Li Huasong, general manager assistant and equity investment director of Ping An fund
Master of Peking University. He has successively served as an analyst in the Institute of securities companies, a researcher and a fund manager in public funds. He joined Ping An Fund Management Co., Ltd. in March 2018 and is now the assistant general manager, director of equity investment and fund manager of the company.
the annual report performance differentiation between different industries is serious
first finance and Economics: with the successive disclosure of the annual reports of A-share listed companies, each company also handed over the transcripts of the past year, and the annual report market has also become a focus of the market. From the overall situation, what do you think are the more significant characteristics of the disclosed annual reports of listed companies?
Li Huasong: I think the first feature of the annual report is that the performance differentiation between different industries may still be serious. Because last year’s commodity prices and the prices of raw materials in the upstream actually increased relatively large, from the annual report performance this year, it may be that the performance of some industries and enterprises in the upstream is relatively good. For some enterprises in the middle and lower reaches, on the one hand, the cost is under pressure, on the other hand, since the second half of last year, there may be some downside risks in demand, so the overall performance of the middle and lower reaches industry will be relatively weak. This is the first feature.
Then the second feature is that within the industry, we will gradually see some differentiation, especially in the middle and lower reaches of these industries. Companies with relatively better quality may have better performance and stronger ability to resist risks. Then, judging from the current annual report, these two characteristics are that the performance of the upstream is relatively better, and the performance of the middle and downstream may be relatively worse. For example, if you look at the upstream industries such as coal and non-ferrous metals, because their price increase was relatively obvious last year, and many may also benefit from the good demand related to new energy, so their performance is relatively good. However, the downstream industries may be related to real estate, and the performance of some consumer goods industries, including auto parts industry, may be relatively poor.
looking for truly innovative enterprises in the process of consumption upgrading
first finance and Economics: let’s take a look at the recent market. It seems that we don’t talk about consumption recently. In the past, we were very keen to talk about optional consumption, mandatory consumption and other opportunities with large consumption sectors. Since this year, the overall market has been cold, and the consumption index is no exception. Consumption is a mainstream track. What do you think of the opportunities for consumption and investment?
Li Huasong: I think consumption may be differentiated in the future. Because the growth rate of China’s economy may slow down in the future, and then the population structure will continue to change. Then, some of our previous business models and channels, such as the innovation of some models of online shopping and consumption upgrading, may change in the future.
So I think for the consumption upgrading, in fact, I think there will be demand for good things in the future. For example, recently I studied some industries and found that many new things are coming out, such as the demand for pets. Now there are many new business models. If this thing really meets the needs of innovation, I think there will still be a lot of space in the future, so I think for consumption, we should find truly innovative enterprises.
Supply and demand relationship of Baijiu industry needs to be revalidated
first financial: also has one thing is when we mentioned consumption, many people will mention Baijiu, how do you see the Baijiu sector?
Li Huasong: first of all, from the perspective of supply and demand, the overall demand may slow down due to the demographic dividend (decline). In fact, the overall demand growth may still have a good growth for some high-end demand. This is the first point.
Then the second point is that from the perspective of supply, in fact, the Baijiu industry in the past few years is better. Some new capital actually enters into the industry. For example, the sauce and wine fever last year and the year before last actually produced many new supplies, and in many high-end and high-end prices, everyone is upgrading. So I think from a phased perspective, there may be a stage of supply and demand adjustment, so I think the Baijiu may actually have to split up, that is, some enterprises that are truly brand power and those with relatively clear competitive pattern may still have a large space.
However, if it is simply through the expansion of channels, and then in this price segment, these enterprises facing the pressure of oversupply may also need to go through a period of time to test whether the brand power is strong enough. So I think the Baijiu industry is also in a stage of supply and demand need to be re verified.
the business model of the pharmaceutical industry faces some adjustments
first finance and Economics: pharmaceutical sector has been active recently. Pharmaceutical stocks once led the rise against the trend. What do you think is the core logic behind the recent rise of pharmaceutical stocks? Is it sustainable?
Li Huasong: for the pharmaceutical industry, I think first of all, this industry is in line with China’s long-term aging and the increase of population life expectancy. In fact, this trend still meets the long-term industrial demand, which is no problem.
It’s just said that over the past year, the business model of the pharmaceutical industry is facing some adjustments, such as some centralized procurement and some previous business models that obtain excessive profitability through channel advantages, which may also need to be tested in the future.
