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: Xu Ying

Over the weekend, various brokerage analysts have successively published articles interpreting the policy impact. Analysts generally believe that the 10 trillion yuan scale of debt-to-equity swap exceeds market expectations, and there is still room for further fiscal policy efforts in the future. In terms of investment opportunities, analysts believe that the implementation of the debt-equity swap plan may further support the strength of A-shares, and entities related to the debt-equity swap initiative are expected to directly benefit.

The 10 trillion yuan scale of debt-to-equity swap exceeds market expectations.

"The 10 trillion yuan scale of debt-to-equity swap exceeds market expectations, but it is just the prelude." Chief Economist Gao Ruidong of Everbright Securities stated that it is expected that before and after the economic work conference held in December this year, the first batch of supportive policies such as real estate taxes and issuance of replacement bonds will be implemented, while the second batch of policies such as increasing the deficit ratio and issuing special treasury bonds are highly likely to be specifically deployed and arranged during the National People's Congress in March next year. Under certain assumptions, it is expected that next year's general deficit will reach around 12 trillion yuan.

"This round of debt-to-equity swap measures will help reduce the hidden debt risks and interest payment pressure of local governments, providing a certain space for the general fiscal situation of local governments. The curtain of the current fiscal cycle has already opened, and the direction of fiscal counter-cyclical efforts is clear, especially with a significant amount of room for maneuvers in central finance. However, the possibility of a broad-based strong stimulus is not high, but rather focusing on stable growth within the framework of high-quality development." Haitong Securities' Chief Macro Analyst Liang Zhonghua stated.

"Since the monetary policy has played a combination of punches, the market still has high expectations for the specific scale and space of fiscal policy efforts. This meeting not only unveiled the 'combination of punches' in terms of debt-to-equity swaps but also introduced the arrangements for the next phase of fiscal work, playing a crucial role in safeguarding financial market expectations." The macro team at Industrial Securities commented.

Huang Fusheng, Vice President and Chief Economist of China Post Securities, believes that there is still room for central fiscal efforts to support domestic demand policies. In the previous press conference of the Ministry of Finance, it was mentioned that 'the central government still has a large space for borrowing and increasing deficits,' and the capital markets have high expectations for increasing the issuance of national ​bonds to directly support consumption policies. However, objectively speaking, it is already November, and the time window for adjusting the budget and increasing expenditures within the year is very short. It is more appropriate to start a longer-term 'debt conversion' plan.

Huang Fusheng further analyzed that the Ministry of Finance stated that there will be additional tax policies to support the real estate sector within the year, special national bonds to supplement the capital of state-owned banks are being accelerated, special bonds to support land collection, and purchase of existing land inventory will also be expedited. In the future, there will be active planning to enhance the deficit space next year, to issue ultra-long-term special national bonds, to expand investment in consumption support, and to increase transfer payments and other policies. The fiscal policy space for next year can still be expected.

Liang Zhonghua also stated that in the long run, China's economy has great potential. However, in the short term, with increased uncertainties in the international environment and the need to boost domestic effective demand, China's macroeconomic policies will continue to strengthen growth. The necessity of fiscal policy efforts is further emphasized. Firstly, there may still be room for further interest rate cuts in China's monetary policy, and gradual interest rate cuts may continue. Secondly, according to the needs of economic stability and growth, fiscal policy has the space and willingness to continue its efforts.

Expected to further support the strength of A shares.

How will the comprehensive debt conversion plan affect the trends of various assets?

Hua Jin Securities' Chief Strategy Officer Deng Lijun believes that in the short term, the implementation of the debt conversion plan will further support the A-share market with overall positivity and exceed expectations, leading to a more robust but volatile A-share market. Historically, the fluctuation trend of A-shares after a volume-driven increase is mainly affected by policies and liquidity, while the expectation of improved profitability at the fundamental level of A-shares is expected to rise. In the medium to long term, policies may further enhance the valuation and fundamental expectations of A-shares, further solidifying the basis of the bull market. In terms of industries, short-term debt conversion under fiscal efforts, technology, core assets, pro-cyclical and related industries may benefit.

