On March 28, Li Feng, founding partner of Fengrui Capital, explained the macro opportunities in China's venture capital field at the 2021 Fengrui Sino-US Venture Capital Forum.
Li Feng believes that in 2020, which is full of uncertainty, everyone avoids making medium- and long-term decisions. From 2020 to 2021, multiple factors are pushing things in the good. Uncertainty in many areas becomes relatively certain, and the psychological expectations of market participants change accordingly. Investors' risk appetite will increase. Combined with the huge liquidity unleashed globally over the past year, the market is filled with so much money. In the process of finding returns, capital will flow to various countries and various types of assets, which also makes investment more opportunities at the macro level.
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The uncertainty of 2020
The uncertainty of 2020 is enormous. In a short period of time, people cannot change the external situation, but can only adjust themselves and adapt to great uncertainty. In the midst of uncertainty, everyone avoids making relatively risky decisions and tries to find certainty.
For example, in a normal year, Car sales in the first six months of China accounted for 40% of the whole year, and the last six months accounted for 60%. Last year, everyone didn't make a decision to buy a car. Car sales accounted for 70% of the year in the last four months. Another example is the relatively low fertility rate in 2020, because buying a house and having children is a long-term decision that affects the next 15-20 years.
Last year had a very special period. At the end of March 2020, the spread of the epidemic in the United States was confirmed. At that time, all the assets in the world were falling, including low-risk and safe-haven assets – such as Treasuries, gold, Bitcoin – only one thing was rising, and the dollar index was rising. At one point the dollar was as high as 7.1 against the renminbi, and today it is 6.5.
This is very typical investment behavior caused by great uncertainty. In this mentality, people are only willing to hold the most certain assets – simply put, US dollar cash.
After April 2020, the price of safe-haven assets slowly recovered, and risky assets gradually recovered. At that time, everyone did not know how long and how big the epidemic would affect. In the capital markets, the stocks that have risen the best are certainty stocks. For example, the leading Internet company in the United States. There are not many big Internet companies in China's A-shares, and the ones that have risen well are white horse stocks or hugging stocks, medical health, and consumer necessities: liquor, condiments, etc.
That's the theme for 2020.
2021 tends to be certain
The biggest change in 2021 is the trend toward certainty.
As weather warmer, the spread of the virus has improved in the advanced economies of the Northern Hemisphere.
Most countries have experienced outbreaks. Its impact tends to be deterministic.
The vaccine began to be universally administered.
Most countries have maintained economic stimulus policies.
These four things are all positive for the economy. Uncertainty is becoming relatively stable.
All walks of life began to make decisions about the future in the medium and long term, and the expectations were determined: whether it was the work of individuals or the economic situation of the whole society, it would get better and better.
In 2021, investors, entrepreneurs, and mentalities are moving from uncertainty to certainty. Willing to do medium- and long-term planning, willing to make risk-biased decisions.
Where does the money come from?
The people who participated in the capital markets last year made more or less money. Where does the money come from?
More than $20 trillion was printed worldwide last year. The global capital market capitalization has increased by more than $30 trillion.
By the end of last year, the market capitalization of the secondary market of the global capital market added up to more than $100 trillion, exceeding the global GDP. Of that, about $50 trillion was realized last year.
Printed so much money. There is more money, and there are also changes in expectations and psychology.
In the United States, before 2008, the Fed's balance sheet was $850 billion. After three and a half rounds of quantitative easing after the financial crisis, the balance sheet became $4.2 trillion.
At the beginning of 2020, their balance sheets were still at the size of $4 trillion. The impact of the epidemic has begun to print money to stimulate the economy. July to 7 trillion. At last year's rate, it will soon reach 9 trillion or even 10 trillion.
In the past, stimulus policies were mainly given to commercial banks through various forms. Commercial banks then flow to the market in the form of loans and so on. This time, more money is given to the Ministry of Finance, directly to fight the epidemic or sent to the people.
Overall, the time of printing money this time is extremely short, the scale is extremely large, and it has never happened in history. We're not sure how much it will affect the future. Assuming it's a bubble, how challenging will it be when it bursts?
In 2021, the market is full of so much money that in the search for returns, assets will flow to various countries and asset classes.
Also in previous years, China has further opened up its financial markets, allowing foreign-controlled and wholly-owned financial institutions to come in.
The opening up of China's financial markets meets the epidemic – it is a special opportunity and a huge challenge. With so much money printed out of the world, if it comes to China, the impact will exceed expectations, and when they leave, it will also pose a challenge.
Every sudden printing of a large amount of money will exacerbate the gap between the rich and the poor. Because money becomes cheaper, and it is more efficient to make money with money than it is to make money with labor, who can make money with money? man of wealth.
China has made many systematic efforts to narrow the gap between the rich and the poor. Antitrust has also begun in the case of large Internet companies. From a global perspective, this may be a common phenomenon, and there will be antitrust against large companies.
On the other hand, new platforms such as Douyin, Didi, and Meituan have recently completed capitalization. The beginning of each cycle is the beginning of the above wave of large platforms landing in the capital market. Because of the requirements of the capital market, listed companies need to maintain revenue, resulting in the focus of the previous generation of platforms is no longer on innovation, there will be opportunities for the next generation of new platforms.
Will the technology investment boom continue?
For China, technology substitution and investment fever will continue for a long time. This is both an international environmental impact and an internal development requirement. If we want our economic value to increase significantly, to ensure that employment and workers' incomes increase, this is almost the only option.
From February to March last year, everyone was still discussing whether China's manufacturing industry chain would move out of China and shift to various countries. There has been no discussion since July.
The book Boom and Bust tells the story of america's economic development from different economic perspectives. It talks about the drive for development of very typical application technologies. For example, in the steel industry in the 19th century, because the industrial chain and market size were in the United States, the innovation in the industrial chain occurred in the United States. It's a similar situation in China now, such as smartphones, electric cars, home appliances and small appliances that we have seen before. China has an industrial chain and demand, and applied innovation will quickly drive technological innovation. This is a long-standing thing.
What are the opportunities for consumption?
Under normal circumstances, after China's economic development enters this stage, the proportion of consumption of necessities will decline, and the proportion of service industries will rise.
However, last year, due to the impact of the epidemic, the proportion of our necessary consumer goods increased. China's consumption was markedly polarized last year. The biggest hit by the pandemic is the middle class. Because of the lack of confidence and certainty in the company's future income changes, the consumption behavior of the middle class will decline, and it will buy and use it first. Relatively speaking, the consumption of the rich will recover first. For example, in the first eight months of last year, China's luxury car sales exceeded the whole of 2019.
This year growth has returned to certainty, gradually back on track, less polarized.
It is worth noting that last year there were very, very few new products of all kinds in offline retail, shelves, supermarkets and convenience stores. Large companies are too busy solving inventory and restoring supply chains during the epidemic, and it is too late to re-plan. So we see a lot of new brands in online retail. This year will be very different, with large companies putting two years of innovation into a year and already knowing how consumers are affected by online factors through observation.
Ten years ago, consumers saw a product offline and went online to find the same model. Now consumers see a product on Xiaohongshu and Douyin and buy it offline. This is a clear change in consumer habits.