of A-shares has been repaired under the recent surge, the valuation of the current major indices is still far from the historical pivot level. It is recommended that investors look at market changes and fluctuations rationally, dilute short-term speculation and timing, and adhere to rational investment and long-term investment.
Yuan Hang: There are many factors for this round of rapid rise, including further RRR and interest rate cuts, multiple measures to boost the capital market, promote real estate to stop falling and stabilize, and the Federal Reserve to cut interest rates; Fundamental factors are like oxygen, which are easy to ignore but extremely important, including the extremely low valuation of A-shares after a long-term adjustment, the fact that China's economy has a vast market, a complete industrial system, abundant human resources, and a solid foundation for development, and that the Chinese market has high-quality enterprises that are enterprising and innovative.
Volatility tends to increase after a rapid short-term rise in assets, and the stock market is no exception. It is of little significance to judge the ups and downs of a week or two, and it is more important to grasp the direction and trend in the medium and long term.
Liu Weiwei: The meeting of the Political Bureau of the CPC Central Committee on September 26 reversed the market's expectations for the domestic macro economy, and also activated the incremental capital of foreign investment, domestic institutions and residents. In the past two to three years, these funds have been underweight to China's equity assets. The stimulus of the policy, the undervaluation of the market itself, the rapid dissemination of information and other multiple factors have superimposed, making all kinds of funds panic increase positions, the Shanghai Composite Index rose nearly 27% in six trading days, and the trading volume also hit a record high. After the rapid rise in volume, A-shares showed a pullback. We believe that this pullback is relatively healthy and does not necessarily represent the end of the trend, and the near-term correction is expected to make the market more sustainable.
Fan Jiarong: The sharp short-term volatility of the A-share market reflects the unstable state in which confidence in the capital market has begun to gradually recover against the backdrop of continued weakening. Confidence and anticipation have self-reinforcing characteristics. Recently, the central bank, the National Development and Reform Commission and other relevant departments have successively issued a number of policies, and the biggest role for the capital market is to break the self-reinforcing cycle of pessimistic expectations and look at the medium and long-term prospects of the domestic economy with a more positive attitude. In the early days of confidence recovery, it is normal to have big ups and downs. We can be more optimistic about the medium- to long-term outlook for capital markets.
Optimistic about the medium and long-term trend of A-shares
China Fund News: At present, the market is quite divergent between long and short, what do you think about the market outlook? Is this rally the starting point of a bull market? Is the "long bull" market expected?
Li Yin: From the perspective of economic fundamentals, we believe that we have entered the end of this round of downward cycle, and there is an endogenous driving force for the macro economy to gradually stabilize and rise. In addition, with the gradual introduction and implementation of monetary policy, fiscal policy and industrial policies in all aspects, combined with the internal cyclical upward momentum of the macroeconomy itself, the macroeconomy may usher in a round of recovery cycle, and the market may enter a new upward stage.
Lei Zhiyong: The rapid and sharp rise in the early stage may be difficult to sustain, but due to changes in market expectations, the probability of the market index returning to the trend decline in the first three quarters is also low. In the short term, the divergence begins and may gradually transition to a fundamental-driven market. In the medium and long term, it is necessary to observe whether the performance of listed companies improves with the support of monetary and fiscal policies; If the domestic economy and the performance of listed companies continue to improve, the "long bull" can be expected.
Gao Nan: In the medium and long term, we continue to be optimistic about the market outlook. The short-term volatility in the market is mainly due to disagreement over the subsequent economic recovery. With the gradual introduction and implementation of subsequent fiscal policies, the domestic macro economy is expected to continue to improve, thereby driving the fundamentals of listed companies to improve. In terms of liquidity, the overseas Federal Reserve has entered a cycle of interest rate cuts, and the domestic monetary policy space has been opened, and the monetary policy may continue to cooperate with the fiscal policy, thereby promoting the economy upward. From the perspective of valuation, after the recent sharp rise and fall, the overall valuation of the A-share market is still at a historical medium level, the P/E ratio of Wind All A is close to 60% since 2010, and the P/B ratio is still at the bottom of about 10%, and the P/E ratio is expected to fall with the repair of all A earnings, and the valuation still has room to rise.
Yuan Hang: The A-share market still has room for further upside in the medium and long term. At the economic level, the vigorous expansionary policy has kicked off and will be implemented in the future; The overall valuation of the market has increased rapidly in the short term, but it is only a repair of the "cabbage price" in the early stage, and the current valuation is still at a reasonably low level, far from a bubble. Compared to overseas stock markets, A-shares have attractive valuations. After the Federal Reserve cut interest rates and domestic policy changes, foreign investors' attention to China's stock market has also increased rapidly.
Wang Guizhong: Judging from the characteristics of the current A-shares, there are fundamental factors such as gradually recovering corporate earnings, relatively advantageous valuations, and historically high dividend yields, and there is a capital market blueprint that is strongly regulated, risk-preventing, and advancing in the direction of high-quality development. As the effect of the stock policy continues to be released and the incremental policy is continuously introduced and implemented, the high-quality development of the capital market will continue to advance, which is the basic plate for long-term investment to lay out the future and firmly do patient capital.
