Hong Kong stocks topped the world in 2017, with the Hang Seng Index hitting a 10-year high in November before falling back. With regard to the trend of the Hang Seng Index in 2018, various major institutions have also expressed in their outlook for 2018, saying that "sitting three and looking at four" is not a dream, while others say that "rising first and then falling", there are many views.

In the atmosphere of a bull market in Hong Kong stocks, some private equity funds that have been active in the Hong Kong market have performed exceptionally this year. Qiao Xuan, a fund manager of Jingyuanxuan, began to invest in Hong Kong stocks in 2007, and in the past ten years this year, he adheres to the investment method of "value + trend", observes the market with strategic vision, avoids investment risks and pursues the "stability" of investment.

What investors are most concerned about right now is whether there are still opportunities for the Hong Kong stock market in 2018. Which plates are worthy of attention? How should it be laid out?

With these questions in mind, Zhitong Financial APP interviewed Qiao Xuan, a manager of Jingyuanxuan Fund, at the 2017 Snowball Carnival in Shenzhen on December 10. Qiao Xuan not only expressed his views on the future of Hong Kong stocks, but also shared his methods and experiences of investing in Hong Kong stocks for ten years.

Zhitong Finance APP:What is the proportion of your fund funds allocated to Hong Kong stocks this year?

Qiao Xuan:For the whole year, the allocation of Hong Kong stocks is more than 50%. At this stage, our total position is only about 40%, all of which are allocated to Hong Kong stocks. By comparison, the valuations of Hong Kong stocks are relatively low, and there are many stocks that have not risen much this year and are undervalued, so choosing undervalued stocks can play a defensive role. Although A-share small-cap stocks fell a lot, but the valuation is still very high, there is no defensive value, large-cap stocks, white horse stocks have risen very high, the valuation is reasonable or even part of the bubble, the risk of falling is greater.

Zhitong Finance APP:Which plates are the main configurations?

Qiao Xuan:One is the asset management sector, that is, the four major asset management companies. There are two in Hong Kong, China Huarong and China Cinda. First of all, this industry is good.With a growth rate of about 10%, both of them are good, with a high growth rate and a low growth rate. Huarong's growth rate is a little higher, with revenue growth of 50% and profits of more than 30% this year. The two stocks have not risen this year and their valuations are still relatively low. In 2017, Huarong's PE is still about 4.3x, 4.5x, and ROE is still 20%. For me, even a bear market will not lose money.

Strategic layout and vision

Zhitong Finance APP:You have been investing in Hong Kong stocks since 2007. I think few people will pay attention to Hong Kong stocks in 2007. Why did you suddenly invest in Hong Kong stocks?

Qiao Xuan:I consider my own factors, in 2007, I was still a small retail investor, did not form their own set of mature strategy, investment strategy is gradually formed in the later time. At that time, I compared the A-share market with the Hong Kong stock market, both of which were dominated by domestic enterprises.

In A shares, facing a large number of institutions and a large number of retail investors, where is my advantage? Hardly any. In Hong Kong stocks, there were very few mainland investors at that time. I thought that in a market like Hong Kong stocks, there were mainly foreign-funded institutions, and retail investors were mainly Hong Kong residents, but enterprises were all domestic investors. As a mainland investor, I had a great advantage, which is equivalent to our mainland investors investing in US stocks. We have a strong information advantage. I think I may have more advantages in investing in Hong Kong stocks.

Zhitong Finance APP:In 2017, benefiting from the environmental protection policy and supply-side reform, both the paper industry and non-ferrous metals rose very well, but when they fell, they also fell sadly. From the strategic layout and perspective, do you think this wave of market is over, and will there be a chance next year?

Qiao Xuan:The market for commodities has no long-term investment value for me because the industry is completely constrained by production, not by brands. Including steel, coal, paper industry, any company does not have any gap, so we need to find a certain brand value and premium in the industry.

