Smart Money | Exclusive Interview with China Europe Fund: Is the Bull Market to Continue? What Can Still Be Bought?
Author | Huang Yida
Editor | Zheng Huaizhou
The starting point of this bull market was the press conference held by the Information Office of the State Council at 9 a.m. on September 24. The main responsible persons of the Central Bank, the Financial Regulatory Administration, and the China Securities Regulatory Commission introduced the relevant situation of financial support for high-quality economic development. Several important policies were announced at the press conference. Judging from the tone and intensity of many policies, they can be said to be unprecedented. Investors saw the management's determination to support economic recovery, and responded with the sharp rise of A-shares on that day.
Before the National Day, the performance of A-shares was extremely strong. Retail investors, public funds, foreign capital and other funds entered the market at a fast pace. In just 5 trading days from September 24 to 30, the Shanghai Composite Index rose from less than 2800 points to near 3300 points, with an increase of more than 21%. The last time such a crazy rise can be traced back to the bull market in 2014.
Chart: Recent Trend of Shanghai Composite Index; Source: Wind, 36Kr
During the National Day holiday, the A-share market was closed, while the Hong Kong stock market traded as usual, and the trading in the Hong Kong stock market continued to be hot. The Hong Kong stock market, which has the characteristics of looking at international liquidity and domestic fundamentals, also made A-share investors eager to try. On October 8, A-shares opened higher as expected, and the opening high point almost broke through 3700 points. Although it finally closed down, the trading volume of 3 trillion yuan on that day set a new historical high.
Looking at the overall performance of A-shares this week, in the four trading days of this week, the Shanghai Composite Index returned to near 3200 points with 3 negative days and 1 positive day. While continuously adjusting, the daily fluctuations are also not small. At this time, it is inevitable that there will be voices questioning the bull market in the market. Then, can this bull market continue? Which industries are worth paying attention to?
In a recent offline interview, 36Kr invited several fund managers from China Europe Fund to discuss the recent performance of A-shares and carefully deduce the possible future trends. The following are the core views of the fund managers in this interview:
Zhou Weiwen, Manager of China Europe New Blue-Chip Hybrid Fund
Sorting out the recent series of policy directions and intensities, In summary, the central government is stabilizing asset prices and supporting people's livelihoods. Stabilizing asset prices is to promote the main social asset prices such as real estate, the stock market, and the equity market to stop falling and stabilize or even rise. The recent policy is to break the negative cycle and bring the economy and asset prices back to the normal fundamentals, and even to a certain extent, the positive cycle track of the economy and asset prices. Supporting people's livelihoods is to support individuals and enterprises in difficulties, helping them maintain a basic living standard and overcome difficulties.
After several days of sharp rise, the stock market is returning to a reasonable level. In the future, the implementation of relevant policies and the promotion of some incremental policies may make the A-share market bid farewell to the bear market in the past three years, and this may be a new starting point. Considering that the stock market has fallen for more than three years and the allocation ratio of various investors to A-shares and H-shares is low, It is not ruled out that the stage-by-stage rise of the stock market exceeds expectations.
In the choice of investment direction, in the future, as long as the stocks selected are not in industries with a relatively obvious downward trend in industry development, it is likely to be better than holding cash. There are two major directions that may generate excess returns:
1. Industries with an upward business trend in the next two years, these industries have an upward prosperity, and the pricing is not sufficient during the past bear market process. The market is always worried about the emergence of negative information, which suppresses the stock price rise. After the bear market mentality ends, these stocks still have room to rise.
2. Some directions that will benefit from this round of economic policies, mainly the policies that combine promoting domestic demand and benefiting people's livelihoods, in the past, there were home appliances and automobiles for trade-in, and in the future, there will be basic livelihood security, elderly care, low-end consumption and services that benefit from fertility, necessary consumption and service industries. In addition, industries that benefit from the incremental policies to promote the stabilization of the real estate market and industries that benefit from boosting the capital market and bidding farewell to the bear market may also perform well in the coming period.
Lan Xiaokang, Manager of China Europe Rongheng Balanced Hybrid Fund
The attitude of the current series of national policies is very clear and resolute, and there is also a big change compared with the previous ones. Therefore, the general policy direction has been basically determined, and the policy is only a matter of rhythm and does not affect the result. In the short term, the liquidity is abundant, and the key to the subsequent economic direction depends on real estate and fiscal-related policies.
Regarding dividend stocks, they still need to be viewed by type. One type is industries with a low correlation with economic growth, such as hydropower; the other type is industries with a high correlation with economic growth, such as banks, real estate chains, and cycles (coal). Among these two, the performance of dividend stocks with a high correlation with economic growth is more promising.
