The Hang Seng Index plunged more than 1,000 points on May 4, so many "smart money" is entering the Hong Kong stocks, is it a "low valuation trap" or a "low valuation pie"? In which industries will the real investment opportunities for Hong Kong stocks be born? How can ordinary investors participate in Hong Kong stocks?
At 7:30 p.m. on May 5, Lin Cuiping, fund manager of Industrial Securities Global Fund, visited the "Basic Theory" column of China Fund News, and talked online with Zhang Yidong, global chief strategist of Industrial Securities, both of whom are experts who have been cultivating the Hong Kong stock market for a long time, and answered the doubts about Hong Kong stocks in detail for investors in an hour and a half exchange.
Below we have excerpted some important points, and the full transcript is attached below.
"The price-to-earnings ratio is not the core of corporate value, good performance is the last word, we have to look at the profit growth trend and ability that the company itself can create, the valuation part will move with the change of investors' risk preferences, and valuation is not the core of corporate value."
"I tend to use a bottom-up approach to investment to choose good companies, we are investing now in the choice of core assets, the future of profitable growth trend of good companies are worth our long-term investment."
"Undervaluation is not the most important thing to invest in, you need to understand what the reasons behind the low valuation are, the most important thing is to understand the intrinsic value of the company."
"I think investment is predicting the future, predicting our lifestyle, what kind of products we need, quality of life, health can be taken into account, the current global aging trend is very obvious, so when making investment, we must take into account these medium- and long-term things."
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This article is reproduced from China Fund News, and the following is the transcript of the full version:
Moderator The huge earthquake of the global capital market, the multiple circuit breakers in the US stock market, and the price of crude oil even appeared negative... The sudden outbreak of the new crown virus has made investors this year cry out to witness history, and the impact of the epidemic on the global economy has also led central banks to introduce unprecedented quantitative easing policies.
Against the backdrop of a declining economic growth rate, with potentially more abundant liquidity, global capital is looking for undervalued assets with a higher margin of safety. As a value depression in the global capital market, Hong Kong stocks have gradually entered the vision of the majority of investors. Data from the end of April show that since the beginning of this year, the southbound funds of hong Kong stock connect have exceeded 247.8 billion Hong Kong dollars.
So is the Hong Kong stock market where so much "smart money" has begun to enter the "undervalued trap" or "undervalued trap"? How will the Hong Kong stock market interpret under the attraction of low valuations? In which industries will real investment opportunities be born? How can ordinary investors easily participate?
Today, we are fortunate to invite two heavy guests, both experts who have been cultivating Hong Kong stock market research and investing for many years, to answer these doubts for the majority of investors one by one. They are Mr. Zhang Yidong, Global Chief Strategist of Industrial Securities, Vice President of the Institute of Economics and Finance, and Deputy Chief Executive Officer of Industrial Securities (Hong Kong) Financial Holdings and Industrial Securities International. The other is Ms. Lin Cuiping, the proposed fund manager of the SING Shanghai-Hong Kong-Shenzhen Fund, the first Shanghai-Hong Kong-Shenzhen fund to be issued by the Industrial Securities Global Fund.
Today's event will be divided into three parts, the first is Mr. Zhang Yidong to share his latest views on global macro strategy, followed by Lin Cuiping to introduce the current investment opportunities in Hong Kong stocks, and the third part is for two guests to interact with investors, and welcome everyone to actively ask questions. We will also sample some questions to be answered by two guests, and we will also sample some of the lucky audience, and you all have the opportunity to get the book "Do This, Take the First Step for Investors" compiled by the Industrial Securities Global Fund.
01
Overseas rebound momentum decays
In the medium and long term, we are optimistic about China's high-quality assets
Zhang Yidong China Fund News "Basic Theory", China Fund News fans, hello! I am Industrial Securities Zhang Yidong. The theme shared with you today is called "Winter Sun", which is mainly to talk to you about the investment strategy of Hong Kong stocks. "Winter Sun" is a view of Hong Kong stocks from both long-term and short-term dimensions, the sun is a long-term logic, the sun will always rise high, so we are very optimistic in the long run. However, the short- and medium-term is still winter, which means that the recession caused by the epidemic and even the debt risk of emerging markets may affect the market in the next six months, and even affect the global stock market.
I will start logic with you from three dimensions today, and finally I will give a conclusion. First, look at the main contradictions affecting overseas markets and Hong Kong stocks in the short and medium term, and look at the opportunities of Hong Kong stocks in the long run. The third aspect is investment strategy.
Short-term policy stimulus has inertia
Medium-term fundamentals are risky
Global asset allocation needs to pay attention to price/performance
In the next six months, the Hong Kong stock market will be affected by fluctuations in risk appetite, of which (in the short term) in the second quarter, especially in April and May, will be positively affected by the improvement of global risk appetite led by policy stimulus. However, at the end of the second quarter and even the third quarter, the secondary disaster caused by the epidemic, that is, the debt risk of emerging markets caused by the recession, may have an impact on the global market, and the possibility of a second bottoming out in the third quarter is not ruled out.
After the Federal Reserve began to impose unlimited QE on March 23, major economies around the world, such as the United States, Europe, Japan, Chinese mainland, etc., have successively increased fiscal policy and monetary policy easing to bail out the economy. The resumption of work and production throughout April and even In May began to show an increase in risk appetite and an increase in valuation. Taking the United States as an example, the three major indexes rose by more than 30% from the end of March to the high point from the end of March to the high point, and the latest valuation of the US stock market returned to the historical high, and the S&P 500 exceeded the price-earnings ratio of 20 times, and it is the valuation for the next 12 months. In this case, the Hong Kong stock market as a global valuation depression, in the state of relatively positive risk appetite, the Hong Kong stock market is a very good risk-to-return ratio of assets. This is from a short-term perspective.