In addition, the reversal of the medium- and long-term market depends not only on the boost of policies, but also on the improvement of fundamentals. After the explosive surge in the early stage, the subsequent stock market may move forward in a tortuous and gradual way in the process of waiting for the policy to take effect and the gradual improvement of corporate earnings, and the overall shape may be dominated by the structural market.
Liu Weiwei: Combined with valuation and future growth expectations, A-shares have very high investment value in the world's major securities markets. A long-term inflection point in the market may have occurred. With the gradual implementation of economic stimulus policies, the domestic macro economy will continue to recover steadily, and with the support of economic fundamentals, the current round of market is expected to be stable and far-reaching.
Fan Jiarong: The original intention of the capital market has always been to serve the real economy, and only the prosperity of the real economy can in turn feed the "long cattle" of the capital market.
For any economy, the downturn of the real estate cycle will cause a considerable drag on the overall economy, but the domestic economy will still show a considerable degree of growth resilience in 2024 (the cumulative year-on-year increase of 7.9% in the total social electricity consumption in August, the cumulative year-on-year increase of 3.4% in road cargo turnover, and the cumulative year-on-year increase of 8.3% in the container throughput of ports above designated size), the reason behind which is that the growth of the manufacturing industry offset the decline of the real estate industry chain. Manufacturing (especially high-end manufacturing with core competitiveness) is gradually replacing the real estate chain and becoming the core engine driving economic growth.
Looking at the economic transformation from 2023 to 2024, it is essentially a bumpy ride experienced when changing engines on the highway. If the successful transformation of the economic structure can be realized, then the short-term pain is worth it, and the "long bull" of the capital market will also be realized along with the recovery of the real economy.
Focus on pro-cyclical, AI, biomedicine, new materials, etc
China Fund News: Recently, the market has shown a general rise in hot spots, which sectors are worth paying attention to in the future? Where is the main line of investment?
Li Yin: On the one hand, new growth points that have emerged in the process of the country's vigorous promotion of high-quality development, including new technologies and new consumption, may contain new investment opportunities; On the other hand, with the relaxation and optimization of a series of real estate policies, some companies with better quality in the relevant real estate industry chain may have certain opportunities. In addition, the central bank's newly created monetary policy tools will also benefit high-quality, high-dividend companies.
Lei Zhiyong: Looking ahead, the industry's prosperity and fundamental data are more critical. In terms of segmentation, the demand for artificial intelligence (AI) is strong, which has a good demand for orders from companies in the industrial chain, and the prosperity of related companies remains good, and the valuation is still attractive compared with other industries. On the whole, the AI industry chain may need to be focused on.
Gao Nan: First, it focuses on the new engine of economic development for the development of new quality productive forces, and there are two sub-fields: the industrial revolution driven by new technology, new technology and new materials from 0 to 1, such as AI, biomedicine, new materials and other fields; Develop "from 1 to 10" China's advantageous manufacturing industries, such as intelligent driving, energy conservation and environmental protection industries, new energy vehicles, etc.
The second is enterprises with stable operations, such as hydropower, nuclear power, public utilities and other industries. On the one hand, high-dividend varieties still have long-term investment value; On the other hand, as a "stabilizer" of economic development, these plates can play the role of a "safety cushion".
The third is cyclical assets. Policy efforts will effectively prevent the risk of deflation, and cyclical assets are expected to benefit significantly.
Wang Guizhong: After the general rise, the market is expected to enter a structural market of shock and differentiation, and the growth direction of science and technology may become the main line of investment. The transformation and upgrading of China's economy and the development of new productive forces will bring new growth points and investment opportunities to the market. In particular, driven by policy support and market demand, technology, medicine and other industries will show strong competitiveness and growth potential. After the general upward revision of market expectations, it is necessary to pay more attention to the possibility of realizing profits. The logic of AI to improve information production efficiency is very clear, and related software and hardware will still be the core thread in the future.
Liu Weiwei: Every round of more sustained market rallies in history will be accompanied by a clear main line. The main line of this round of market is two categories: one is to benefit from the pro-cyclical direction of domestic economic recovery, as the economy stabilizes and recovers, the operating data of industries and companies will continue to improve, thereby promoting the steady upward movement of such assets; The second is growth, and now the relatively clear industry trend is AI, energy storage and innovative drugs, these three directions are at the starting point of the industrial innovation cycle, among them, AI has a greater probability of becoming the main line of investment in this round of market.
The cost performance of the Hong Kong stock market is expected to be further highlighted
China Fund News: After this round of rapid rise, is the current valuation level of Hong Kong stocks still in a high cost-effective position? What do you think about the future market of Hong Kong stocks?
