Source: China Fund News
Author: Cao Wenjing

With the disclosure of public fund reports for the second quarter of 2023 kicking off, well-known fund managers' positions for stock exchanges and their views on the future market are all over the paper.

Qiu Dongrong of Zhonggeng Fund said in the newly disclosed second quarterly report that the overall valuation level of A-shares has reached a historically low level. A moderate economic recovery is still conducive to a bottom-down recovery in corporate profits. Equity assets correspond to higher levels of risk compensation, and the opportunities outweigh the risks. From a structural point of view, opportunities are more widely distributed among value stocks and growth stocks anticipated for industrial transformation, and more attention will be paid to the continuous improvement of the fundamentals and profitability of enterprises.

Furthermore, the overall valuation level of Hong Kong stocks is basically around 10%, which is the lowest in history. Hong Kong stocks are very cost-effective, and some companies are scarce, so they continue to be strategically allocated.

High position operation! Drastic increase in the number of short videos, leaders in the photogasification pesticide segment, etc.

As of this year's second quarterly report, Qiu Dongrong's management scale was 28.103 billion yuan, a decrease of 12.21% from 32,013 billion yuan at the end of the first quarter.

In the second quarter, the five funds under Qiu Dongrong's management maintained high positions, with an average position of nearly 95%. Among them, Zhonggeng Value Leading, Zhonggeng Value's one-year holdings, and Zhonggeng Value's flexible allocation increased positions slightly to varying degrees. Stock positions increased from 92.86%, 92.20%, 93.73%, and 92.76% at the end of the first quarter of this year to 93.23%, 94.04%, 93.86%, 94.44%; the value of Zhonggeng Hong Kong Stock Connect was closed for 18 months A sharp reduction in positions, from 98.68% at the end of the first quarter of this year It fell to 98.18% at the end of the second quarter.

Looking at the top ten largest stocks in the past, take Qiu Dongrong's masterpiece Zhonggeng Value Leader as an example. In the second quarter,$CHINAHONGQIAO (01378.HK)$supplant$MEITUAN-W (03690.HK)$, becoming the most heavily held stock.

By the end of the second quarter, the fund held 1609.60 million shares of Hongqiao in China, up 9.96% from the previous period, and held a market value of 944 million yuan. The fund holds 7.670 million shares of Meituan-W7.67 million, down 11.33% from the previous period, with a market value of 865 million yuan.

In addition, the fund has reduced its holdings$Yunnan Chihong Zinc&Germanium (600497.SH)$,$YUEXIU PROPERTY (00123.HK)$,$CHINA OVERSEAS (00688.HK)$The holdings were reduced by 14.98%, 27.98%, and 26.10%, respectively. In the second quarter, the fund's holdings in COSCO Hyanneng and Shenhuo remained unchanged.

Furthermore, in the second quarter,$KUAISHOU-W (01024.HK)$,$Chongqing Chuanyi Automation (603100.SH)$,$Jiangsu Changshu Rural Commercial Bank (601128.SH)$Entering the top ten,$CNOOC (00883.HK)$,$Guanghui Energy (600256.SH)$,$YANKUANG ENERGY (01171.HK)$Then they quit the top ten.

In the second quarterly report, Qiu Dongrong said that in terms of future market investment ideas, he will adhere to the concept of undervalued investment, build a cost-effective investment portfolio by selecting individual stocks with reduced fundamental risks, positive profit growth, and cheap valuations, and strive to obtain sustainable excess income.

Another masterpiece by Qiu Dongrong is Zhonggeng's small market value. The second quarterly report shows that the fund significantly increased its holdings in the leading photogasification pesticide segment in the second quarter$Anhui Guangxin Agrochemical (603599.SH)$, shareholding increased by 61.26% over the previous period. In addition, holdings also increased$Guangxi LiuYao Group (603368.SH)$, reduced holdings, chihong zinc germanium$Chongqing Chuanyi Automation (603100.SH)$, right$Jiangsu Changshu Automotive Group Trim (603035.SH)$,$Zhejiang Huatong Meat Products (002840.SZ)$The shareholding remained unchanged. Second quarter,$Aima Technology Group (603529.SH)$,$Jiangsu Dingsheng New Material Joint-Stock (603876.SH)$,$Yangling Metron New Material (300861.SZ)$,$Amlogic (688099.SH)$New to the top ten.