In terms of the medium term, Latin America, Africa and South Asia, Southeast Asia, the Middle East, Central Asia and other Asian, African and Latin American countries in the southern hemisphere have poor capacity for epidemic prevention and control and detection, and medical resources are also relatively poor. As medical expert Zhang Wenhong said, the epidemic does not depend on the country with the best prevention and control, but on the country with the worst prevention and control. We judge that the recession in emerging markets is a high probability or even an inevitable event, and the scene of the Latin American financial crisis in 2008, 2018 and even the 80s is likely to repeat itself in the next six months.
The economic structure of these countries is relatively simple, over-dependent on commodities, such as agriculture, mineral exports, and the epidemic has triggered a global economic shock, shrinking demand, and the economic operation of emerging market countries themselves has been impacted. We believe that a scene of debt crises in these countries in 2008, 2018 and the 80s is unfolding. The "trilogy" has now entered the second part, one is the deterioration of the current account in emerging markets, the second is the depreciation and significant depreciation of the exchange rate of emerging markets, and the third is debt default. Argentina has recently begun to talk about debt restructuring, and we have seen signals of debt default, so from a six-month perspective, there is still a lot of turmoil in the world.
However, whether vertically or horizontally, the relative return advantage of the Hong Kong stock market is obvious and is already in the bottom area. We joke that it is a state of "whipping corpses", dead pigs are not afraid of boiling water, and high-quality companies have priced in for the bearish.
In the short and medium term, since there is still a lot of uncertainty in the global market, the cost-effective assets at this time are the assets worthy of our long-term ownership.
Very optimistic about the global economic recovery
Optimistic about scientific and technological innovation and domestic demand
and institutional dividends "troika"
Look at the future and see who is more resilient when it comes to bouncing. There are always more ways than difficulties, and the global economic recession caused by this epidemic will also be resolved with the prevention and control of the epidemic, especially the widespread application of vaccines. According to what we have learned, the vaccine is expected to be phase III clinical within this year, and by the end of the second quarter or the third quarter of 2021, the northern hemisphere is expected to achieve vaccine popularization. At that time, let's think about how much this round of policy easing is, once the economy and life begin to normalize, the demand it brings is a very strong driver, the economy is like a person, when he is sluggish, you give him supplements, he is still sluggish, once the body recovers, even if the tonic is taken away, there will still be a time lag, so in the first half of next year and even in 2022, 2023, we are very optimistic about the global economic recovery.
Around this logic, where in the world can it bring about effective demand increases? There are nothing more than three aspects, one is science and technology, the other is domestic demand, and the third is institutional dividends. China and the United States remain the two most dynamic economies, with valuations in the United States at all-time highs, while the valuations of high-quality companies in the Hong Kong market and the A-share market are in the historically low range.
"Troika": First, the momentum of scientific and technological innovation. With the continuous implementation of "Made in China 2025", embodied in the new infrastructure, the recent Politburo meeting, or the promotion of scientific and technological infrastructure by ministries and commissions are very obvious, 5G, semiconductors, artificial intelligence, data centers, digital informatization, cloud, etc. will fundamentally change The way China's economy operates after the epidemic, whether it is office, production, or consumption, more and more to achieve science and technology, online, science and technology empowerment for manufacturing, consumption, especially for information consumption The momentum is very huge. In the future, there may be ten times or even a hundred times the company, and China is the leader in the world, especially the 5G-driven scientific and technological innovation, and China is the leader.
The second is domestic demand. China is the world's second largest economy, but also the world's top two domestic demand markets, Latin America, Africa and other places of the economic structure is too single, and China is different, in 2014 GDP contribution, the tertiary industry has surpassed the secondary industry, becoming the main contributor to GDP, but also the main accommodater of employment. Whether it is a necessity or an optional consumer product, the space is very large, including new energy vehicles, food and beverages, textile and clothing branding, especially the new type of service-related consumption, the space will be larger.
Third, based on China's institutional dividends, the most important thing to remind everyone is the "Opinions on Building a More Perfect Factor Market-oriented Allocation System and Mechanism" issued by the State Council on April 9, in addition to talking about the traditional reform of land resources and capital factors, but also includes the market of scientific and technological elements, the market of data elements, the transformation of science and technology and intellectual property rights, the release of institutional dividends is real, and the future of China's scientific and technological innovation and the expansion of the domestic demand market, the "troika" is a good trinity.
I am very bullish on China's best assets in the medium to long term. Since the beginning of 2016, I have been the first in the market to put forward the concept of core assets, whether it is A-shares or Hong Kong stocks, leading companies in various industries have performed very well. Our core asset philosophy has been validated by the market over the past four years. In the next three to five years, it will still be a core asset, but the logic of core assets has begun to turn from the logic of subtraction, supply-side reform, winner-take-all, winner-for-all, winner-for-king, and strong Hengqiang to an effective new economic growth point promoted by the new "troika", benefiting from scientific and technological innovation, domestic demand expansion, institutional dividends, especially the institutional dividends driven by factor market-oriented reforms, and the opportunities are broader.
Hong Kong stocks are facing strategic investment opportunities
Focus on three main directions
Finally, I would like to share with you the investment strategy, a sentence outline, Bo rebound is the game of the brave, and the long-term layout of core assets is the opportunity of the wise and the wise. I do not recommend that you focus on short-term speculation and rebound, because A-shares, especially Hong Kong stocks, are definitely long-term strategic bottom areas at present, but due to beta and overseas risks, there is still uncertainty, and it is not good to copy the bottom at this time, especially to chase up and kill the fall. The brave have to take risk first, and if you can't afford it, don't do the Bo bounce thing. If you can bear the risk, it does not mean that the brave can make money, I am talking about the game of the brave, which means that it is possible to end up and down, and can not make money, because the uncertainty of the Beta is very large, do not take porcelain work without diamonds, because you want to rebound, and choose the time, and choose the stock, it is possible that the market you confirm at the low point, the market rebounded, but the stock you bought is an old thousand shares, immortal stocks, to delist, and finally fall 70%, 80% is possible. Therefore, in the bottom area, it is recommended to focus on the best companies to be a wise and foolish "fool", based on the long-term line, to find the best companies. In the long run, the hong Kong market has a huge opportunity in the bottom area and is a strategic opportunity. However, in the short term, from a tactical point of view, it is possible to break hands and feet, and retail thinking chases up and kills is often the forerunner of burying corpses.