I think the demand trend of the pharmaceutical industry has not changed in the long run, but some sub industries are facing changes in business models. My personal investment strategy, in fact, is to increase the allocation of this industry after the business model is gradually clear. In the past, we may still need to find some business models that we can understand. For example, a sub industry of global competition, and the business model is more comparable. I think the current risk of this kind of company may be relatively small.
innovation will bring better social and economic development
first finance and Economics: since 2022, affected by the interest rate hike of the Federal Reserve, the conflict between Russia and Ukraine and the downward pressure on China’s economy, the market trend has been twists and turns, and many investors are also uneasy.
From the perspective of medium and short term, what do you think of the market trend of the follow-up market?
Li Huasong: in fact, the problem facing China is also that the old driving force of economic development has encountered bottlenecks and pressure. Many of these new technologies and new business models need to adapt for a period of time after they come.
But in fact, like these technological innovations, if they can have a better combination and better adaptation with the real economy in the future, their long-term development space is still very large. For example, Internet technology was well integrated with commodities before, so our e-commerce penetration rate is very high in the world.
In the future, if we combine it with the service industry to improve the labor productivity of the service industry, because in the process of economic transformation from manufacturing to service industry, we are facing a problem of decline in labor productivity. However, if we can better combine the Internet technology with the service industry, the labor productivity of our service industry is not necessarily lower than that of the secondary industry of manufacturing, This is actually a better help to the long-term development space of the economy.
Therefore, I think I am optimistic that these technologies will be better integrated with the real economy in the future, and then our policy governance environment will further adapt. Because the government, new enterprises and new technologies actually need such a process of continuous adjustment and running in. Therefore, I believe that after a period of exploration, we will have a new and better governance framework. I believe this innovation will bring better economic development.
new technology has a large growth space combined with traditional industries
first finance and Economics: based on your judgment just now, do you think, for example, which sectors will have a greater chance of performance?
Li Huasong: I personally prefer to combine this new technology with some traditional industries. I think there will be more room for growth in the future.
For example, new energy technologies, whether photovoltaic wind power or electric vehicle energy storage, are actually the direction of these innovations, and we have no doubt. Then I think if the traditional industries can make a better combination with these new energy technologies, and there is a transformation and upgrading of the traditional industries, it will greatly improve the labor productivity, and then it is also in line with the development trend of double carbon.
Then, including technologies such as the Internet, if combined with the service industry and our real consumption upgrading to produce some new business models, it will also improve the productivity of the consumer industry. In fact, I think there are many things that can be done in this area.
The third point is that the traditional so-called upgrading of the old economic structure and the reform of the supply side, and then many excellent companies will have the logic of stock alpha to increase their share. Therefore, I will personally look for this opportunity in this new energy industry, this traditional manufacturing industry and this traditional consumer industry from the perspective of the upgrading and optimization of business model driven by technology, I think there are many opportunities.
the time when the market pressure was the highest has basically passed
first finance: talk about your outlook for the overall market in 2022. What do you think is the possible new main line this year? What adjustments will you make in the corresponding investment strategy?
Li Huasong: I think there are new main lines. In fact, I mentioned several main lines just now. An Internet or new energy + traditional industry, whether traditional manufacturing or traditional consumer industry, is a more important direction.
Then, the second direction may be the supply side reform and structural optimization in the traditional industry. Then, from the direction of this industry, I personally adopt a relatively more balanced strategy for the industry.
At the beginning, I also mentioned that beta in the industry has been fully explored in the past few years, but individual stocks in the industry will be divided. Companies that really embrace innovation, rather than those that follow industrial trends and hot spots, I think there will be obvious excess returns within the industry. If the excess returns of each industry accumulate, I think there will be the whole excess return.
Then, for the whole market, the time when the pressure may be the greatest has basically passed. It is just that it may take some time for the fundamentals to see the bottom, especially during this period of time, the epidemic has another impact. In fact, such a bottom of valuation should have been basically seen. Then the follow-up is to say that each company will verify the bottom of the fundamentals bit by bit.
Therefore, after experiencing such an external impact and pressure in the first half of this year, I think I should be more optimistic about the follow-up market. Therefore, in fact, I will maintain a relatively high allocation of positions, that is, the positions are relatively high, the industry is scattered, and then find individual stocks with optimized profit model in individual stocks.
