Source: Brokerage China Author: Qu Hongyan Recently, China Yangtze Power hit a historical high and once again showed the slow bull stock trend of "tripling in ten years". The slow bull market has left behind many passers-by and brought good returns to the steadfast investors. It is "rare for those who triple in one year to be like carp jumping over the dragon gate, while those who double in three years are few and far between." On the other end of the investment world, however, violent collapses are also deafening, with many financial products suspected of "Ponzi schemes" ceasing payments, leaving investors with no hope of recovering their investments. Both positive and negative cases illustrate the importance of forming a suitable mentality towards money in one's lifetime; otherwise, sooner or later, you will divorce yourself from your money. "I call this the money mind, a person's IQ can reach 120, 140, or even higher levels, and perhaps some people's minds are good at doing one thing, while others are good at doing another. They can do things that most ordinary people can't do. But I know some very smart people who make very foolish decisions because they lack the money mind." Buffett once said so. The so-called money mind refers to believing in common sense, believing in compound interest, being cautious and rational, thinking independently, prioritizing security over return, not dealing with people with questionable character, not easily guaranteeing for others, not believing in windfall profits, and not trying to cross legal norms for extra benefits. In today's world of ubiquitous information, everyone's wealth may become the "prey" of those with ulterior motives. Only with the money mind, can one form good behavior habits and shield oneself from separating from one's wealth. Do not entrust your wealth easily. Wealth is easy to lose but hard to accumulate, and trust is a vital reason leading to the rapid loss of wealth. "Do not allow anyone else to manage your business unless you can watch their every move closely and understand their behavior; or you have strong reasons to believe in their character and ability. For investors, this criterion determines when you can let someone else make investment decisions for you." Graham's criterion written eighty years ago is so clear. Almost all the investors who lost their wealth in the financial products have violated the above two criteria. They did not have the ability to closely supervise the whereabouts of their funds, nor did they have sufficient reasons to believe in the character of the product issuers. They easily invested their own wealth solely based on others' glib tongue and a piece of commitment paper. They did not act as gatekeepers of their own wealth and ended up with nothing left even if the government punished the wrongdoers. "An ounce of prevention is worth a pound of cure." This is a phrase Munger often says. Destiny must be in one's own hands, and investors with a suitable money mind will try their best to find suspicious points in their investments to protect the safety of their principal. For example, whether the manager is trustworthy, whether the underlying assets are profitable, whether oneself can timely monitor the risks in the investment process, and whether the sales staff is obtaining large commissions. As long as any unreliable signs are found, these investors firmly will not invest their money. Do not desire to get rich quick. As in the capital market and anywhere else, making money is not easy, and desiring to get rich quick will lead to quick loss of wealth. In the capital market, the desire to get rich quickly often leads to investors over-allocating specific stocks, industries, or assets at the worst time. For example, buying high-risk stocks that can gain huge returns once an adventure succeeds, but the chance of success is very small, also known as "whispering stocks" by legendary fund manager Peter Lynch. "They often tell investors a story with explosive effects. These 'whispering stocks' have a hypnotic effect on people, and it is easy for you to believe that the story the company tells has an emotional appeal that can easily confuse you." This is like hearing a very tempting "sizzling" sound, making you salivate, but you did not notice that there is no steak on the grill. In the eyes of investors who lack the money mind, stable yield provided by blue chips such as China Yangtze Power cannot meet their demands. However, historical experience clearly shows that buying stocks lacking in safety solely based on imagined high yields is unwise. The long-term average investment return of general stocks is 9%-10%, which is also the average investment return of stock indexes in history, a benchmark to measure one's investment performance and the benchmark to measure fund investment performance.
Author: Chen Ming.

A recent report reveals that the Industrial Bank of France has increased its shareholding in China's stocks for the first time in two years. A few days ago, the Industrial Bank of France upgraded its China stock allocation from neutral to high.

Meanwhile, JPMorgan analyst Alex Yao, who was bearish on Chinese tech stocks two years ago, has turned bullish on the sector. Yao recently said that Chinese tech stocks still have about 20%-25% upside potential.

Another piece of good news comes from China's bond market. Huo Yingli, Party Secretary of the China Foreign Exchange Trade Center, said on June 20 that overseas investors have been net buyers of domestic bonds for 16 consecutive months, with the scale of bond holdings exceeding 4 trillion yuan, a historic high.

Let's take a look at the detailed report!

Increase holdings of Chinese stocks

On June 20, French Industrial Bank strategist Alain Bokobza and others said in a report to clients that since June last year, the US stock market has maintained a large allocation of 30% in its portfolio. The overall direction of its latest strategy has not changed, but more emerging market stocks around the world have been added, including Chinese stocks held for the first time since the end of 2022, while reducing holdings of Japanese stocks.

A few days ago, French Industrial Bank raised its rating on Chinese stocks from neutral to overweight, citing improved policy momentum and corporate earnings prospects. This was also the first time the bank has turned bullish on Chinese stocks since December 2022. Strategists such as Frank Benzimra said in a report at the time, "We may be entering the third stage of tactical rebound, and profit recovery is emerging." The bank favors offshore and large-cap stocks, as well as thematic stocks such as those with profit elasticity or stable dividends.