From a long-term perspective, we believe there are three areas that can be actively laid out:
First, the high dividend strategy, and is a stable high dividend strategy, controllable, can continue to dividends, especially China's state-owned enterprise finance, real estate, they are much stronger than bonds, dividend yields are more than 6%, PB is 0.6 times, better than high-grade credit bonds, better than convertible bonds, suitable for value investors, to two years as a dimension of medium and long-term investors to buy a large probability can get excess returns. For example, if you stand at the end of 2008 and buy the best companies in the United States, or at the end of 2015, you buy the best liquor and financial leaders in China, and you can double many times after two years. Now it's the same state, we revolve around the core assets of traditional industries, using dividend yields as a strategy, which can defend against counterattacks.
The second is the growth of consumption around China, especially the recent impact of the overseas epidemic, subdivision of textiles and clothing, food and beverages, education, especially by the impact of the regulatory policies of Chinese stocks, resulting in a more comfortable valuation, some of these optional consumer goods are essential consumer goods, the cost performance is very comfortable in the world, much more comfortable than A shares.
The third is technology growth stocks, there are a number of excellent Internet giants in the Hong Kong market, and there are two aspects that are very certain in the future, one aspect is the return of Chinese stocks. The regulatory policy of the United States on Chinese stocks has changed, and the Hong Kong market is expected to become a gathering place for China's new economy, especially Internet giants such as Internet e-commerce and 5G applications. Another aspect is biotechnology, which is expected to become a bull stock in the Hong Kong market. At present, the world is full of uncertainty, the worst time is the best opportunity, and the time for truly intelligent people to lay out Hong Kong stocks for a long time is now.
02
Three major misconceptions investors have about Hong Kong stocks
Lin Cuiping China Fund News "Basic Theory", China Fund News fans, good evening! I am Lin Cuiping, the proposed fund manager of Industrial Securities Global Fund. Thank you Mr. Yidong for his very insightful insights, and thank you to the host. From the perspective of an investment manager, I will further develop how I see investment opportunities in the Hong Kong market, and understand the Hong Kong stock market from a multi-layered perspective and with multi-dimensional data.
For A-share investors, Hong Kong stocks are familiar strangers, on the one hand, everyone is familiar with the names of Hong Kong listed companies, on the other hand, because of the different trading systems, such as Hong Kong stocks do not have restrictions on up and down the stop board, and the daily trading price of A shares is 10% up and down the previous trading day, so the cost of making mistakes in Hong Kong stocks is very large. On the other hand, due to the different structure of market participants and the different investment thinking, it will cause some misunderstandings and doubts among A-share investors.
Generally speaking, there are three aspects, that is, whether the Hong Kong market has a so-called marginal crisis, whether the Hong Kong market has a low valuation trap, and the liquidity of the Hong Kong market seems to be less than ideal. I'll explain it to you one by one.
Is there a crisis of marginalization in the Hong Kong market?
No, Hong Kong is a window of opportunity to invest in China
First, let's look at the structure of listed companies in the Hong Kong market. In terms of the number of listed companies, mainland enterprises account for 50% of listed enterprises in the Hong Kong market; from the perspective of market capitalization, the market value of mainland enterprises accounts for 73% of the Hong Kong stock market; and in terms of the proportion of total transactions, the trading volume of mainland enterprises accounts for 79% of the Hong Kong market. From this point of view, the Hong Kong stock market is a window of opportunity to invest in China.
From another perspective, that is, IPO, in 2019, HKEX introduced a total of 183 companies to make initial offerings, raising US$40.4 billion, winning the number of new listed companies and the amount of funds raised in the global IPO market. The second place Saudi Arabia only had 6 companies to start, raising $30.7 billion, mainly because of the listing of Saudi Aramco, which is very large. The third nasdaq was 135 new listings with $27.9 billion raised. The SSE introduced 122 new stocks with a financing amount of US$27.2 billion. The New York Stock Exchange introduced 39 new listings and raised $25.7 billion.
Over the past 11 years, HKEx has been the global champion in the IPO market for seven consecutive years. What is the meaning behind the IPO data? For companies, the Hong Kong stock market is a good financing market, which can attract more companies to Hong Kong to seek listing opportunities, and for investors, there are more listed companies to list in Hong Kong, providing a more comprehensive choice of investment opportunities. As a window of opportunity to invest in China, and the global IPO leader, which is an attractive investment market for global capital, the hong Kong market is actually a serious misunderstanding to think that the marginalization of the Hong Kong stock market is actually a serious misunderstanding.
Is there an undervaluation trap in the Hong Kong market?
Good performance is the last word
Another aspect that everyone does not understand is whether the Hong Kong market has a low valuation trap. Indeed, for a long time, the Hong Kong stock market has been a depression in the global stock market, so can the valuation of the Hong Kong stock market recover in the end? From the perspective of market dimension, the valuation of the Hong Kong stock market has a low price-earnings ratio and a price-to-book ratio compared with other major markets in the world, but the difference between industries is very large. Judging from the IPO trend in the Hong Kong market, compared with A-shares, Hong Kong stocks are more flexible in terms of listing mechanism and enterprise operation supervision, and their attractiveness to the new economy sector is particularly high.
In April 2018, the Hong Kong Stock Exchange liberalized the listing rules, abolished the three-year profit requirement, and supported the structure of VIE's different rights in the same shares, so we saw ali's return. In recent years, the Listing of New Ventures in the Hong Kong market has been very active, for example, compared with the two sectors that are more special to A-shares, the quality of education and property management listed companies in the Hong Kong market is more neat, and the valuation of these two sectors is very high relative to the Hong Kong stock market, and there is no low problem compared with other industries.