Products like the paper industry are particularly constrained by the supply of the industry. After the supply-side reform last year, the price of the paper industry rose, output will increase, and the demand side will be compressed because it can be replaced. In this case, the paper mill has little pricing power, so the profits of the paper mill as a whole fluctuate with commodities.

I don't pay much attention to the paper industry this year, but after rising for a year or two, I see that the price of the paper industry is already falling. Prices in the secondary market reflect this trend in advance, react in advance when they rise, and fall quickly when they fall, for example, Sunshine Paper has fallen by 50%.

Opportunities and risks coexist in 2018

Zhitong Finance APP:Hong Kong stocks hit a 10-year high in November this year. What do you think is the logic behind supporting Hong Kong stocks to reach new highs?

Qiao Xuan:I think the following logic is based on two major circumstances:One is that since the opening of the Shenzhen-Hong Kong Stock Connect and the Shanghai-Hong Kong Stock Connect, mainland funds have been moving southward since last year.

Southward funds must be mainland companies that they are most familiar with. Therefore, at the end of last year, there was a very good investment opportunity for Hong Kong stocks. Because the valuations were relatively low, some companies rose first, such as real estate and automobiles. After a certain profit effect, they moved south on a larger scale.

It seems that the Hang Seng Index has risen 30% this year, mainly due to the rise of stocks in the mainland 100 Index, especially Tencent, which is the best, up 110% this year. Geely Automobile and Sunac have both earned several times. In terms of the index, the mainland 100 index rose the best, which is a general environment.

The second big environmentUs stocks are the leader in the global bull marketUs stocks, represented by technology stocks, have risen very well this year. Hong Kong's AAC stocks are also in line with the global trend, and it will be better to drive the whole market.

Zhitong Finance APP:What do you think of the valuation of Hong Kong stocks up to now?

Qiao Xuan:Hong Kong stocks have risen so far, valuations are above-average. Now Hong Kong stocks are only one step away from reaching a new high, with a peak of 31000 points in 2007. It rose to 30,000 points last month, only one step away.

Just now I read Huang Ruogu's general report. from the Hang Seng Index, its dividend yield has almost reached the bottom of 2% of the bull-bear conversion, so there is a rise in the future, because I see the trend. Hong Kong stocks are still in a bull market, but they are already in a relatively high-risk period. When I work in Hong Kong stocks, I can feel the risks.

The entire Hang Seng Index has risen very well, but only about 10 of the 50 constituent stocks are rising. Tencent, Geely Automobile, HSBC and Standard Chartered of banks, Ping an and AIA of insurance, and so on, that is, these stocks are rising, and the others have not risen much. China Mobile Limited is still down this year.

On the whole, I am pessimistic about next year, because after a year or two of gains, both A shares and Hong Kong stocks are not cheap. It is those stocks that support the rise of the index. The A shares are 20 or 30 stocks, and the Hong Kong stocks are the stocks mentioned just now, supporting the rise of the Hang Seng Index. Most stocks, many of them seem to have fallen wildly.

Zhitong Finance APP:Your previous article, "what to buy next year?" it said that you are more optimistic about small and medium-sized stocks with modest gains in Hong Kong stocks. Why?

Qiao Xuan:From an investment point of viewFirst, you can't chase high.Therefore, stocks must be the process from undervaluation to overvaluation, so stock selection should choose the risk that is not big and can be controlled. Once it turns into a bear market, at least it will not fall very badly.

Small-cap stocks have not risen very much this year, and the style of Hong Kong stocks is very obvious. originally, there is not much capital in the market stock. The first few stocks and large-cap stocks have absorbed the capital volume. Of the 100 billion trading volume of Hong Kong stocks, the first one accounts for 10 billion or 20 billion yuan. If it absorbs funds, small-cap stocks must have fallen miserably.

If there is no more concentrated rally in the market next year, relatively speaking, when we do not have a good target, some small-cap stocks with lower value will have a better chance.But it's only a sporadic opportunity, from a big perspective.