Yang Chao, a strategic analyst at Galaxy Securities, believes that vigorous debt conversion can solve debt problems, improve the asset quality of related companies, and enhance their profitability. It is also conducive to improving the macroeconomic fundamentals, driving the turnaround of listed companies' profitability. Currently, the valuation of the A-share market is at a historically moderate level, and there is still high long-term investment value. With the implementation of vigorous debt conversion measures and the subsequent strengthening of fiscal policies, market risk appetite is expected to increase, investment confidence is expected to be boosted, and A-share valuation is expected to rebound.

Gao Ruidong believes that in the fourth quarter, the stock market will benefit from a positive resonance of the profit side, valuation, and risk appetite. It is expected that the index will gradually rise, continuing the slow bull trend. Gao Ruidong also mentioned that the RMB exchange rate is expected to fluctuate in the range of 7.1-7.2. The stable intrinsic support of the RMB lies in the increasing policy support and active capital markets, attracting fund inflows.

Huayuan Securities believes that the unprecedented intensity and determination of debt-to-equity conversion may lead to a passive bottoming out of the real estate sector, helping stabilize the real estate market. The market has underestimated the determination and passive impact of this round of debt-to-equity conversion, referring to international experience, effective debt-to-equity conversion is highly likely to rely on liquidity. It is judged that the subsequent real estate market may go through two stages of recovery: firstly, as the transmission of inflation from the asset side passively bottoms out, excessive focus on real estate policies themselves may desensitize the first stage of recovery; secondly, the reconstruction of supply-demand relations and the warming of housing prices.

Entities related to debt-to-equity conversion actions are expected to directly benefit.

Analysts generally believe that entities related to debt-to-equity conversion actions are expected to directly benefit.

According to the strategic chief of strategy at Shenwan Hongyuan Securities, Fan Jituo, under the background of debt-to-equity conversion, there may be four main investment themes in the stock market.

Firstly, in the medium to long term, enterprises that provide financing for local government construction projects are expected to see an improvement in receivables, enhancing asset quality, thus improving ROE and cash flow. Construction, environmental protection, and other industries have a high proportion of receivables, bills, and contract assets, which are expected to see undervalued recovery.

Secondly, for urban investment platforms, debt-to-equity conversion is beneficial in mitigating liquidity risks for regions with weak credit-rated urban investment platforms. At the same time, the credit rating of urban investment platforms is expected to upgrade, facilitating their refinancing capacity and transformation. It is advised to focus on stocks where the top ten shareholders have a high proportion of urban investment holdings.

Thirdly, the importance of financial debt-to-equity in this round of debt-to-equity cycle may increase. It is recommended to focus on three categories of related concept companies: those whose controlling shareholder is an AMC or an AMC subsidiary of a listed company; those whose main business is AMC of a listed company; those holding equity in provincial-level AMCs of listed companies.

Fourthly, special bonds for land reserve are expected to be launched again within the year, which will help improve the quality of land reserves for real estate companies, promote the balance of supply and demand in the real estate market, thereby stabilizing the market. Pay attention to the scale of inventory and the proportion of inventory to total assets of listed real estate companies. A high proportion of inventory to total assets may indicate that the company is hoarding a large amount of difficult-to-realize inventory, and land inventory may to some extent alleviate the liquidity pressure of relevant enterprises.

China Securities Co.,Ltd.'s chief strategist, Chen Guo, believes that the continuous attention should be paid to the asset revaluation under the debt-to-equity swap. The local government has introduced a comprehensive debt-to-equity plan, with the replacement and management of non-performing assets being a top priority, helping regional AMCs to enhance profitability through asset integration and structural optimization. At the same time, city commercial banks play a key role as core participants in regional finance during the debt-to-equity process, participating in non-performing asset restructuring and recovery. The construction decoration and eco-friendly industries are expected to improve their financial condition under the capital recovery and asset revaluation, with their profitability and valuation levels likely to be restored. It is recommended to focus on the construction of infrastructure and green environmental protection sectors, especially on central enterprises and local state-owned enterprises with stable operating assets and high accounts receivable elasticity.

Chen Guo also mentioned that local state-owned enterprises with high integration potential present investment opportunities, with a focus on local state-owned enterprises facing high debt pressure and a high degree of business homogenization. 'Under the promotion of the debt-to-equity policy, some local state-owned enterprises in industries such as real estate and infrastructure have accelerated the merger and reorganization process due to debt pressure demands. Many places have announced pilot projects to use special refinancing bonds for implicit debt resolution, which have achieved significant results, alleviating the debt burden of local state-owned enterprises,' analyzed Chen Guo.

Editor/Jeffy