After the Hong Kong Stock Exchange changed the trading rules, the Hong Kong market introduced a lot of new start-ups, from the perspective of industry structure, in 2015, among Hong Kong listed companies, the financial industry represented by the old economic sector accounted for 29.4%, the information technology sector accounted for only 8.6%, in 2019, the proportion of the financial industry has dropped to 22.66%, and the information technology ratio has increased significantly, becoming the first place in the industry sector of Hong Kong listed companies, reaching 25.09%. This change will continue as more and more start-ups are listed in Hong Kong, for example, among the 183 Hong Kong IPO companies in 2019, 49% are in the new economy sector, of which 12% are in the biotechnology sector, and this trend will greatly change the undervaluation of the Hong Kong stock market.
Returning to investment options, I would like to emphasize my thinking about market valuations. The final performance of the stock market depends on the performance of the enterprise, and the valuation level is low and unstable, because the entire industry or the company's own operating cycle is in an increasingly stable and mature state, and the valuation level will decline steadily. For example, Tencent in Hong Kong achieved a revenue of 12.6 billion yuan in 2012, a static price-earnings ratio of 32 times, and a market value of 460 billion Hong Kong dollars. Tencent has achieved a profit of 93.3 billion yuan last year, and with the static price-earnings ratio at the end of March this year, the market value is equivalent to HK$3.6 trillion, 35 times the static price-earnings ratio. In the past eight years, Tencent's market value has increased by 7.8 times, of which 7.4 times of the contribution comes from corporate earnings growth, and only 10% of the valuation contribution belongs. The same is true of Ali, which is listed in the United States in September 2014, and since its listing in the United States in September 2014, Ali's market capitalization has been rising steadily, but the recent change in the price-earnings ratio is a downward trend.
P/E ratio is not the core of corporate value, good performance is the last word, we have to look at the profit growth trend and ability that the company itself can create, the valuation part will move with the change of investors' risk preferences, valuation is not the core of corporate value.
Hong Kong market liquidity is not good?
It's just that the concentration is high and the turnover rate is low
Is there a problem with poor liquidity in Hong Kong stocks? From 2015 to 2019, the average daily trading volume of the Hong Kong stock market was between 80 billion and 100 billion, of which in 2016, because the market investment atmosphere was relatively pessimistic, the average daily trading volume was between 60 billion and 70 billion. The average daily trading volume of A shares in 2019 is nearly 520 billion yuan. A-share investors looking at any other exchange in the world will feel that liquidity is not good and the trading volume is too small. However, with the average daily trading volume of the Hong Kong stock market of 80-100 billion, it ranks 9th in the transaction size of major exchanges in the world. From the perspective of trading characteristics, the Hong Kong stock market is highly concentrated in trading and the turnover rate is very low. The average turnover rate of the Hong Kong stock market is about 46%, while the A-share Shanghai Stock Exchange is 153% and the Shenzhen Stock Exchange is about 320%. To what extent are the transactions in the Hong Kong stock market concentrated? There are more than 2,400 listed companies in the Hong Kong stock market, and with an average daily trading volume of 10 million US dollars, there are 187 listed companies that meet this condition on April 17, accounting for 7.56% of all listed companies, accounting for 91.68% of transactions. There are a total of 3800 listed companies in A shares, and there are 1890 companies with a trading volume of more than 10 million US dollars, close to 50%, accounting for nearly 92% of the total transactions, but the number of transactions and the number of companies are very different. A-share investors believe that Hong Kong stocks seem to have liquidity problems, the main factor is that the Hong Kong stock market is highly concentrated, the turnover rate is very low, and A-share investors may not be used to it.
In addition, everyone's impression feels that Hong Kong stocks do not seem to make much money, one year is good, and two or three years can not see too good returns. We have done statistical calculations, from 2003 to 2019, the annualized return of the Hang Seng Index of Hong Kong stocks was 10.55%, of which the stock price contributed 6.72%, the dividend return contributed 3.83%, and the annualized return of the CSI 300 Index in the same period was 9.79%, which was slightly lower than that of Hong Kong stocks. But the source of contribution is very different, the main contribution comes from the stock price, contributing 8.02%, and the dividend return only contributes 1.77%. From the perspective of total return, the total investment yield return of Hong Kong stocks and A shares is close, and even Hong Kong stocks are slightly better, but the return structure of the two markets is very different, and the dividend return rate of Hong Kong stocks is higher.
The Hong Kong market is dominated by institutional investors, with fewer retail investors, a more rational investment atmosphere, no hot spots, a lower turnover rate, and more suitable for long-term investment. We have also calculated that the longer you hold, the higher the chance of receiving positive investment returns, and the higher the total return. Judging from the characteristics of mature markets such as Hong Kong, it is more suitable for investors to make long-term investments.
There are three major values for investing in Hong Kong stocks
There are many high-quality leaders, high dividend yields, and low correlations
For A-share investors, the market allocation value of the Hong Kong stock market is embodied in three aspects: the Hong Kong stock market brings together high-quality leading enterprises, has a high dividend yield, and has a low correlation with A shares. For example, what mall would you choose to shop at? Must be hoping to meet the one-stop shopping, diversified goods, preferably good quality and low price. The Hong Kong market has such characteristics, bringing together a number of high-quality mainland state-owned enterprises and private enterprises, Local enterprises in Hong Kong and Macao, and first-class companies in other countries in the world, providing investors with good allocation needs. Just now, Mr. Yidong also mentioned that the leaders of all walks of life in the Internet are gathered in the Hong Kong market, and if they want to participate in the growth of China's economy, they cannot miss the Internet investment opportunities. Hong Kong market brings together a large number of excellent enterprises, to provide investors with a good investment options, after the Hong Kong Stock Exchange changed the listing rules, the introduction of a considerable number of pharmaceutical sectors, in the global aging population, especially in the rapid development of the domestic population aging, the pharmaceutical sector is a very good long-term investment direction, there are also many investment opportunities in Hong Kong. In addition, the consumer sector is more unique in the Hong Kong market than the domestic market, such as a large number of sports consumer brands concentrated in Hong Kong stocks, Hong Kong stocks and Macau gaming, this unique and profitable business model is a fresh sector that cannot be found in other markets.
