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: Wang Xiaoqian

Before the holiday, the central bank simultaneously implemented policies to reduce the reserve requirement ratio and interest rates, and introduced a series of incremental measures after the holiday. With the multiple bullish policies driving it, the stock market's activity has significantly increased. From September 24 to October 8, in this round of market rebound, the CSI 300 index rose by more than 32%, the SSE Composite Index rose by over 26%, and the ChiNext Price Index rose by over 66%.

However, after a strong rebound in A shares, the market has experienced volatile conditions recently, and the future market trend is of great concern to investors. Will the market trend continue? What about the investment attractiveness of equity assets?

Loose policies have stimulated market vitality.

On September 24, the central bank announced a series of loose policies, including lowering policy interest rates, and creating new monetary policy tools to support the stable development of the stock market.

Xing Ziqiang, Chief Economist of Morgan Stanley China, analyzed that the central bank not only rarely lowered the main policy interest rate by 20 basis points, but also reduced the reserve requirement ratio by 50 basis points. The central bank also provided forward guidance for the first time, indicating that interest rates are expected to be further lowered by the end of the year.

Meanwhile, the People's Bank of China also announced the establishment of an initial 500 billion yuan RMB swap facility to support securities, funds, insurance companies, and other investments in the stock market, as well as an initial 300 billion yuan RMB special re-lending quota to support listed companies' stock buybacks and shareholdings. Xing Ziqiang believes that these measures have effectively boosted market and consumer confidence.

In addition, unlike previous years, the September Political Bureau meeting focused on economic issues as the main topic. The government pledged to increase public spending and emphasized promoting the stabilization of the real estate market. Xing Ziqiang believes that this is the strongest signal the market has seen so far.

Morgan Asset Management believes that the continuous introduction of financial policies reflects a proactive response to the current economic situation. Measures such as reserve requirement ratio cuts, expected interest rate cuts, lowering of existing home loan rates, and the introduction of new monetary policy tools to support capital markets aim to reduce the financing costs of the real economy, strengthen financial support for the real economy, stabilize capital markets, and provide strong support for the high-quality development of the economy.

Shen Yufei, Chief Equity Investment Officer and Fund Manager at BlackRock Funds, analyzed that looking back at the market performance in September, driven by expectations of monetary and fiscal policy stimuli, A-shares, led by Hong Kong stocks, staged a counterattack, forming a "V-shaped" reversal trend, with the STAR Market and GEM leading the market to recover the decline seen throughout the year.

BlackRock Fund's fund manager Bi Kai stated that the recent stock market has rapidly risen under a series of economic stimulus policies, with trading volume sharply increasing. As of October 8, 2024, the Hang Seng Index and CSI 800 Index have both reached levels near the highs of 2023, completing a phase of upward movement where risk-free rate declines combined with equity risk premium convergence. During this phase, the market was mainly driven by sentiment and funds, characterized by rising valuations with no significant changes in listed company profit expectations.

Improving fundamentals are providing support for the market.

Zhou Wenqun, Deputy Director of Equities at Fidelity Funds, stated that since September 24, the Chinese government has introduced a series of economic stimulus policies, including support for real estate, consumption, government projects, bank capital increase, mergers and acquisitions, and other measures, demonstrating the Chinese government's firm determination to boost the economy.

Furthermore, Zhou Wenqun further stated that the Chinese government has placed economic growth in a more important position, directly facing and attempting to solve problems. With monetary and fiscal policy working together, policies will gradually become effective. Given the continued improvement of China's economic fundamentals and the attractiveness of valuations, it is currently an opportune time for global investors to pay attention to the Chinese market.

Looking ahead to October, Shen Yufei believes that after experiencing a rapid short-term increase, both the A-share and H-share markets will see an increase in market volatility. With fiscal policies gradually being implemented, the market is expected to focus on new investment themes.

However, some institutions have issued specific warnings regarding market volatility. When looking at the market trend in the next 2-3 months, Bi Kai predicts that the market will enter a phase of observing the improvement trend in economic fundamentals. If there is a clear improvement in economic fundamentals, there is still room for further index gains; otherwise, if economic fundamentals fail to respond effectively to policies, further policy efforts may be needed to provide support, or else the index may face certain adjustment pressure.

Manulife Fund also stated that with the continuous introduction of subsequent policies, the strong market trend is expected to continue, and the valuation repair trend of related varieties is worth anticipating. However, it is expected that market volatility will significantly increase. In the future, close attention needs to be paid to factors such as the strength of the domestic economic fundamentals repair and overseas geopolitical situations to assess the sustainability of the market trend.

Consumption and other sectors may lead the way in the large cap market.

When discussing specific investment directions to be bullish on, Shen Yufei mentioned being bullish on three types of investment opportunities: firstly, investment opportunities with third-quarter performance exceeding expectations; secondly, industries potentially benefiting from the strengthening fiscal policies; and finally, industry sectors that are expected to benefit from the 'end of the 14th Five-Year Plan' "rush effect".

Bi Kai stated that looking ahead to the fourth quarter of 2024, he will continue to track investment opportunities that meet the following criteria: first, stocks are still at long-term low levels; second, despite significant macroeconomic pressures in the first half of 2024, they can still achieve reasonable operational profits and operating cash flow; third, if there is a clear improvement in the macroeconomic environment, there is significant room for improvement in ROE and profit margins. Bi Kai is optimistic about opportunities that meet these three criteria.

Zhou Wenqun believes that consumer-related and domestically cyclical sectors sensitive to the macroeconomy are expected to outperform the large cap market. These industries, supported by economic recovery and policies, will demonstrate stronger growth potential.

Fidelity Fund's stock fund manager Zhang Xiaomu believes that since late August this year, the market widely expects Hong Kong-listed leading internet and consumer industries to benefit from the Fed's rate cuts and China's policy adjustments. While these industries have shown strong performance, their stock prices have not fully reflected their improved performance, thus creating highly attractive investment opportunities.

BlackRock Debt Strategies Fund Inc fund manager Zhou Shaobo believes that, combined with the mid-year report and the upcoming third quarter report, the performance growth of relevant leading consumer companies remains solid and the operating quality is high. Some companies' second and third growth curves have gradually begun to contribute to performance, opening up the company's operating ceiling. Whether from an absolute valuation perspective or a relative valuation perspective, currently consumer industry related companies have relatively good valuation cost-effectiveness. Overall, consumer services assets may have good investment opportunities in the next six months.

Morgan Stanley's Chief Stock Strategist in China, Wang Ying, believes that different companies have various ways to benefit from the transition from a major market to China. Some companies will directly benefit from the central bank's market-stabilizing policy tools - these tools bring lower funding costs, and for these companies, using low-cost funds directly can improve shareholder returns compared to potential valuation reshaping opportunities. In addition, a series of fiscal measures mentioned in the political bureau meeting is expected to guide the economy out of low inflation. With more details coming out, industries that are significantly affected by inflation fluctuations, especially the personal consumption sector, are most likely to benefit. This sector currently has relatively low valuation, large market cap, and high liquidity.

Editor/Jeffy