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

Despite the short-term market adjustment, many foreign institutions unanimously believe that the current Chinese stock market still has long-term investment potential. With the improvement of liquidity and further implementation of policy support, the market differentiation will intensify in the future, but the process of valuation repair also provides good investment opportunities for some sectors.

Specifically in terms of investment direction, foreign institutions generally bullish on consumer goods, new energy, and technology sectors, especially benefiting from policy support in home appliances, autos, and the rising cycle of AI supply chains and electric vehicle industry chains. It is expected that these sectors will stand out in the market differentiation and become the main direction of future investments.

Equity asset performance will further differentiate.

Huang Senwei, a senior market strategist at Lianbo Fund, stated that when reviewing the recent performance of A-shares, in late September, a series of bullish policies were introduced, including reserve requirement ratio cuts, interest rate cuts, easing housing policies, and support for market liquidity, which led to a significant rise in A-shares. From the low point on September 18th to the high point on October 8th, the SSE Composite Index, the CSI 300 Index, and the CSI 800 Index rebounded by 36.61%, 41.47%, and 42.56% respectively (calculated from the lowest and highest prices during trading hours), entering a "technical bull market," meaning the stock market rose by over 20% from the low point. However, due to the market's overly optimistic expectations about the policies in the short term, a market correction began after October 8th.

Dale Nicholls, a fund manager at Fidelity International, believes that the recent stimulus plan announced by the People's Bank of China, including interest rate cuts and other monetary tools to support the capital markets, has boosted the market. At this stage, in addressing market deflation risks and achieving real estate market stability, the corresponding commitments and measures are positive factors that boost consumer confidence and the recovery of domestic demand. Moreover, progress has also been made in relaxing real estate purchase restrictions and resolving housing inventory issues in China. The Ministry of Finance confirmed incremental fiscal policies on October 12th, including expanding the government debt ceiling and addressing local government debt in a press conference.

Facing the recent market situation, Schroder Fund analysis stated that as the valuation repair progresses, the bottom signal of the stock market is gradually becoming clearer. However, at the same time, the differentiation trend between stocks is starting to emerge, increasing the difficulty of investment decision-making in the market. Schroder Fund's deputy general manager An Yun indicated that the stock market's bottom signal is quite clear, but the valuation repair is approaching completion amid intense fluctuations. He expects that subsequent market fluctuations may gradually decrease, and stocks may differentiate.

Morgan Asset Management believes that the improvement in liquidity is a key factor driving the short-term market trend. Despite short-term market adjustments, with the continuous inflow of funds and policy guidance, the market is expected to embrace sustainable and stable development. When funds gradually return to rationality and the market shows differentiation, investors can begin to seek and seize the main growth potential representing the medium to long-term.

Current A-shares still have relatively high cost performance.

Several foreign institutional institutions have indicated that now is an opportune time to reconsider investing in the Chinese market.

Huang Senwei believes that from the perspective of global asset allocation, now is indeed a good time to consider replenishing Chinese stocks. First, the current allocation of foreign capital to Chinese stocks remains relatively low, with global active equity funds allocating only 6.1% to China, at historically low levels, indicating potential room for replenishment in the future. If this allocation level returns to a 'neutral' state, it is expected to have at least about 3 trillion RMB of potential buying pressure, this data does not include passive funds and hedge funds' replenishment space.

Furthermore, from the perspective of relative valuations of stock markets in various countries, global funds also have incentives to reallocate to Chinese stocks. Taking the Japanese stock market as an example, the P/E ratio of Japanese stocks is currently around 14.2 times, significantly higher than A-shares (12.6 times) and overseas-listed Chinese concept stocks (10.5 times); while the P/B ratio of Japanese stocks is comparable to Chinese stocks, the net asset return rate (ROE) of listed companies is lower, indicating the possibility of the convergence of the two countries' stock market valuations.

Not only that, from the perspective of chip fundamentals, global funds also have the potential to flow into the Chinese stock market. China's stock positions are at near-term lows, indicating low risk of overcrowding; China's monetary environment is relatively loose, with a higher possibility of continued stimulus policies. For global funds, the imaginative space for investing in Chinese stocks is relatively higher at this time.

Dale Nicholls stated that compared to history and the global market, the valuation of Chinese stocks still remains attractive with room for further expansion. From a global perspective, the overall return prospects of Chinese stocks are positive, and they perform strongly in areas such as technology, but the overall trend of return correction is downward. It is hoped that these policies can help drive positive changes in the economic fundamentals, leading to an improvement in return prospects. If a virtuous cycle can be formed, it will effectively drive continuous improvement in market sentiment and further enhance valuations.

Dale Nicholls believes that the traditional defensive sector of essential consumer goods has been oversold, creating opportunities in areas such as dairy products, beer, and condiments; overselling in optional consumer sectors such as sports outfits and home appliances also creates investment opportunities, and these two sectors will benefit from improved consumer confidence. In addition, wind power, new energy vehicles industry chain, automation, and medical care are also long-term directions that Fidelity is optimistic about.

Bullish on consumer goods and new energy sectors in the future.

In terms of sector selection, foreign institutions all state that future investment opportunities will focus on specific structural sectors.

An Yun emphasized consumer goods industries such as home appliances and automobiles, which are currently benefiting from the special national debt leverage-driven policy of replacing old with new. It is expected that these sectors will continue to receive policy support and become one of the structural opportunities.

The second structural opportunity is the export chain. An Yun believes that on one hand, the U.S. election may be favorable, and on the other hand, the RMB has already appreciated by 6% in stages, with limited potential for further appreciation. Therefore, industries related to the export chain are worth watching.

In addition, An Yun is also optimistic about dividend stocks, especially in the financial sector. He believes that the policy of non-bank financial institutions pledging stocks to the central bank for loans will favor high-quality, low-volatility long-term stocks, creating more demand for dividend stocks, and policies supporting mergers and acquisitions and eliminating net loss situations are also favorable for non-bank financial institutions like brokerages.

Morgan Asset Management China's Deputy General Manager and Chief Investment Officer Du Meng stated that currently A-shares are still at a relatively low level. With the stabilization of the macroeconomy, the market will gradually return to the profitability effect driven by industrial logic. Assets with good fundamentals in the previous period currently have high cost-performance ratios, making it a good time to lay out long-term opportunities in Chinese assets after market pullbacks.

Dale Nicholls believes that the traditional defensive sector of essential consumer goods has been oversold, creating opportunities in areas such as dairy products, beer, and condiments; overselling in optional consumer sectors such as sports outfits and home appliances also creates investment opportunities, and these two sectors will benefit from improved consumer confidence. In addition, wind power, new energy vehicles industry chain, automation, and medical care are also long-term directions that Fidelity is optimistic about.

In the long term, artificial intelligence remains a focus of attention. Global AI innovation is emerging constantly, and the development speed of the industry may far exceed expectations. Computing power is still a key focus at present, but with the continuous emergence of new applications, it will also continue to be closely monitored in order to seek long-term investment opportunities. In addition, China's electric vehicle industry has remained quite eye-catching in the past quarter, with significant investment opportunities already appearing in certain industry segments.

Editor/rice