From the investment point of view, dividend is a very important option, the dividend rate of the Hong Kong stock market has always been ranked high in the world, which shows that the company in the Hong Kong market has excellent operating ability, only if the company can continue to create cash flow and have stable operating strength, can it steadily feedback the dividend to shareholders.
How do we avoid risks when we make investments and make the returns better? Reducing the risk of the portfolio precisely requires the lower the correlation between the two assets, the better, the correlation coefficient between Hong Kong stocks and A shares shows this feature, the Correlation coefficient of the Shanghai Composite Index compared to Hang Seng large stocks is only 0.39, which can reduce the risk of the portfolio and improve the return. We also made a calculation, assuming that in 2008, a 100% of the funds were invested in the A-share market, and the total return obtained by holding it until the end of 2019 was 67.5%, and the annualized standard deviation was 22.5%. If the same amount of money, in 2008 investment is divided into two parts, 70% investment in A-shares, 30% investment in Hong Kong stocks, held until 2019, the total yield of the entire portfolio rose to 76%, the annualized standard deviation dropped to 19.7%, showing the allocation value of Hong Kong stocks, reducing risk, and improving the overall rate of return.
The Hong Kong stock market is a dynamic capital market, and there are many investment opportunities for investment managers to explore the stocks.
03
"Basic Theory" live interaction
A shares and Hong Kong stocks are merging with each other
A-shares are maturing, and the Hong Kong stock market has also gained an anchor
Moderator Thank you Mr. Lin. I believe that after listening to the sharing of the two netizens, there must be many questions that want to interact with the two guests, and welcome all netizens to actively ask questions in the comment area.
Just now the two teachers mentioned that there is a big difference between the investors in Hong Kong stocks and A shares, Hong Kong stocks are mainly American and British investors, and A shares are mainly domestic investors. In recent years, with the launch of the Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, the southbound funds and the northbound funds are very active. I would like to ask the two teachers, from the perspective of investment style, the probability of A-share Hong Kong stockization in the future is higher, or the probability of A-share transformation of Hong Kong stocks is higher? There has been a long-term discount between A/H shares, will this phenomenon gradually disappear?
Zhang Yidong This problem is very good, from the perspective of the development of the two markets, the probability of mutual integration is greater, on the one hand, A shares will highlight the characteristics of mature markets, manifested as institutionalization, leading premiums, whether it is Hong Kong stocks or US stocks, the valuation difference is very large, which is precisely because the market is more mature, institutions dominate the market. Since 2017, whether it is liquor or finance, it reflects the characteristics of the leading premium, especially consumer medicine, which is vividly reflected, the expensive can be more than 100 times the P/E ratio, the cheap may be more than 10 times the P/E ratio, A shares are more mature, get rid of the high volatility of the retail market dominated by the past two or three decades, small speculation, bidding, speculation, new, speculation, speculation, garbage, speculation dark horse, slowly become the leading premium, mature, institutionalized, this is A-share to Hong Kong stocks or to the global mature market integration.
On the other hand, Hong Kong stocks are also slowly merging into A-shares, which is reflected in the duckweed state of getting rid of the offshore market. From 2001 to 2015, Hong Kong stocks, like duckweed, had no roots, no long-term funds, especially local long-term funds, and it was not like the US market and the A-share market with a large amount of local funds. In contrast, Hong Kong stocks will fluctuate more when they encounter the impact of "black swans". However, in the past two years, the influence of Long-term funds represented by Chinese capital, especially insurance, in Hong Kong stocks has become more and more influential, Hong Kong stock connect accounts for about 20% of the transaction, and the proportion of Chinese-funded institutions in institutional investors is already the first, surpassing the United Kingdom, Europe, and the United States. The Hong Kong market is a bit closer to China's third exchange, when encountering external shocks, companies with good fundamentals will be protected by Chinese mainland long-term investors, and good companies may have fallen to unimaginable levels in the past, but now because of the interconnection mechanism, excessive killing is no longer visible. In March, there was a liquidity crisis overseas, and the Hong Kong market also fell, but it fell less than the US stock market, and every day the north water went south to Hong Kong to help, and the excellent mainland enterprises in Hong Kong were laid out at a low price, which was obvious.
To sum up, do not think that A shares will be Hong Kong stocks, because A shares are typical of the local capital-dominated market, it is impossible to appear immortal stocks, but A shares are also constantly upgrading, the Hong Kong market, whether it is a fund company or an insurance company, through the Hong Kong stock connect in the Hong Kong market to obtain more and more pricing power, so that the Hong Kong market began to have an anchor, this anchor helps the long-term stability of the Hong Kong market, for the future valuation center also has a boost to drive, or help long-term stability to improve. Leaving aside the return of Chinese stocks, from the perspective of investor structure, the Hong Kong market is also quietly undergoing qualitative changes, slowly integrating, and becoming a bridgehead for Chinese funds to go to sea.
Lin Cuiping Zhang said very well, since there is exchange and interaction in this market, the impact must be on both sides, not the A-share or A-share Hong Kong-share Hong Kong. Through more transaction integration, companies with a high proportion of funds in the south can see a turnover rate that is more in line with the preferences of A-share investors. Through the land stock connect channel, more institutional investors and foreign investors will enter A-shares for investment, which will also greatly affect how everyone looks at the reasonable valuation, and the pursuit of hot spots will gradually decrease. After the concentration of institutional investors, everyone's judgment on investment is more rational and tends to take fundamentals as the starting point. From this point of view, the integration of the two markets is getting closer and closer to the level of international investment, and the investment concept is more mature.
