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.

Since June, the technology growth sector represented by semiconductors and communications has continued to rebound and has developed an independent trend. As of June 21, the Shenzhen Electronics Index has risen more than 6% over the month, leading the market.

"Kote Gu" refers to China's technology characteristic valuation system, which is a valuation system reshaping related industries in the new round of science and technology revolution and industrial transformation represented by new quality productions. It mainly focuses on the transformation and upgrading of new quality productions, including China's leading advantage manufacturing such as electric vehicles and communications, independently controllable Chinese self-made high-end equipment and new materials, as well as advanced smart manufacturing of cutting-edge technologies such as AI and biotechnology.

Recently, five fund managers including Thunder Lei from Morgan Stanley Digital Economy Fund, Tao Lei from Debon Semiconductor Industry Mixed Fund, Lu Zhang from YongWin High-end Equipment Smart Selection Fund, JunKai Ji from Haifutong Zhongzheng Hong Kong Stock Connect Technology ETF Fund and Weiwei Song from China Europe Zhongzheng Chip Industry Index launched fund manager, answered some questions about "Kote Gu" in an interview with CnStock Journalist. What is the logic behind the continuous strength of "Kote Gu" in the current market environment? Which sub-segments are more worth paying attention to? How will the "Kote Gu" trend perform in the second half of the year?

Thunder Lei, fund manager of Morgan Stanley Digital Economy Fund: High-quality companies in the direction of technological innovation, especially leading companies involved in major national strategies, should be the key objects that the capital market should vigorously support and pay attention to.

Tao Lei, fund manager of Debon Semiconductor Industrial Mixed Fund: Many companies have begun to emerge from their performance lows and valuation repair is natural. The major categories such as computing power, storage, and consumer electronics represented by the fruit chain will be more worth paying attention to this stage.

Lu Zhang, fund manager of YongWin High-end Equipment Smart Selection Fund: In the medium and long term, the 'New Dumbbell' combination represented by 'Zhongte Gu' and 'Kote Gu' is expected to undergo value reevaluation, and businesses related to new quality productions are expected to benefit in the long term.

JunKai Ji, fund manager of Haifutong Zhongzheng Hong Kong Stock Connect Technology ETF Fund: Technology stocks are expected to usher in opportunities for valuation repair, especially in sub-segments directly benefiting from the development of AI (artificial intelligence) technology.

Weiwei Song, fund manager of China Europe Zhongzheng Chip Industry Index launched the fund: The establishment of the third phase of the National Big Fund has three characteristics: the first is large scale, the second is large market, and the third is big business.

The heat of "Kote Gu" remains undiminished by the combined support of the three factors.

In June, "Kote Gu" received continued attention, and the subdivision sectors such as communications equipment, semiconductor equipment, and consumer electronics led the market. What are the reasons behind this?

Thunder Lei believes that firstly, it is the support of policies. The direction represented by "Kote Gu" is precisely the new quality production, and supportive policies surrounding hard technology fields such as chips, AI computing power, and low-altitude economy are being continuously promoted, including the announcement of the establishment of the third phase of the National Big Fund. Secondly, the valuations of technology stocks are relatively low in history, which provides favorable conditions for the concept of "Kote Gu" to heat up. In addition, the market value of overseas technology stocks, including Apple, Microsoft, and NVIDIA, vying for the top spot, has raised attention on technology stocks, which have also been driven in the A-share related sectors.

Tao Lei expressed that the continuous heating up of "Kote Gu" is the consistency direction from multiple perspectives. Technology is the first productivity, and the technology industry has always been highly valued by the capital market, society, and relevant national departments. In recent years, the rapid development of AI has surprised everyone, is the new round of technological revolution brewing. From large models to computing power chips, to high-end chip manufacturing, each link seems to be crucial to the development of the industry, especially the relatively weak chip manufacturing link in our country.

Recently, the establishment of the third phase of the National Big Fund and the Fifth Meeting of the Central Deepening Reform Committee's proposal on "Several Opinions on Building a Technological Innovation Open Environment with Global Competitiveness" show the government's attention and support for the hard technology industry. From the perspective of the capital market, the market potential of "Kote Gu" is enormous, the development is accelerating, but many domestic listed companies have long been unable to enjoy the valuation level of overseas capital markets for similar competitive companies, and the overall development of the industry is also difficult to achieve the same acceleration due to a lack of effective support from the financial market.