European stocks have also attracted attention. In its latest report, French Industrial Bank strategists said, "Please note that if it were not for the uncertainty of the French election, we would significantly increase our exposure to European equities." Strategists said they prefer smaller companies in the region, citing record low unemployment rates and declining interest rates, as well as strong earnings in peripheral countries such as Italy and Spain. As a result, the bank's strategists have raised their rating on European small cap stocks from underweight to neutral and shorted US small cap stocks to take advantage of "different central bank policies."

In addition to stocks, French Industrial Bank is reducing its fixed-income exposure, avoiding sovereign bonds, and redirecting cash to corporate bonds while broadening its investment scope to include high-yield bonds.

In addition, it is worth noting that Alex Yao, a JPMorgan analyst who was bearish on Chinese tech stocks two years ago, recently said that Chinese tech stocks still have about 20%-25% upside potential, and the stable development of the macro economy is the key factor influencing stock price trends.

"Considering the improvement of cost structure and easing competition, we believe that Chinese tech stocks still have about 20%-25% upside potential," Alex Yao said recently. Overall, if the macro economy rebounds, Chinese e-commerce companies will benefit from cyclical recovery in consumption. Investors have been closely watching Chinese economic data, including consumption growth, inflation, and real estate market development, to look for clues about the strength of China's economic recovery.

Alex Yao said recent macroeconomic indicators have shown early signs of stabilization, which has been the main driving force behind the rise of Chinese tech stocks this year and will be a key factor in driving future stock price trends. Improving Chinese consumption and strong exports have also given investors some encouragement.

Two years ago, Alex Yao lowered the rating of 28 Chinese tech companies, including [company name], in one breath, saying that the Chinese tech industry was "uninvestable," which caused a sensation in the market. Just two months later, he raised the rating of some of those stocks. $TENCENT (00700.HK)$ and $BABA-SW (09988.HK)$But now, Alex Yao's attitude has clearly changed dramatically. In April of this year, Alex Yao predicted in a report that Chinese tech stocks had bottomed out. And recently, Tencent and other tech giants have indeed led the Hang Seng Tech Index to rebound. Alex Yao emphasized that if Chinese tech companies can maintain long-term profit growth of 10% or even 20%, companies with sustainable profits should be rewarded.

Alex Yao's change in view of the Chinese tech industry also represents a change in the views of some investors who once questioned Chinese tech stocks.

China's bonds are also sought after.

Chinese bonds are also popular.

According to the news from The Paper, on the morning of June 20th, Huo Yingli, secretary of the party committee of China Foreign Exchange Trading Center, said at the 2024 Lujiazui Forum “General Assembly V: Benchmarking High-standard Economic and Trade Rules, and Promoting High-level Institutional Opening of Finance” that overseas investors have been net buying domestic bonds for 16 consecutive months, with the scale of bond holdings exceeding 4 trillion yuan, setting a historical record. Against the background of the inversion of U.S.-China interest rate differential, foreign capital continues to flow into the interbank market, highlighting the attractiveness of RMB financial assets.

Huo Yingli said that there is still a big gap between the current situation of openness in China's financial market and the goal of building a strong financial country, such as a low participation of overseas investors, a small scale of bond holdings, and insufficient hedging and management of risk derivatives. She said that in the next step, she will continuously enrich the financial product system, enhance the global pricing ability of RMB financial assets, continuously promote the innovation of green financial products, improve the series of derivatives such as interest rates and exchange rates, effectively exert the functions of financial derivatives in price discovery and risk management, continue to expand the opening channels, optimize the rules and mechanisms, deepen the interconnection of domestic and foreign financial infrastructures, and promote the institutional opening of the financial market.

Recently, the business operation of overseas business on the domestic RMB bond market of the interbank bond market released by the China Foreign Exchange Trading Center showed that in May, overseas institutional investors bought 959.8 billion yuan of bonds and sold 728.5 billion yuan of bonds, net buying 231.3 billion yuan. In April, overseas institutional investors bought 946.6 billion yuan of bonds and sold 820.2 billion yuan of bonds, with a net buying of 126.4 billion yuan.

Since this year, overseas institutions have been net buying domestic bonds for five consecutive months, with a total net purchase amount of nearly 950 billion yuan. Since February 2023, overseas institutions have been net buying for 16 consecutive months, with a cumulative net purchase amount of more than 2.4 trillion yuan.

According to the data released by the central bank, as of the end of May 2024, overseas institutions held 4.22 trillion yuan of bonds in the interbank market, accounting for about 3% of the total custodial volume in the interbank bond market. In May, four overseas institutional entities entered the interbank bond market. As of the end of May, a total of 1,128 overseas institutional entities have entered the market.

On June 20th, Howie Lau, Chief Financial Officer of JPMorgan Asia-Pacific and Joint Chief Executive Officer of China region, said at the Lujiazui Forum, "China is the second-largest economy in the world and has the world's second-largest stock and bond markets. We are confident in the long-term healthy development of the Chinese economy and the investment opportunities it brings."

Howie Lau said that the biggest news in the capital market recently is undoubtedly the release of the new "National Nine Articles". Overall, the new "National Nine Articles" emphasizes the high-quality development of the capital market, proposes that regulatory authorities will intensify efforts to improve the transparency and efficiency of the market, strengthen the construction of the rule of law, and enhance the cost of illegal activities. "We believe that the introduction of these new measures will help to enhance the long-term confidence and interest of international investors in the Chinese market," said Howie Lau.

Editor/Somer