In the early morning of February 17, Beijing time, Charlie Munger attended the annual meeting of the daily journal and responded to many questions such as why he increased his position in Alibaba and how to judge the current economic environment. In Munger’s view, China’s investment opportunities still deserve attention.
Daily journal is a legal newspaper group company headquartered in Los Angeles. Munger is the chairman of the newspaper group.
jiacang Alibaba
still optimistic about China’s investment opportunities
Regulatory documents disclosed in early 2022 showed that Charlie Munger’s newspaper and software business company daily journal Corp. By the end of 2021, it held 602060 ADRs of Alibaba, almost doubling its position of 302060 at the end of September last year.
Daily journal has been building positions in Ali since the first quarter of 2021. The reason for building positions is that it needs some securities as cash equivalents. These cash equivalents are usually US Treasury bonds. However, due to the low return on investment of US Treasury bonds, the company has invested in common stocks.
In this regard, Munger said that Alibaba is an investment opportunity that makes him feel comfortable: holding securities will face risks, either losing money or falling stock prices. “We will have some measures to avoid (some degree of loss), and we don’t mind some small withdrawals.”
Munger believes that, at least for now, the risk of buying Alibaba shares is not as big as it seems. Alibaba has a very competitive advantage, even in the highly competitive retail field.
When talking about why he chose to invest in China (enterprises), Munger said that every dollar invested in China (enterprises) has more advantages. The companies they invest in are stronger than their competitors, but the price is lower: “China is a modern country with such a large population and has achieved such a huge modernization in the past 30 years. We have invested some funds in China because we can get more value in China than in the United States in terms of enterprise strength and securities price.”
In conclusion, Munger believes that the three core reasons for investing in the Chinese market are: considerable economic growth, competitive enterprises and cheap valuation.
the result of US inflation is gradually emerging
In terms of economy, with the higher than expected us CPI data in January, the market believes that the probability of the Federal Reserve raising interest rates by 50 basis points in March is getting higher and higher.
Munger said that printing money is the simplest way to deal with the deficit, but it can not fundamentally solve the problem. Munger believes that the bad outcome of the massive printing of money in the United States is gradually emerging. “History shows that printing too much money can lead to ‘terrible trouble’, and we are now very close to this result, closer than before. I hope we can stay away from these troubles.” Munger said.
In the 1970s, the US economy also experienced a round of severe inflation. Paul Volcker, then chairman of the Federal Reserve, finally overcame high inflation with an interest rate of more than 22%.
Munger said that raising interest rates was to fight inflation, which was a period of severe recession. “I’m not predicting that the government will bring the economy back into this recession, but that the problems we face now may be different from the old problems of the 1970s.”
As for how individual investors deal with the negative impact of inflation, Munger believes that they still need to buy or hold high-quality assets. “For example, we have Chinese stocks, Berkshire stocks and a little daily journal stocks. I think this is very good.”
foreign investment banks are optimistic about China
In the context of the gradual withdrawal of global quantitative easing monetary policy, Charlie Munger is not only optimistic about the Chinese market.
According to the data of research company EPFR global, about US $16.6 billion net flowed into Chinese equity funds in January, which is the fourth time that the monthly capital inflow exceeded US $10 billion since the epidemic. The data also showed that the net inflow in December last year was nearly $11 billion.
Cameron Brent, research director of EPFR, said that since the fourth quarter of last year, investors’ interest in China has actually increased. And Brent believes that the latest wave of buying comes from institutions rather than retail investors: in the view of institutional investors, for various reasons, emerging markets, especially the Chinese market, will perform more “safe” this year.
In the past few months, some global investment banks have also begun to be optimistic about a shares. CNBC, a well-known financial media in the United States, issued a document on the evening of February 15 local time, saying that five well-known investment banks, including Credit Suisse, UBS and Goldman Sachs, have voiced their optimism about the Chinese market.
In its 2022 global equity strategy report, Credit Suisse upgraded China’s stock rating to “overweight”. “China’s liquidity policy is easing while other countries are tightening monetary policy. China’s economic momentum is improving,” its global strategy team wrote in a report in late January
In late October last year, UBS announced that it would raise the rating of Chinese stocks to “overweight”, two levels higher than the “underweight” rating in the summer of 2020. Its emerging markets strategy team also said in January that their most confident stock concept includes many Chinese Internet companies such as Alibaba.
Liu Jinjin, chief China equity strategist at Goldman Sachs, said the MSCI China index is expected to rise 16% this year because its valuation is still lower than the price earnings target of 14.5 times of Wall Street investment banks. Last week, his team released an 89 page report on “why Chinese A shares have become more suitable for global investors”. They believe that the reasons for investing in the world’s second-largest stock market are mainly based on the easier access of foreign investors to the Chinese market and the low proportion of foreign positions in A-Shares so far.
“Investors are too pessimistic about Chinese stocks,” HSBC analysts wrote in a report on February 7, which confirmed their call to upgrade Chinese stocks to overweight last October. The analyst believes that the current valuation of blue chips is very attractive and predicts that the Shanghai Composite Index will rise 9.2% and the Shenzhen Component Index will rise 15.6% this year.
In January, Bernstein released a 172 page report entitled “Chinese stocks: no longer ‘non investable’.”. “We believe that these six key reasons give investors reason to increase their exposure to China in their global portfolio,” said an analyst at the investment research company