The value of Zhonggeng Hong Kong Stock Connect, which was established in January this year, was closed for 18 months, and its leading short video positions were drastically increased in the second quarter$KUAISHOU-W (01024.HK)$By the end of the second quarter, the fund held 3.64 million shares of Kuaishou-W3.64 million, up 82% from the previous period, with a market capitalization of 179 million yuan. In addition, holdings have also increased$SCICLONE PHARMA (06600.HK)$,$MEITUAN-W (03690.HK)$,$XTEP INT'L (01368.HK)$, reduce holdings$COSCO SHIP ENGY (01138.HK)$,$TENCENT (00700.HK)$. Second quarter,$CH OVS G OCEANS (00081.HK)$,$CHINAHONGQIAO (01378.HK)$,$XPENG-W (09868.HK)$,$TONGDAO LIEPIN (06100.HK)$Then they are in the top ten.

The overall valuation level of A-shares has reached an all-time low, and future opportunities outweigh risks

In the second quarter report, Qiu Dongrong said that from a valuation point of view, the overall valuation level of A-shares reached an all-time low, the 10-year treasury bonds unilaterally fell to a low of 2.64%, the risk premium for China Securities 800 shares rose to 0.86 times the standard deviation level, and the interest to debt ratio was at the historical level of 100%. The moderate economic recovery is still conducive to a bottom-up recovery in corporate profits. Equity assets correspond to higher risk compensation levels. The opportunities outweigh the risks. From a structural point of view, as stock prices fall and performance digestion, the obvious proportion of highly valued companies has dropped dramatically, and opportunities are more widely distributed among value stocks and growth stocks anticipated for industrial transformation. Our allocation is more balanced, and we pay more attention to the continuous improvement of the fundamentals of enterprises and the increase in profitability.

The amplitude of Hong Kong stocks in the second quarter was greater than that of A-shares. The overall valuation level of Hong Kong stocks was basically around 10%, which is the lowest in history. Hong Kong stocks are very cost-effective, and some companies are scarce, and they continue to be strategically allocated.

In the second quarterly report, the investment directions Qiu Dongrong is focusing on include:

1. Internet stocks and pharmaceutical technology stocks with low valuations, stable business but strong growth attributes, and high future flexibility.

2. Value stocks with historically low valuations focus on supply-side contraction or rigid industries, and their potential elasticity in the face of demand recovery. The main industries include: resource and energy transportation companies represented by basic metals, real estate, finance, etc. in large market value stocks.

3. Undervalued but growing growth stocks focus on supplying cost-effective companies with competitive advantages, mainly in growing domestic demand. The main industries include non-ferrous metal processing, pharmaceutical manufacturing, electrical equipment and new energy, auto parts, light industry, machinery, etc.

(1) Based on the country's huge population base, it is possible to explore some segments where needs are determined. For example, in the pharmaceutical manufacturing industry, after the normalization of epidemic prevention and control, hospital diagnosis and treatment order was restored relatively well, and surgery-related pharmaceuticals and consumables grew rapidly. In the last ten years, domestic enterprises have been comprehensively improved from product strength to innovation. Many segments have entered the stage of rapid import substitution. Driven by policies such as health insurance negotiations, generic drug volume procurement, and DRG/DIP, domestic production substitution is accelerating.

(2) High-end manufacturing segment leaders with broad demand space, clear patterns, and leading cost and technical advantages. For example, in the lithium battery and automobile sectors, early concerns about the competitive landscape and upstream price risks put pressure on stock prices. After these companies' profits and valuations fell, the risks were fully released. Looking forward to the future, as the impact of vehicle electrification and intelligence on domestic brands and domestic supply chains deepens, the penetration rate of new energy vehicles will continue to increase, and related vehicles, components, and lithium batteries will all benefit from this.

(3) Segmented leading companies with unique competitive advantages in the broad manufacturing industry still have great potential to explore cost-effective companies. For example, the penetration rate and value of the manufacturing process represented by industrial automation and instrumentation in China has increased.

(4) Some growth stocks in growing industries such as computers and electronics. As the popularity of AI rises in the TMT industry, the overall valuation is high, but there are still a few companies with global competitiveness that have a lot of room for medium- to long-term growth; AI's impetus for the industry will be reflected in a longer cycle. Under the combination of autonomous and controllable national security and industry trends, the wave of localization of software and hardware will also be further interpreted, which will generate a long-lasting and broad demand drive for the IT industry. We will keep a close watch to identify companies that are truly competitive.

Editor/Somer