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: Pei Lirui

On August 23, Eastern Time, Federal Reserve Chairman Powell delivered the clearest signal of an interest rate cut to date at the Jackson Hole Global Central Bank Annual Meeting, announcing that "the time for policy adjustment has come." He also believes that the U.S. economy is growing at a "healthy pace", and his confidence in lowering inflation to 2% has increased, alleviating concerns of an economic recession. He did not mention "gradual" rate cuts, leaving room for more significant policy adjustments.

This statement has triggered strong expectations in the market that the Federal Reserve is about to enter an interest rate cut cycle. On August 23, the U.S. stock market opened high and continued to rise.$Russell 2000 Index (.RUT.US)$The S&P 500 index and the Nasdaq index rose sharply by 3.19% and 1.47%, respectively.$USD (USDindex.FX)$It weakened in response and approached the 100 point mark.$U.S. 10-Year Treasury Notes Yield (US10Y.BD)$Falling to 3.81%, COMEX gold also returned to $2550 per ounce.

Many fund companies have stated that based on the performance of major asset classes in historical rate-cut cycles, investors can focus on investment opportunities in US bond funds, gold funds, and small-cap US stock funds. A-shares have also performed well in previous interest rate downturn cycles. However, at the same time, there is a high level of market optimism in the short term, and investors need to be aware of possible adjustment risks.

The signal for interest rate cuts by the Federal Reserve is constantly strengthening.

In fact, over the past week, the signal for interest rate cuts by the Federal Reserve has been continuously strengthening.

First, on August 21, the Federal Reserve released minutes from the July meeting, which showed that some committee members believed that the current inflation and employment conditions had met the criteria for an interest rate cut. On the same day, the US Department of Labor significantly reduced its non-farm payroll data, indicating that the US employment situation slowed earlier than expected, providing a possible scenario for a 25 basis point rate cut at the July meeting.

Then, on August 23, Federal Reserve Chairman Powell spoke for the first time at the annual global central bank meeting, saying that "the time for policy adjustment has come," boosting global market sentiment.

Cathay Fund believes that Powell's speech this time shows a clear change in attitude compared to the previous ambiguity about interest rate cuts. With the continuous mild cooling of US inflation data and the unexpected rebound in the unemployment rate in July, the certainty of rate cuts at the September 19 meeting has increased.

Morgan Fund also stated that the downward revision of US non-farm employment data highlights the weakness of the US job market, which is beneficial to increasing the probability of Fed rate cuts and is positive for market sentiment. In terms of Fed policy, the market may have concerns that the Fed's policy in election years may be restricted. However, historical data shows that the Fed maintains its independence from politics in election years and strives to fulfill its dual mandate of price stability and employment. Expectations for rate cuts in September have increased significantly for the Fed.

As of August 25th, data from the FedWatch Tool of the Chicago Mercantile Exchange showed that the cumulative probability of a 25 basis point rate cut by the Fed in September was 61.5%, and the cumulative probability of a 50 basis point rate cut in September was 38.5%. At the same time, the market expects the Fed to cut interest rates 5 times this year.

Funds discuss asset allocation schemes for major asset classes.

US monetary policy has a profound impact on global capital markets and the allocation of major asset classes. In particular, this year, market expectations for Fed rate cuts have experienced multiple "return runs," and prices of major asset classes have fluctuated greatly in the oscillation between "rate cut trades," "reinflation trades," and "recession trades." Which assets are expected to benefit during the rate-cut cycle? Many fund companies have provided asset allocation schemes for major asset classes.

HSBC Jintrust Fund has calculated the performance of major asset classes during past rate-cut cycles and found that in the past 5-9 rate-cut cycles, Asian dollar bonds, gold, and equity assets have achieved relatively high positive return ratios and decent average returns, while commodities and the US dollar have performed relatively weakly.

For example, in the recent 5 rate-cut cycles, Asian dollar bonds have achieved positive returns with an average return of 13.31%; in the recent 7 interest rate downward cycles, gold has achieved positive returns 6 times, with a positive return ratio of 85.71% and an average return of 25.31% in the recent 9 interest rate downward cycles, the Nasdaq index and$S&P 500 Index (.SPX.US)$Most stocks have performed well, with a positive return ratio of 77.78% and an average return rate of around 26%; In addition, A-shares have also performed well in previous interest rate downturn cycles, even if the "surge" stage in the early days of the Shanghai Composite Index is excluded, there is still a positive return ratio of 57% and an average return of 10.66%.

The investment advisory team at Fuguo Fund believes that the Fed's rate cuts can be divided into relief rate cuts and preventive rate cuts. This round of rate cuts belongs to preventive rate cuts, similar to the rate cuts in 1995 and 2019. The US economy is marginally weakening, but the consumer sector remains resilient, with inflation levels falling below 3% and continuing to decline moderately. In this context, the Fed's preventive rate cut may result in a performance similar to the 1995 rate cut, with the order being: stocks > commodities > gold > US bonds.

