How many questions worth thinking about investment in 2020? On November 23, Chen Guangming, the “fund boss” and general manager of Ruiyuan fund, made a rare public speech at a University Forum and expounded his views.
According to the meeting minutes obtained by surging news, Chen Guangming said in his speech that his views on the A-share and Hong Kong stock markets are generally cautious and optimistic.
“I think there is little probability that the future valuation will continue to shrink, and there is a probability that the valuation will rise, so there is a basis for top-down stock selection.” Chen Guangming said that from the cost performance of the stock market and the comparison between China’s history and overseas, A-Shares and H shares are at a relatively undervalued stage. With the arrival of new wealth and the entry of overseas funds and long money, China’s capital market will have a steady upward trend in the long run.
With regard to the possible excess returns in 2020, Chen Guangming believes that there are three: first, it is very logical for the growth of performance to reflect the growth of stock price; Second, excellent companies with cheap valuation due to short-term pressure; Third, a first-class and half company with second-class prices.
However, Chen Guangming also reminds us that we should be careful for some companies that are not in the head. Under the current economic environment, companies that are not in the top three of the subdivided industries may have a relatively large risk coefficient. Generally speaking, the market is still in the process of the strong being the strong.
macro: China’s economic resilience may be better than expected
“With regard to the outlook for 2020, let’s start with the macroeconomic situation. In fact, it is the most difficult to predict the macroeconomic situation, but when discussing the outlook for the capital market, macroeconomic is the most basic foothold and an inseparable topic.” In Chen Guangming’s view, firstly, China’s economic resilience may be better than expected. Secondly, there is a possibility of improvement in foreign demand.
Chen Guangming said that we have seen that the inventory of society is actually low, and there may be force behind the infrastructure, so in fact, the data behind may not be as bad as you think.
With regard to the decline of enterprise profits, Chen Guangming believes that the decline of enterprise profits is related to several major sectors, and has a great relationship with automobile manufacturing from the terminal point of view. The base of ferrous metals and chemical raw materials is too high because of the early supply side reform. For these two sectors, if the economy is not so bad in the short term, the profits do not necessarily slide all the way down. In fact, the turning point of the automobile manufacturing industry has appeared. It is hard to say the upward range, but there will be no double-digit negative growth.
Market: cautiously optimistic and long-term confident
Looking forward to China’s capital market in 2020, Chen Guangming expounds his views from the aspects of valuation, enterprise profits, institutional reform, interest rate, resident wealth allocation and overseas capital allocation.
“On the whole, from the cost performance of the stock market and the comparison between China’s history and overseas, A-Shares and H shares are in a relatively undervalued stage. With the arrival of new wealth and the entry of overseas funds and long money, China’s capital market will have a steady upward trend in the long run.” According to Chen Guangming, at present, the economy is in the process of transformation and upgrading. What we need to do now is to improve social productivity. Both the deepening of capital formation and the problem of population are facing great pressure, and we can only rely on the improvement of social productivity.
Chen Guangming pointed out that the main advantage of China in the long run lies in the scale effect of the huge market. Countries with small markets cannot become large manufacturing countries, because no matter what R & D or production line investment they make, their scale can not reach the amount of economies of scale. However, China has a population of 1.4 billion and has a huge unified market, and the scale effect advantage is reflected in all walks of life, Whether it is home appliances in the past or cars in the future, except for integrated circuits, which are a little difficult due to capital and technology intensive, most other industries will gradually move towards the forefront of the world. Of course, this is a very long-term thing, but we should have confidence in it.
Specifically, in terms of valuation, Chen Guangming believes that China’s stock market is in a relatively low position, or a low position in the world, both horizontally and vertically. However, many people don’t see this because the period is too short. It takes a long time to recover the valuation, which may take 3-5 years. In my opinion, there is little probability that the valuation will continue to shrink in the future, and there is a probability that the valuation will rise. Therefore, there is a basis for top-down stock selection, and I am cautious and optimistic about the overall market.