In the short term, cyclical stocks will perform better, including finance (brokers, insurance, banks), real estate and real estate industry chain-related stocks. The opportunities for small-cap stocks are still not great. In the short term, they are more of a rebound after a significant decline and do not have long-term investment value.
Luo Jiaming, Manager of China Europe Fengtai Hong Kong Stock Connect Hybrid Fund
During the past National Day holiday, the Hong Kong stock market ushered in a significant upward trend. The Hang Seng Index steadily climbed from 21,134 points on September 30 to 23,099 points on October 7, achieving a 9.29% increase. This round of rise is mainly due to a series of economic stimulus policies launched by the government and the market's expectations for the US interest rate cut cycle. These factors have jointly enhanced investors' risk appetite, and the "valuation depression" Hong Kong stock market is also more likely to attract capital inflows.
In terms of industry sectors, sectors such as information technology, consumption, and real estate construction led the market. This is mainly due to the positive change in policy expectations. In addition, the trading volume of the Hong Kong stock market has reached a new high. Especially during the National Day holiday when the Hong Kong Stock Connect funds were absent, the market activity remained high, indicating a significant increase in the participation of overseas investors and local funds in Hong Kong.
After the National Day, the adjustment in the Hong Kong stock market is also expected. On the one hand, after the market experiences a rapid rise, there will naturally be a demand for profit-taking; on the other hand, the rise in US Treasury bond yields has also disrupted investors' expectations for the pace of the Fed's interest rate cut.
Looking forward to the future, investors should not overly focus on the speed of the Fed's interest rate cut, but should pay more attention to which industries or companies' earnings can resume the growth trend under the background of the introduction of domestic and foreign economic support policies and the continuous decline of the global risk-free interest rate. Continue to be optimistic about the following several investment directions: 1) Upstream resource products, 2) Chinese enterprises generating income overseas; 3) Technology-driven related sectors, such as the Internet, electronic semiconductors, and biopharmaceuticals.
Cheng Yuxuan, Manager of China Europe Times Wisdom Hybrid Fund
The basis for the recent market rise comes from several aspects. First, some high-quality assets in China are at a relatively low valuation position. These companies show strong resilience in both cash flow and the sustainability of earnings. At the same time, the global market has sufficient liquidity under the interest rate cut cycle. Coupled with the recovery of domestic investors' confidence, it has become one of the driving forces for this round of market rebound.
From the perspective of industry selection, consumer goods currently have a certain cost performance, After the core assets peaked in 2021, they have adjusted for three or four years. During this period, some high-quality companies still maintain a medium and high growth rate in performance, and at the same time have barriers, performance stability and sustainability. Therefore, from both the probability of winning and the odds perspective, they have a certain allocation value at present.
During this National Day holiday, a series of policies such as the issuance of consumption vouchers in Shanghai and other places have encouraged residents to consume. The previously sluggish catering industry has also gradually recovered to a certain extent. The performance of some high-quality companies in the catering supply chain is also worth looking forward to.
Liu Weiwei, Manager of China Europe Times Win-Win Hybrid Initiating Fund
Recently, the policies have been exerting force, the market confidence has recovered, and the overall trend is strong. From a macro perspective, there have been some changes in the policy thinking, aiming to unclog economic blockages, including stimulating consumer demand and helping localize debt. Therefore, the inflection point of the market has probably appeared, so we should remain optimistic and maintain a relatively high position.
In terms of technology, after a relatively large adjustment in AI, the current cost performance is relatively high. The newly released GPT-o1 is of great significance, and the Scaling Law on the reasoning side begins to emerge. The biggest catalyst should be GPT-5 at the end of the year.
In terms of new energy, energy storage has recently adjusted, but the fundamentals are still better than expected, and there is a 20gwh large-scale energy storage project in the Middle East waiting for bidding.
In terms of automobiles, the policy of trading in old cars for new ones has begun to show results. Recently, the sales of passenger vehicles have significantly exceeded expectations, and the entire vehicle and parts industries have ushered in a repair window period; driven by both automobiles and energy storage, leading battery companies are almost at full capacity.
From the perspective of the overall market style, growth stocks have undergone more than three years of adjustment, and the cost performance is prominent. In addition to the growth sector, we are also optimistic about low-valued value industries such as construction machinery and basic chemicals, and some industries and companies have shown signs of a right-side reversal.