If the economy significantly rebounds and the PMI returns to expansion, the investment advisory team at Fuguo Fund believes that commodities are expected to perform well, especially crude oil which may perform well under low inventory and supply disruptions; The pattern of strong stocks and weak bonds is expected to continue, with limited downside space for US bond yields; In terms of equities, US stock valuations are high, with greater flexibility in Hong Kong stocks; Considering geopolitical and US election uncertainties, as well as the risk of reflation, gold may have good support.

In the event of a recession risk, the investment advisory team at Fuguo Fund believes that gold and US bonds may perform better, while US stocks and commodities may face greater downward pressure.

Morgan Fund suggests that investors may consider focusing on a diversified allocation strategy across major asset classes, which helps to diversify and enhance the portfolio's ability to withstand risks and capture long-term opportunities. On one hand, the benchmark scenario for this year remains a soft landing of the US economy and rate cuts by the Fed, which may benefit stock assets from profit growth and valuation rebound. On the other hand, to address risks such as the Fed delaying rate cuts, investors also need to focus on the defensive side of asset allocation, pay attention to opportunities in US Treasury bonds and investment grade credit bonds, which can help control the overall portfolio's volatility.

US bonds, gold, and small-cap funds are expected to benefit.

Based on the assessment of the performance of major asset classes mentioned above, several fund companies recommend that investors focus on opportunities in US bond funds, gold-themed funds, and US small-cap stock funds during the Fed rate reduction cycle.

Among them, the main investment targets of US bond funds are Chinese yuan-denominated US dollar bonds and US Treasury bonds. Currently, there are about 15 US bond funds on the market, with 9 of them achieving over 3% returns in the past 3 months. ICBC Global USD Bond A RMB, Changxin Global Bond RMB, and Dacheng Global USD Bond A RMB have achieved returns of 6.17%, 4.44%, and 4.37% respectively in the past 3 months.

Good Buy Fund Analysis believes that whether the Federal Reserve's interest rate cut is precautionary or relief-oriented, it usually leads to a decline in long-term interest rates on U.S. Treasury bonds. Data shows that after the four rounds of initial interest rate cuts by the Federal Reserve in September 1984 (soft landing), July 1995 (soft landing), January 2001 (hard landing), and September 2007 (hard landing), the long-term interest rates on U.S. Treasury bonds all declined to varying degrees within the following six months, which had a positive impact on the performance of U.S. bond funds. Among them, short-term and medium-term U.S. Treasury bonds have a higher level of certainty, and attention can be focused on long-term bonds after the interest rate cut is implemented.

In terms of gold, Guotai Fund believes that against the backdrop of excessive monetary issuance and fiscal deficit monetization, the U.S. dollar credit system is facing challenges. In addition, frequent global geopolitical unrest is promoting asset reserve diversification. The continuous increase in demand for gold as a safe asset and the global trend of "de-dollarization" make gold a potential new pricing anchor, giving precious metals the potential for an upward trend.

There are currently 17 ETFs in the whole market.$HUANGJINETF (518880.SH)$Among them, there are respectively 13 gold commodity ETFs and 4 gold stocks ETFs.$MaxWealth CSI SH-SZ-HK Gold Industry Equity ETF (517520.SH)$It is worth noting that in recent times, there have been gold commodity ETFs and [159562.SZ] gold stocks ETF.$ChinaAMC CSI SH-SZ-HK Gold Industry Equity ETF (159562.SZ)$There is a clear trend divergence, with 13 golden commodity ETFs rising by over 3% in the past 3 months, while 4 golden industrial concept ETFs have fallen by over 8% over the same period.

At the same time, a US Federal Reserve rate cut may attract more funds towards risk assets represented by US stocks, especially for small and medium-sized technology companies sensitive to interest rates. For example, after Powell's speech on August 23rd, the Russell 2000 small cap stock index, representing small cap stocks in the USA, surged 3.19% in a single day, outperforming the 1.18% gain.$NASDAQ 100 Index (.NDX.US)$

Yujin, Deputy Director of the International Business Department of Pu Yin An Sheng, said that with rate cuts and lower financing costs, there is hope to increase the company's capital expenditures and raise market expectations for the profit capabilities of related stocks, which is particularly important for small and medium-sized companies with limited cash flow.

In the previous environment of high US interest rates, small and medium-sized software technology companies have continued to be under pressure in terms of capital expenditures, inhibiting technology research and development beyond AI. With the US rate cuts possibly coming soon, technology companies are expected to accelerate research and development pace, hasten long-term development, and strengthen market expectations for their profit prospects.

However, some companies also warn of high short-term market optimism, advising investors to be mindful of potential adjustment risks. Guotai Fund stated that Powell's dovish remarks at the Jackson Hole meeting also boosted confidence in a soft landing for the US economy, benefiting gold, US Treasury bonds, and global equity market rebounds. Nevertheless, amidst uncertainties such as rate-cut trades, US elections disruption, and global geopolitical conflicts, global capital markets are expected to remain volatile.

Editor/rice