In terms of corporate profits, Chen Guangming pointed out that many people think that a bad economy will lead to poor income of listed companies, which will lead to poor profits and EPS, which will affect the poor stock market. However, there are two weak correlations in the logic. One is that the income of listed companies is not so correlated with the growth of GDP. Listed companies are relatively excellent companies or representatives of some leading companies. The current poor economy may be that small enterprises exit very much, while large enterprises are not so bad; Second, even if the income of listed companies is not so good, it may not bring a sharp decline in profits. On the contrary, some leading companies are still growing. Now there are many industries with good competitive structure. After the decline of income growth rate, the profit margin has not changed or even improved. Moreover, on the whole, its income growth is faster than GDP growth, so many companies do not have so much pressure to maintain double-digit income and profit growth.
On the institutional reform of the capital market, Chen Guangming pointed out that institutional reform has been done all the time. First, introduce foreign capital, which is a great driving force for ecological change in recent years; The second is the implementation of China’s long-term funds, which may take some time. I think there will be an obvious change in 3-5 years; Third, strengthen market supervision, strictly eliminate bad listed companies and support good companies.
In terms of interest rate, Chen Guangming said that when the economic situation is bad, the numerator and denominator will decline at the same time, which is almost inevitable. It is expected that the risk-free interest rate will decline after the second quarter of 2020.
” residents’ wealth allocation may have a watershed in the past two years. As long as the new reinvestment every year is more for the stock market, the help to the stock market will appear.” Chen Guangming particularly mentioned the imbalance in the distribution of wealth among Chinese residents. Statistics show that Chinese families allocate more than 70% of their real estate. In terms of the ratio of GDP, market value and real estate, the United States is 1:1:1; China is about 1:0.7:5. This problem has appeared for many years, but there is no opportunity and catalyst for change, but now this catalyst appears, and the policy weakens the expectation of rising real estate prices.
Chen Guangming also reminded everyone to be cautious about the logic of additional allocation of foreign capital . “In the long run, I think there is no problem with the additional allocation of overseas funds to China, but in the short term, for example, there is little growth in the second half of this year, possibly due to uncertainties and other factors, so the short-term judgment of the logic of additional allocation of foreign funds needs to be cautious.”
thinking: the source of excess return on investment
With regard to the possible excess returns in 2020, Chen Guangming believes that there are three: first, it is very logical for the growth of performance to reflect the growth of stock price; Second, excellent companies with cheap valuation due to short-term pressure; Third, a first-class and half company with second-class prices.
In Chen Guangming’s opinion, good companies should have a premium. From the pursuit of good and cheap in the past, we now think that first-class companies have first-class prices, and even some companies already have some premiums. On this basis, it is a challenge for everyone to obtain excess returns. When the prices of these companies are given enough, We need to make some forward-looking judgments different from the market.
Do excellent companies under pressure in the industry have investment value? Chen Guangming said that for the definition of core assets, we often define them as the companies that rise the best. For those excellent companies that do not rise much, many are not defined as core assets due to short-term pressure. The value of these companies is not in the end from the perspective of short-term game, but it needs to be extended.
As a value investor, Chen Guangming pointed out that the focus is not whether a company is good or not, but whether the company has been fully valued. Good quality must be given a premium, but there is a degree. It is necessary to analyze from bottom to top which may be underestimated and which may be overestimated.
“The core of our value investment is whether you really want to privatize the company in your pocket. If you don’t, even if you buy a heavy position, it’s more or less speculative.” Chen Guangming said that value investment is actually an arbitrage process. In fact, many do not mean that it must be done for a long time. The reason why we combine long-term and value investment is to be prepared for long-term judgment.
In Chen Guangming’s view, if asset prices fail to achieve their goals, they will not worry too much with the long-term protection of this tool. However, if the price has been realized within one or two years, it must be sold, which is the real value investment. Therefore, the long-term is a tool, not the core of value investment. The core of value investment is that the price is lower than the value.
Therefore, the arbitrage of value investment can be divided into four categories: first, time-based arbitrage, the growth of time-based compound interest; Second, arbitrage based on enterprise moat. Only companies with barriers can talk about the significance of time-based growth. If there is no moat, it is an average return. If there is only average return, everything is the same; Third, arbitrage based on entrepreneurs is to select which entrepreneurs do better than others. Good entrepreneurs will build and dig deep moats without damaging them; Fourth, arbitrage based on human nature, that is, people abandon themselves. Real value investors can overcome and make use of some weaknesses of human nature.
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(surging News)
