Source: Wall Street See
Author: Qin Si.
In the latest quarterly report for 2024, Zhang Kun still maintains his attitude, his position, some of his heavy holdings, and his constant bullishness on the Chinese economy and stock market.
This quarter, he expressed his dissatisfaction with the current pessimistic expectations in the market in a strong and direct terms:
Pessimistic expectations in the market may be based on concerns about stagnation, which we strongly disagree with;
Considering the current level of economic development, there is no reason for stagnation as long as people's subjective initiative continues to play a role;
There is still significant room for improvement in the current per capita GDP level. As the per capita GDP level increases, the most direct effect will be reflected in the continuous improvement of people's living standards.
Some high-quality companies are trading at valuations (price-to-earnings ratio, market capitalization/free cash flow) that can be justified even in privatization scenarios.
The biggest risk faced by long-term investors is actually the privatization of high-quality companies. Fortunately, it is not a high risk for most of our holdings.
This season, Zhang Kun's investment portfolio has also seen some interesting changes. Let's take a look together.
New "investment Vane"
According to the latest quarterly report, by the end of the second quarter of 2024, Zhang Kun's total assets under management approached 61.7 billion Chinese yuan. It is worth mentioning that, perhaps unbeknownst to many, nearly 30% of this total is accounted for by two QDII funds.
At the same time, given the broader assets and markets covered, Zhang Kun's operations within these two QDII funds have become more flexible and adept. When his A-share fund portfolio changes are not obvious, QDII funds have instead become a vane to observe Zhang Kun's strategies.
CNOOC, Tencent, and TSMC Are His Favorites
Looking at specific holdings, in the E Fund Asia Select (QDII) managed by Zhang Kun, the top holding is $Taiwan Semiconductor (TSM.US)$, followed by $CNOOC (00883.HK)$ and $TENCENT (00700.HK)$.
In his other managed funds, CNOOC and Tencent each occupy prominent positions among the heavy holdings, while liquor stocks, China Merchants Bank, and others are also among his long-term favorites.
Asia Select Fund is still relatively flexible in changes. Among the top ten holdings, Samsung Electronics and $Futu Holdings Ltd (FUTU.US)$ have entered the top ten, while $Advanced Micro Devices (AMD.US)$ and $HKEX (00388.HK)$ have exited.
Increasing Holdings in South Korean Stocks
It is worth noting that the E Fund Asia Select managed by Zhang Kun outperformed the benchmark in the second quarter.
As of the end of the reporting period, the fund's net asset value growth rate was 7.19%, compared to the benchmark return of 7.07% over the same period.
Moreover, Zhang Kun might be one of the non-traditional QDII fund managers who is most willing to 'try new things.'
In mid-2023, the E Fund Asia Select managed by Zhang Kun held South Korean stocks, but the holding ratio was less than 0.5%. At that time, the attempt was with Samsung Electronics.
This time, however, South Korean stocks accounted for nearly 7% of the holdings in the E Fund Asia Select. From the information on the top holdings, it can be seen that the fund heavily invested in Samsung Electronics, with a holding ratio of approximately 4.81% of the net asset value. This means that besides Samsung Electronics, he has even explored other South Korean stocks.
Increasing Holdings in Samsonite and Prada
Looking at the quarterly reports of E Fund Blue Chip Select, E Fund Quality Enterprises Three-Year Holding, and E Fund Quality Select, Zhang Kun indicated that the stock positions remained relatively stable in the second quarter, with adjustments made to the structure, particularly in the consumer and pharmaceutical sectors.
Unfortunately, from the perspective of the major holdings, there is no visible adjustment in the pharmaceutical sector yet.
In the consumer sector, $SAMSONITE (01910.HK)$ and $PRADA (01913.HK)$ have entered the heavy holdings list of more funds.
Moreover, this is the result of active increased holdings.
Taking E Fund Blue Chip as an example, although it already held Samsonite at the end of 2023, the number of holdings at the end of the second quarter was 4.6 times that of the previous holding.
In addition, with Zhang Kun's adjustments, the proportion of Hong Kong stocks in all three funds has increased. Most notably, in the E Fund Quality Enterprises Three-Year Holding, the position in Hong Kong stocks increased by nearly 5 percentage points compared to the first quarterly report.
Not Worried About Demand Stagnation
Zhang Kun stated that, on one hand, investors in the market continue to actively embrace long-term government bonds and similar bond-like stocks despite repeated warnings from central banks about risks. On the other hand, investors are continually avoiding industries related to domestic demand. From these two perspectives, the market's consensus expectations are already very pessimistic.
Judging from the valuations of government bonds and stocks related to domestic demand, the market's pessimistic expectations may be based on concerns about stagnation, which he disagrees with.
Zhang Kun believes that the most important underlying factor is the unchanging diligence and wisdom of the Chinese people. Whether through the economic boom brought by the reform and opening-up or the significant achievements of overseas Chinese people, the past few decades have repeatedly proven this. There is no reason to believe that these will suddenly disappear. Considering the current level of economic development, as long as human initiative continues to be exercised, there is no reason for stagnation.
High-Quality Companies' Dividend Yields Surpass Dividend Stocks
Zhang Kun further analyzed that, according to the national development goals for 2035, China's per capita GDP will reach the level of moderately developed countries by 2035. This indicates that there is still considerable room for improvement in the current per capita GDP level. As the per capita GDP level rises, the most direct effect will be reflected in the continuous improvement of the people's living standards.
As long as people's living standards continue to improve and they keep enhancing their quality of life, he believes that a group of companies providing high-quality products and services will be able to sustain growth and generate returns.
Moreover, even if these companies maintain their current profit levels, their dividend yields are already close to or surpassing those of some traditionally defined dividend stocks.
He believes that regardless of the industry, as long as it drives continuous growth in per capita GDP, the people's living standards will keep improving, and pessimistic expectations will eventually be proven wrong.
Risks for Long-Term Investors
In this quarterly report, Zhang Kun also shared a new observation about the market:
(Currently) the greatest risk faced by long-term investors is that high-quality companies may be privatized, with controlling shareholders no longer willing to share the future development achievements of the company with public shareholders. Fortunately, the majority of the companies we hold at present do not have a high risk in this regard.
Rich Mines Still Exist
In Zhang Kun's investment framework, the fundamental conditions are that a business must have a good business model, certain competitive barriers, abundant free cash flow, and good corporate governance—in other words, the business operations must be of high quality.
However, within these preconditions, he also places significant weight on long-term growth potential. After all, this is a unique advantage for stock investors who are willing to endure volatility and an important source of higher returns. Continuous economic development provides the soil for the long-term growth of enterprises. In this regard, the domestic economy remains fertile ground.
Zhang Kun believes that considering the proportion of household consumption in the economy, the investment opportunities brought about by the improving living standards of the people due to economic development remain one of the most promising long-term rich mines in the stock market.
Currently, due to pessimistic expectations, the market is trading some high-quality companies at valuation levels (P/E ratio, market cap/free cash flow) that make sense even if these companies were to be privatized.
He believes that what is most important at this moment is patience, as the long-term return expectations for high-quality companies are very considerable.
Editor/Jeffy