Moderator Thank you both. In a short period of time, there are already many questions from fans in the comment area, so let's pick a few questions to ask two.
Hong Kong's status as a financial centre is hard to replace
Moderator In the wave of anti-globalization, the old balance between China and the United States has changed, but the new balance has not yet happened, will the role of the Hong Kong stock market in China's capital market and even the entire Far East financial market change from a leader to a supplementer, and finally become marginalized?
Zhang Yidong From three dimensions: First, the Hong Kong market has become a bridgehead for China's overseas assets, A shares can not be replaced in a short period of time, the reason is that China's capital account is still not freely convertible, the capital account has a constrained background, whether it is the overseas asset allocation of domestic funds, or Chinese companies to overseas financing, the bridgehead status of the Hong Kong market is difficult to replace, at least from the dimension of three or five years, we tend to China's capital account will maintain a relatively stable state. Hong Kong's status as an international financial centre remains indispensable, with the Hong Kong Stock Exchange complementing the Shanghai Stock Exchange and the Shenzhen Stock Exchange, and the cooperative relationship is more obvious.
Hong Kong is China's Hong Kong, but also the world's Hong Kong, based on China, looking at the world, Hong Kong's status as the financial center of the Far East depends on a strong motherland and a strong mainland economy. In the future, driven by China's scientific and technological innovation, the expansion of domestic demand and the release of a new round of reform and opening up system dividends, the Hong Kong market as a financial center in the Far East, it is difficult to be replaced, Singapore, Dubai and even some Southeast Asian countries are also trying to become the "Belt and Road" financial center or the Far East financial center, but it is difficult. For example, this epidemic, in the early days, everyone felt that Singapore's Buddhist control, the so-called "external loose and tight inside", after nearly two months, singapore's epidemic situation is still relatively serious, and Hong Kong relies on the motherland's mainland, whether it is the supply of medical supplies such as masks, or social governance, so that the epidemic has not appeared too much recurrence, the future status of Hong Kong's financial center is irreplaceable.
Third, Hong Kong's financial center is not only the financial center of Hong Kong economy or Hong Kong residents, more and more companies come from Chinese mainland, whether it is the Hang Seng Index or the Hang Seng Composite Index, the representative companies that can be handed out are basically from the mainland, and the proportion of local companies in Hong Kong is getting smaller and smaller. Don't take the local political turmoil in Hong Kong too seriously, it is only a short-term disturbance, its fundamentals are still Chinese mainland economy, it is advisable to look at the situation in the long run, and do not misjudge the status of Hong Kong's financial center because of the pressure of Hong Kong's own political economy.
To sum up, in a complex and changeable external environment, Hong Kong, as the bridgehead of reform and opening up, as a base for financial innovation and overseas financing, and as a derivative of the domestic demand market, will support Hong Kong's status as a financial center to remain strong, and I am still very confident.
Moderator Thank you Mr. Zhang, your words have made us feel confident, Hong Kong in China, Hong Kong in the world.
The main factor in investing in a market is not the level of valuation
It's the intrinsic value of the company
Moderator Hong Kong stocks are undervalued value depressions, said for a while, but Hong Kong stocks have not made much progress, do you think there is any reason? What is the position opening strategy and operation idea of the Xingquan Shanghai-Hong Kong-Shenzhen Fund that you are about to manage? As a female fund manager, in the industry for so many years, what are the advantages of women in such a competitive industry?
Lin Cuiping Thank you for your question. As I said earlier, the low valuation of Hong Kong stocks is based on the entire market dimension, but the Hong Kong stock market has a long history, at the beginning it was dominated by the financial real estate sector, and the proportion of the old economic sector has dropped significantly, but the two sectors add up to about 45%, and you will find that the valuation of the A-share real estate and financial sector is also a lower state relative to other industries. The market of Hong Kong stocks in the past was a market dominated by the old economic sector, and when looking at the valuation of the entire market alone, it would feel relatively low, and if the industry was separated, the valuation between various industry sectors was very different. Just now Yi Dong has been stressing the need to invest in core assets now, in which direction will the future development trend of China's economy go? High-tech industries and consumption upgrades are definitely the direction, and the valuation of Hong Kong stocks in these sectors is not low compared with other markets.
Valuation is not the main factor that determines whether we invest in a market, we mainly look at the company's connotation value, if the connotation value is in line with the market price, there will be no market mispricing trading opportunities, if the market valuation because the market attention is relatively small and reduced to below the connotation value, there will be mispriced trading opportunities. Some companies have growth and future, which is the sector we hope to see future profitable growth, and I believe that its valuation performance will not be much different from other markets.
Regarding whether there are any special advantages in the industry as a female fund manager, there are many people in this industry, there are various rankings to express investment performance, if from these dimensions, women and men in this industry can get the same evaluation. In industries that require physical work, women may be less likely to perform. This industry is a place for brain power, and women are more likely to be highlighted as excellent.
Focus on the three directions of growth stocks
Moderator Mr. Zhang, Mr. Lin mentioned earlier that compared with the past, the composition of the new economy, science and technology, and consumption in Hong Kong stocks is improving, what do you think of this piece?
Zhang Yidong I am very optimistic, in the past four years due to supply-side reform, the strong Hengqiang, in 2016, 2017, 2018 there was a wave of rise in the traditional industry leading companies, coal, cement, financial real estate companies in Hong Kong stocks increased many times, or even more than ten times, twenty times. In the long run, fundamentals are the core variables that determine investment, and the longer they go, the more fundamentals the core variables are, and the fundamentals lie in growth. On the one hand, Hong Kong growth stocks have been affected by beta, the impact of overseas supervision of Chinese stocks, and the impact of the epidemic has caused concerns. As Charlie Munger said, the growth and valuation of good companies are more comfortable, the match is better, although not as cheap as cyclical stocks, cyclical stocks often can not be considered with static valuations, need to reverse thinking, expensive to buy. Growth stocks need to find the future of performance, such as the stability of free cash flow, and the growth space of performance in the future.