Li Yin: Despite the recent significant rise, the overall valuation level of Hong Kong stocks is still relatively low. If it is confirmed that the world has entered a cycle of interest rate cuts in the future, and at the same time, as the domestic macro economy stabilizes and rises, Hong Kong stocks will usher in significant improvement at both the numerator and denominator.
Gao Nan: As of October 9, the 10-year PE quantile of the Hang Seng Index and the Hang Seng Tech Index were at the low level of 48.8% and 29.3% respectively. From a global perspective, there is also a big gap between the broad-based valuation level of Hong Kong stocks and mainstream developed markets. Looking ahead, with the advancement of the Fed's interest rate cut cycle and the opening of internal policy space, the cost performance of the Hong Kong stock market with low valuation is expected to be further highlighted.
Wang Guizhong: During the National Day, a large number of funds increased their positions in Hong Kong stocks, which promoted the strength of Hong Kong stocks. After the recent rapid rally, the significant low valuation characteristics of Hong Kong stocks have weakened, but they are still cost-effective. As of October 10, the price-to-earnings ratio of the Hang Seng Tech Index was 25.97 times, which is at the 29.22% quantile in the past decade, and there is still room for upward repair.
Judging from historical experience, Hong Kong stocks tend to turn to shocks after a rapid rise in the short term, from general rise to differentiation. In the future, Hong Kong stocks may show a trend of volatility and differentiation, and foreign investors may prefer assets with core competitiveness, such as Internet companies, which are both resilient and competitive in the economy, and have a strong willingness to return shareholders; The second is a leading high-end manufacturing company with global competitiveness.
Liu Weiwei: On the one hand, Hong Kong stocks benefit from the further improvement of domestic macroeconomic expectations, and on the other hand, they also benefit from the return of funds brought about by the Federal Reserve's interest rate cut, which is the most direct channel for foreign investors to increase their positions in China. Since the Hong Kong stock market peaked in early 2021, the adjustment has been very sufficient, and the current valuation is also historically low, with high cost performance, and we have observed that the weighted companies in the Hong Kong stock market such as the Internet have shown an inflection point in the business trend, and the fundamentals can also support the future performance of Hong Kong stocks.
Yuan Hang: In terms of valuation, the situation of Hong Kong stocks is similar to that of A-shares, although the rapid repair of the "cabbage price" in the early stage has been completed, the market as a whole is far from the level of bubbles; Looking ahead, companies with improved valuation and performance can still be found in the Hong Kong stock market, and good investment opportunities can still be found.
Focus on economic fundamentals, geopolitical conflicts,
uncertainties such as global liquidity
China Fund News: What uncertainties need to be paid attention to in the future?
Li Yin: On the one hand, a series of macro support policies have been launched one after another, and it will take some time for the implementation of various policies to take effect; On the other hand, if there are macroeconomic fluctuations in the future, whether there will be incremental policies will be introduced, these are all things that need to be continuously focused on.
Lei Zhiyong: From the perspective of macro fundamentals, the current market has a high demand for fiscal policy, and fiscal policy may focus more on the long-term dimension rather than short-term catalysis.
It is necessary to observe the improvement of the fundamentals after the implementation of a series of policies in the long run, and if the fiscal policy is mainly based on the bottom, then based on the background of improved market liquidity and increased risk appetite, the technology sector and the policy theme sector with catalysis may be more worth looking forward to.
Gao Nan: The follow-up uncertainties can focus on three aspects: First, the United States election, after Harris took over Biden in July, its poll support continued to rise, once surpassing Trump, but the recent Trump victory probability is leading again, and the election results are still uncertain.
The second is geopolitical conflicts, which have recently intensified in the Middle East, Israel, Iran, Europe, Russia and Ukraine.
The third is the strength of domestic fiscal policy. Fiscal policy is expected to increase counter-cyclical adjustment, and follow-up policies need to be focused on.
Wang Guizhong: In the future, we need to pay more attention to the improvement of economic fundamentals, whether the policy strength and implementation effect meet expectations, and uncertain factors such as changes in investment sentiment, geopolitical conflicts, and the slope of global liquidity tightening exceeding expectations will also have an impact on the market trend.
Liu Weiwei: The subsequent uncertainty mainly comes from two aspects: on the one hand, the economic stimulus policy is a gradual process from release to implementation and then to effect, and there is a time lag in the middle, so although we are full of confidence in the economic stabilization and recovery, the market may adjust after rising in advance; On the other hand, as the United States election approaches, geopolitical risks will once again be focused on by the market, and if the trade dispute resumes after the United States election results, the market may also be affected.
Fan Jiajun: On the one hand, the United States election, the situation in the Middle East, and the Russia-Ukraine conflict are all in dynamic changes, and there are still a lot of unstable factors in the external environment. On the other hand, the competitiveness of China's manufacturing products continues to strengthen; After the real estate industry stops falling and stabilizes, the balance sheets of residents and enterprises will also be effectively repaired; With the tilt of stimulus policies to basic people's livelihood, mass consumption demand will also grow positively, and various positive factors will become the dominant factors in the market in the future.