Song Weiwei, Manager of China Europe CSI Chip Industry Index Initiating Fund
With the end of the Fed's interest rate hike, this round of the dollar cycle has entered an interest rate cut cycle. On September 18, the Fed cut interest rates for the first time in four years. The capital that flowed into the United States since the Fed's interest rate hike will flow out of the United States again and look for value depressions globally.
In this context, on September 24, China's central bank decisively introduced a "package of policies": reducing the reserve requirement ratio by 0.5% to release 1 trillion yuan, cutting interest rates by 0.2%, reducing mortgage interest rates by 0.5%, and reducing the down payment ratio to stimulate the real estate market. Most importantly, the central bank has specially created a monetary policy tool to support the capital market. The first batch of quota is 800 billion yuan, which is used for listed companies to repurchase stocks and financial institutions to buy stocks. The two-way care policies for the economy and the capital market have reversed the expectations of the A-share market.
This round of A-share rise, coupled with the inflow of foreign capital, the increase of domestic capital, and the entry of individual investors, has led to a rapid upward trend in trading volume and market. The market environment with abundant liquidity is favorable for technology growth stocks. Domestic manufacturing assets with global competitiveness, especially technology assets, are the high-elasticity sectors in this round of market.
The semiconductor cycle is recovering, and the computing power demand and domestic substitution brought about by artificial intelligence innovation are the three upward drivers of the domestic chip industry. As one of the important downstream applications of artificial intelligence, humanoid robots and industrial robot technology will represent the most advanced manufacturing capacity of a country and is also the direction that various technology giants are investing heavily in. In addition, the domestic substitution of mobile phone operating software, computer operating software, computer equipment, and domestic software will continue to progress rapidly this year, which is favorable for the software sector.
Wang Jian, Manager of China Europe New Dynamic Hybrid Fund
According to the historical experience of A-shares, after the stability of the two major asset pools of the stock market and real estate, there is an opportunity to start a new round of bull market. The recent policies have achieved the trend of the stabilization and recovery of the stock market; the decline in real estate prices has narrowed and is expected to stabilize under the effect of subsequent policies. The recent difficult period of the Chinese economy may have passed, and the expectations are currently improving.
In the past three years, the domestic stock market assets and real estate prices have generally fallen by about one-third. If the same situation occurred in Western countries, a serious financial crisis may have occurred. In China, on the consumer side, domestic auto and some white goods sales have reached new highs, and the catering industry is operating in an orderly manner; on the manufacturing side, the growth of some categories of exports has been achieved based on advantages such as the industrial chain, technology, and human resources. In the case of such a decline in asset prices, the economy can operate smoothly and still have bright spots, reflecting the strong resilience of China's economy.
The new policies on September 24 have made breakthroughs in direction, intensity, and tools, temporarily reversing the pessimistic expectations. Subsequently, the implementation of relevant policies can be tracked. The latest package of policies is a policy to reverse the overall economy. With the subsequent fiscal policies, it will affect the trend of the overall economy. The policy effects will be manifested in two industry sequences at the economic level and the capital market level.
At the capital market level, the reversal of expectations will make the valuations of various industries in the market expected to recover, especially industries related to domestic demand and small and medium-sized market capitalization companies. At the economic level, The real improvement of the industry can make the market trend sustainable. It takes time to observe the implementation of specific policies, and the focus is on the recovery of corporate earnings.
Wang Pei, Manager of China Europe Industry Growth Hybrid Fund
The intensity, scope, and views on economic issues of this round of policies are essentially different from the past. It is to support the economic recovery in a targeted manner. At present, the economic recovery still needs the care of policies. Therefore, the combination of monetary policy and fiscal policy can be seen as the government's determination to support the economy.
From the industry level analysis, The most direct impact of this round of support policies is the improvement of risk appetite and the industries that directly benefit from the increase in the volume and price of the stock market, including non-banking, TMT, consumption, the Science and Technology Innovation Board, etc. These sectors were previously suppressed by the growth dilemma, and under this policy guidance, there has been a big contrast. Fund managers need to grasp the investment rhythm and select good companies.
Reflected in the position, the construction of the investment portfolio is basically based on a medium-term dimension of 1 to 2 years. The current policy adjustment will logically have a certain positive impact on the industrial cycle and the company's fundamentals, but it needs to be combined with the benefit amplitude and the company's valuation level, and finally the comprehensive cost performance and future judgment to adjust the investment portfolio.
*Disclaimer:
The content of this article only represents the author's views.
The market is risky, and investment needs to be cautious. Under no circumstances do the information in this article or the opinions expressed constitute investment advice for anyone. Before making an investment decision, if necessary, investors must consult a professional and make a cautious decision. We do not intend to provide underwriting services or any services that require a specific qualification or license for trading parties.