To expand a little, there are three aspects of growth stocks: First, internet, cloud computing-oriented, and information, 5G applications related to online life, online application scenarios, the existing Hong Kong stock companies are more representative than A shares, and if the Chinese stocks return to Hong Kong stocks, the global influence will be greater. Second, advanced manufacturing, including apple industry chain, Huawei industry chain, Hong Kong has many competitive enterprises. Semiconductor wafer foundry, new energy vehicle sector, Hong Kong stocks also have very good companies, advanced manufacturing represented by the growth of science and technology is a relatively clear line. Third, consumer services, including optional consumer goods and consumer goods essentials, optional consumer goods include education, property, and the effect of the Hong Kong stock sector is obvious than that of A shares, and has become a gathering place. Textiles and clothing, sporting goods are the world's top enterprises, the future space is still very broad. Although there is no liquor in food and beverage, there are also better tracks such as special materials in consumer staples. Growth stocks in the Hong Kong market are a real opportunity for the next three to five years.
In the past two years, the excess return on investing in Hong Kong stocks has been higher than that of A shares
Moderator Thank you Mr. Zhang. The two guests have a more consistent view of Hong Kong's growth stocks, and I believe that this will also become the focus of investors in the future.
Before the live broadcast event, China Fund News collected 30 questions from 67 fan exchange groups, and due to the time relationship, we selected 4 of them and wanted to invite Mr. Zhang and Mr. Lin to answer them.
Hong Kong stocks are currently in a value depression, of which institutional investors are the majority, as ordinary individual investors, how should we better allocate Hong Kong stocks? What are the investment advantages of Hong Kong stocks over A-shares? Which piece of risk should I focus on?
Zhang Yidong The best choice is to regularly invest in excellent products and excellent companies, the investor strategy just mentioned is very clear, Bo rebound is the game of the brave, it is possible to break hands and feet, long-term investment in core assets is the real opportunity for the wise. Hong Kong stocks are currently in the historic bottom area, with the epidemic in the next year preventable and controllable, the Hong Kong market has the conditions to bull, now the necessary conditions have been there, good companies are very cost-effective, whether it is growth or cycle, value, valuation and profit matching is very good, this is a necessary condition. The sufficient condition is that the global risk appetite is relatively low now, and it is necessary to deal with the uncertainty overseas. In this case, the best strategy is to regularly order products managed by good fund managers. The most important risk to be careful of is to speculate in stocks, chase up and kill the fall, use A-share retail thinking to speculate in Hong Kong stocks, speculate in Hong Kong stocks will die, Hong Kong is the paradise of value investors, but also the graveyard of retail investors who chase up and kill the fall, you think PE is low, PE low may be the old thousand shares, is to deceive people who do not understand, after going in you will find that you can no longer come out. For the Hong Kong market, we must pay attention to good companies and excellent fund managers, if you do not know what a good company is, professional work or leave it to professional fund managers to do.
In this position, what are the comparative advantages between A-shares and Hong Kong stocks? Hong Kong stocks are not open for a year, open to eat for ten years, Hong Kong stocks to institutional investors, unlike retail investors, retail investors are easy to move, such as there are policy benefits, event-driven speculation, and institutional investors pay more attention to long-term logic, like springs, now the spring pressure is very low, once the bull market trend up, you can also rise ten times or even dozens of times. If you take the two-year dimension as a dimension, the Hong Kong market has a higher excess return than A-shares. If you just want to toss two weeks, two months bo short-term rebound, I suggest you simply toss in A shares, because A shares have "leeks" can cut each other, the Hong Kong market is clear water, no fish, relying on the company's fundamentals and economic fundamentals to obtain excess returns.
Moderator Thank you very much for Mr. Zhang's advice and suggestions, which have benefited us a lot.
What are the basic data models on which fund managers can judge the development prospects of the industry? For example, when the impact of the new crown pneumonia has an impact on both the supply side and the demand side, is it better to go from top to bottom, or is it better to go from bottom to top?
Lin Cuiping Thank you for your question, if the old industry is in a new market, we can learn from the experience and data of advanced countries, such as the market size has several dimensions, the percentage of GDP, market penetration, industry concentration. If it is a new industry, you need some imagination, but some of it is a new business model of the old industry, and the original data can still be referenced.
The epidemic has a certain difficulty in judging us, we do not know when special drugs and vaccines will be available, we must wait until there is a better solution, countries lock up the country and lock the city to restrict economic activities and social restrictions can be released, back to the normal economic track. With the information obtained so far, it is impossible to accurately predict the time problem, but we can still optimistically predict that this matter will be solved, more than 1 million people in the United States have been infected, so many scientists are trying to find a rescue solution and manufacture drug research and development, I believe it will not make us wait too long.
As an investment manager, it is easier to grasp the investment value of a good company from the bottom up, because there are too many factors in macro variables that we cannot control, relatively speaking, it is easier to study a company's business model more microscopically. So I am more inclined to use a bottom-up approach to choose a good company in investment, as Mr. Yi dong said, we are now doing investment is to choose core assets, the future of profitable growth trend of good companies are worth our long-term investment.
Moderator Thank you Mr. Lin, such a return to the basics of the answer makes us feel very relieved, only by abandoning subjective judgment, a good company can achieve long-term gains.
Mr. Zhang, as a value depression, what is the time window for Hong Kong stocks to obtain excess returns relative to other markets? Are there any signals or opportunities?