I ask the industry to maintain at least a relatively large capacity and rapid growth, such as the insurance industry, asset management industry, big consumption, technology sector, as well as clean energy, education and other sectors, which I focus on. Because these industries are growing fast, high-quality companies will grow faster and tend to sell bull stocks. Of course, some of these plates have gone up a lot, overall.Next year, I will be more optimistic about the asset management industry, which has not yet risen a lot.There are two stocks: China Huarong and China Cinda. The whole industry can maintain annual growth of more than 10%, and the leader can maintain income growth of more than 30%. I think it is good, and the valuation is low.

Top-down, "value + trend" combined with investment

Zhitong Finance APP:Now it's the end of the year, what do you think will happen to the Hang Seng Index next year?

Qiao Xuan:I will be more pessimistic because of the bull-bear cycle. During the ten years of the Hang Seng Index, the bull-bear boundary of the Hang Seng Index is very clear. An index falls when it reaches its peak, rarely oscillates sideways, and falls very low, but it also goes up very quickly when it is reversed, so it is difficult to tell the change of the whole market trend.I follow the trend myself but don't predict it.It's just that from the perspective of the current valuation of the Hang Seng Index and the increase in the past two years, I would be more pessimistic.

Zhitong Finance APP:Do you pay more attention to trends?

Qiao Xuan:I am a combination of value investment and trend, and I don't have any secrets. I mainly look at the market.Both A shares and Hong Kong stocks are bull markets, and it is much easier to pick stocks and pick up the industry. The second is to select the industry. the industry we choose is with large capacity, and then the growth is relatively good, preferably with more than 10% growth. at present, the market is also optimistic about this industry. we think that there are a lot of white horse shares in this industry. our choice of the company is very clear, the company does not need in-depth research, can also obtain very good benefits. This is my top-down strategy.

Another point is the trend of event-driven classes.Event-driven in A shares and Hong Kong stocks is a big factor, and many investors doing stocks are actually event-driven. For example, this week there was a heated discussion about Poly Real Estate Group, which was triggered by an announcement. Poly Real Estate acquired 50% of its parent company Poly Hong Kong shares, which increased by 25% in six trading days. I also analyzed this announcement. Then bought a little position, a little bit of income, such an opportunity is a trend triggered by the event.

Ten years' experience of Hong Kong stocks: do not speculate, give priority to stability

Zhitong Finance APP:You have been investing in Hong Kong stocks for just 10 years since 2007. Do you have any experience and experience of investing in Hong Kong stocks?

Qiao Xuan:Do Hong Kong stocksBe sure to think about it from a defensive point of view, and never think about stocks that have soared.Hong Kong stock market is a relatively volatile market, once up, from the perspective of mean return, the next is likely to be a big correction.

After such a decade, it is estimated that two or three stocks like Tencent can really get out of the long bull. For most of us, we are not sure to choose the next Tencent, so we must choose stocks from the perspective of valuation. Especially for individual investors, the goal of learning must be to do it from a very low valuation, not to overweight the position, that is, the average point, and sell it after it goes up. Do not pursue the high and powerful expectation of 10 times in five years and 10 times in three years in the long run.

Zhitong Finance APP:Don't you want to do the long term?

Qiao Xuan:It's not that we don't do long-term work.The strategy must be "stable". Don't speculate. Speculation will suffer a lot in Hong Kong.If you just kill one, you'll lose all your money. Do not go to do warrants and so on, must be stable.

Zhitong Finance APP:Do you think the risk of buying a Hong Kong ferry will be great?

Qiao Xuan: it's very big, so I don't recommend it. Because we are betting against institutions, with current issuers such as JPMorgan Chase & Co and Morgan Stanley, how can small retail investors beat others? Some people will make money, but most people will definitely lose money, just like following casinos, some people will make money, and most people will definitely lose money.