Zhang Lu believes that behind the hot concept of "Ko Te Gu", it is mainly because "Ko Te Gu" is the industry valuation reshaping in the new round of technological revolution and industrial transformation represented by "new quality productivity" in China. "Ko Te Gu" is an important focus for achieving high-level safety and high-quality development of the industry and supply chain. In the process of "Ko Te Gu", the financing of the technology sector will gradually rise, which also reflects the important support of the capital market for new quality productivity. Product structure, 10-30 billion yuan products operating income of 401/1288/60 million yuan respectively.

Firstly, in recent years, the A-share and Hong Kong stock markets in the semiconductor industry have undergone deep adjustment, and the maximum decline of some Hong Kong consumer electronics and semiconductor leading stocks has exceeded 80%. The development of AI technology in the past two years has driven the demand growth for wafer foundry and advanced packaging technology, especially in the fields of AI PC, AI smartphone, and AI server.

Secondly, as a big year for sports, the hosting of related events has promoted the increase in sales of set-top boxes and televisions, thereby driving the demand for the semiconductor industry. In addition, the recovery of demand in the smartphone market, especially the recovery of the domestic market, has brought new growth momentum to the wafer foundry industry. At the same time, AI technology has played an important role in the business model transformation and cost efficiency improvement of Internet companies, further promoting the popularity of the "Ko Te Gu" concept.

The semiconductor industry chain leads, and the turning point of the cycle may have appeared

It is worth noting that the recent "Ko Te Gu" market is mainly concentrated in the semiconductor and related industries. Since June, the application index and semiconductor index have both risen by more than 8.9%, ranking first and second in the Shenwan second-level index. All top ten risers in the month were communication ETFs and semiconductor ETFs.

Behind the semiconductor market performance, an important driving factor is the assistance of the "National Big Fund Phase Three". According to the National Enterprise Credit Information Disclosure System, the "National Big Fund Phase III" (National Integrated Circuit Industry Investment Fund Phase III Co., Ltd.) was officially established on May 24th.

Song Weiwei stated that the establishment of the "National Big Fund Phase III" has three characteristics: firstly, it has a large scale, with a registered capital of 344 billion yuan, which exceeds the total of the previous two phases. Secondly, the market is large. China has the world's largest chip market, but chip dependence is large, and chips for terminals such as mobile phones, computers, servers, and automobiles, especially high-end chips, mostly come from imports, with huge import substitution space. Thirdly, it is about doing great things. The goal of the large fund is to concentrate resources to do big things, and the investment direction is the most urgent part of China's chip industry demand. The "National Big Fund Phase III" is expected to invest in advanced logic factories, advanced storage plants, semiconductor materials and other directions in the direction of wafer manufacturing.

Looking at the development of the semiconductor industry cycle, Lei Zhiyong pointed out that the cycle can be roughly summarized as "shortage of chips - expansion of production - overcapacity - reduction of capacity". The peak of this round of the semiconductor cycle is roughly in the second quarter of 2022. According to historical rules, the current period has arrived in the turning point of the cycle. With the basic completion of the semiconductor "destocking", the global semiconductor market is expected to recover in 2024. At the same time, with the new breakthroughs in the field of artificial intelligence establishing a new direction for the demand side innovation, the industry may usher in a new rising cycle.

"The utilization rate and price of wafer foundry have shown signs of stabilizing, which may indicate that the industry is undergoing a positive transformation," Ji Junkai believes that the turning point of the semiconductor cycle may have appeared. Especially in the field of advanced packaging technology, the demand for related equipment is expected to enter a period of rapid growth.

Regarding the subdivision of industry sectors, Lei Tao believes that from the perspective of cyclical recovery, the storage sector is more optimistic. The upward trend of storage prices is still being interpreted, and it is still worth paying attention to at the current point in time. From the perspective of industry development trends, the opportunities for computing power and end-side AI are still very good, and there are many combination points with consumer electronics semiconductors. This will accelerate the clearance of related products and bring about a new round of growth opportunities.