Zhang Yidong This is a bit like the problem just now, there are often three full necessary conditions: First, everyone's expectations for China's economy have been improved to a certain extent, such as 2017, although China's economy was at a low level in 2017, but there is a trend of improvement, in 2017 Hong Kong stocks are bull market, leading in the world, bringing low valuation of finance, real estate, automobiles, especially real estate and automobile leading companies rose ten times or even dozens of times. As long as we do a good job in scientific and technological innovation, stabilize the expansion of domestic demand, and promote the reform of factor marketization, the global long-term understanding of China's economy will be different, if it is fast, we can see this scene in the middle of next year.
The second is whether there is price in (digested by the market) in the short- and medium-term dimensions, whether the bearish is fully released, and the "ghost stories" that can be thought of, including China's debt risk, RMB exchange rate risk, and real estate risk. After 2011, the world speculated around, now the Hong Kong market financial stocks, real estate stocks, cyclical industry leaders, such as cement, building materials, coal and steel leading companies Valuations have implied everyone's very pessimistic expectations for the Chinese economy, has priced in, dead pigs are not afraid of boiling water, even if there are negative factors, such as GDP -6.8% in the first quarter, the Hong Kong market has not fallen sharply, because it has priced in. If the bad news is already implicit in the stock price, but hovering at a low level, it is difficult to have further systemic risk.
The third is a group of good companies, this is the focus, the Hong Kong market is the constituent index, whether it is the HSI, or the state-owned enterprise index, basically driven by leading companies, more like the US stock market, Whether it is S&P, Dow Jones or NASDAQ, the bull market in the past decade, especially in the last three years, is basically the most bullish five technology companies with the index. The Hong Kong market is more embodied in institutionalization, there is no "leek", the institution is very concerned about the leading companies, if these leading companies can move against the economic cycle, the Hong Kong market is likely to come out before the macro variables improve. We don't know when the vaccine will come out, what if it comes to the second half of next year? Macro variables will still be suppressed, excellent companies have been listed in Hong Kong, changed the market value structure of Hong Kong, NetEase, Pinduoduo, Tencent, Millet, etc. are less affected by economic fluctuations, and are expected to take the index out of a relatively more sustainable slow bull, this state is a bit like the US stock market after 2010. The U.S. economy really got better in 2015, and at the end of 2015 the Federal Reserve began to raise interest rates for the first time, but the U.S. stock market rose in 2009, and the best companies took the index with them. We should attach great importance to the adjustment of the market value structure of the Hong Kong market, and the proportion of local stocks in Hong Kong is getting smaller and smaller.
Moderator Lin Zong, the current valuation of Hong Kong stocks is not high, which industries should be focused on in the next investment, and which ones are worth allocating?
Lin Cuiping low valuation is not the most important thing to invest, we still have to look at what the connotation value of the investment object is, the reason why the valuation is low, there may be several factors, the industry in which the company is located is not a mature state, if we bargain competition leads to a continuous decline in profit margins, of course, it will lead to a decline in market valuation, if the company's operating indicators have problems, it will also lead to investors will not favor it, and the valuation will decline further. So using low valuation as an investment choice is a very dangerous way, you need to understand what the reasons behind the low valuation are, the most important thing is to understand the intrinsic value of the company. I think investment is predicting the future, predicting our lifestyle, what kind of products we need, quality of life, health can be taken care of, the current global aging trend is very obvious, so investment must take into account these medium- and long-term things. I prefer to invest in companies that are growing in the future, and I am always growing with companies that are competitive. Investment ultimately shows the ability of enterprises to create value, of course, you have to invest in companies that can create value, these companies show economic trends, technology trends, innovation capabilities are comprehensive performance, such an industry will have ten times the opportunity of bull stocks.
The other piece is consumption, people's requirements for consumption quality are getting higher and higher, the general trend of consumption upgrading or the consumption demand of life mode changes will be constantly updated and iterated, which is also an industry with a long-term growth trend, and I am more inclined to choose these industries in investment.
Moderator Thank you to both guests. There is a tradition in the China Fund News column, two investors who invest in the capital market, are very well-known and experienced in the industry. Do the two guests have any recommended books for investors, so that everyone can learn and grow together?
Lin Cuiping I just recently read a book called "Cycle", this book is not to allow us to accurately predict the cycle, but to tell us to first examine where we are when making investments. For example, just now many investors have asked the question of valuation, you can look at the historical level of horizontal companies, or from the historical range of different industries.
When the position of "I" is relatively low, it means that the risk is relatively low, and investors can boldly make active investments. When you are in a relatively high economic position, be relatively cautious. Although this book does not clearly tell you how to judge the cycle in which you are, he provides a way of thinking, how to judge the winning rate of investment by examining the historical position of the surrounding or investment target, and let the winning rate of investment stand on your side, this book will give you a good inspiration.
Zhang Yidong is very interesting, this book is also on my desk, it is my second recommended book, and I also like this book. The first recommendation is to put it at home, basically every month to turn over the book, called "Poor Charlie's Book", this book was given to me by the leaders of the Industrial Securities Global Fund a few years ago, I like it, very similar to my philosophy, it emphasizes that you have to broaden your mind, especially to have reverse thinking. The author of the book is Charlie Munger, a very intelligent man who emphasizes investing in his own circle of competence. As an ordinary investor, you must also know your own ability, since professional things can not be done by themselves, you should ask excellent investors like Lin Zong to help take care of it, give children to school, give children long-term money to marry their daughters-in-law, buy the best assets with long-term investment logic, cross the cycle, and achieve value preservation and appreciation.
At a low level, we must use professionalism to overcome fear, if you look at WeChat Weibo all day, it is all negative information, such as Sino-US relations, the epidemic, but in a long run, the gods and horses are floating clouds, these are noise. The book "Poor Charlie's Book" can make us more intelligent, more aware of not dwelling on short-term bargains, and not picking up sesame seeds and losing watermelons. Around the great companies, the best companies, when the price is right, regular investment, now is a good time. Look more at the Poor Charlie's Book, you can have better insight, pull out the short-term floating clouds, and don't cover your eyes for the floating clouds.
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