Technology stocks are walking in the spring breeze, with many opportunities in AI subdivision fields

Several fund managers believe that technology stocks are expected to usher in an overall valuation repair opportunity, and the field of artificial intelligence is also worth paying attention to besides the semiconductor industry chain.

Ji Junkai believes that technology stocks are expected to usher in a valuation repair opportunity, especially in the sub-sectors that directly benefit from AI (artificial intelligence) technology development. In the field of hardware terminals and electronic components, due to the increase in the penetration rate of AI terminals and the growth of demand for high-performance processors, there may be a repair in valuation. In the field of intelligent vehicles, with the improvement of the intelligence level of automobiles, related hardware and software services may also become the focus of market attention. In addition, the SaaS (software operation service) sector, especially those companies that introduce AI modules to improve payment rates and enterprise operating efficiency, may be favored by the market, thus promoting the repair of valuation.

"Index funds are a safer investment option for individual investors who lack professional investment expertise."

Currently, the global AI industry giants are still at an early stage of large-scale investment and industry penetration, and have not yet reached the accelerated stage from 5% to 30%. IT infrastructure, represented by computing power, is benefiting from AI demand and is still on the rise. From the demand side, breakthroughs in multimodality, AI applications, and long text limitations will continue to drive the growth of computing power demand.

From the perspective of fundamentals, the performance of some domestic computing power leading companies has entered a period of rapid growth, and it is expected that the second quarter performance growth rate of A-share computing power sector will be better than the first quarter. In terms of valuation, the valuation of the computing power sector is still at a reasonable level. When the prosperity of artificial intelligence is still good, the current valuation of the computing power sector, represented by light modules, still has a reasonable price-performance ratio. In the future, if the field of artificial intelligence can usher in more super applications similar to WeChat and TikTok, the investment vision of the industry will be broader, and there will be more original investment opportunities.

Many companies have already started to come out of their performance lows, and the valuation repair is a matter of course. Relatively speaking, the computing power, storage, and consumer electronics categories represented by the fruit chain are more worthy of attention at this stage.

"Zhongte valuation" is followed by "Kote valuation," and the value of the "new dumbbell" combination is reassessed.

Looking ahead to the second half of the year, many fund managers believe that the "Kote valuation" is likely to continue to receive market attention, and enterprises related to new production forces are expected to benefit in the long term.

Lei Zhiyong believes that the "Kote valuation" is likely to receive special market attention, and will enjoy a valuation premium due to its high-quality industrial competitiveness and scarcity. From the perspective of investment logic, high-quality companies in the direction of technological innovation, especially leading companies involved in national major strategies, should evaluate their long-term investment value from more perspectives and dimensions. These enterprises should become the key objects of capital market encouragement and attention. Specifically, sub-directions such as semiconductor manufacturing and design, core basic software, siasun robot&automation industry chain, energy equipment, smart automobiles, pharmaceutical research and development, and manufacturing will all become key sub-directions of market attention.

Looking ahead to the second half of the year, Ji Junkai stated that the overall style of the market may continue to focus on areas that benefit from AI technology development. Areas such as wafer foundries, advanced packaging, smart automobiles, and SaaS software services may continue to receive market attention. As AI technology further penetrates, hardware terminals and electronic components will also receive more attention. Investors need to closely monitor changes in market valuations of these areas, as well as the impact of macroeconomic environment and policy guidance on market styles.

Zhang Lu believes that in the medium to long term, the "New Dumbbell" combination represented by "Zhongte valuation" and "Kote valuation" is expected to welcome revaluation of value, and new quality production-related enterprises are expected to benefit in the long term. Under the resonance of domestic and foreign factors, opportunities with better cost performance that focus on technology themes can be more focused, such as the satellite internet direction, which will launch intensive networking in the second half of the year; the smart driving direction, where the integration of car-road-cloud will bloom in many places, and the car-road coordination project will land intensively; the mass production of humanoid robots is imminent, and robots have already "gone to work in factories," which are all directions worthy of attention in the era of new investment themes.

Editor/tolk