Newsletter commentary Dec 2020

The market maintained a strong momentum in December. Power equipment/ new energy, food and beverage, duty-free, and defense sector had strong performance.

Looking back, the trading of 2020 was around the pandemic. The pandemic prompted various stimulus policies, which were very conducive to the rise of asset prices. The pandemic has also changed or accelerated changes in some work and lifestyles, and has spawned many new opportunities. The success of China’s dealing against the epidemic has also made Chinese companies in a favorable position to obtain more business opportunities. The pandemic has also accelerated people’s motivation to live in harmony with the environment, and the pace of green development has accelerated significantly.

The cooling down of Sino-US relations has further enriched our supply-side reforms and added the content of strengthening national strategic scientific and technological capabilities, solving major problems in the national system, and enhancing the independent and controllable capabilities of the industrial supply chain. In the future, the solution of those technological bottlenecks will better enhance our supply capacity.

A by-product of the stimulus policy after each crisis is the widening gap between the rich and the poor. This time is no exception. Judging from the recovery of various consumer products, the recovery of luxury goods is faster than ordinary consumer goods. Among large economies, China’s stimulus policy is one of the least aggressive ones, and has started the withdrawal process since May. From the perspective of long-term interest rates, it has basically been normalized. The determination of Chinese policymakers to resist unconventional monetary policies is the long-term investor’s blessing. Further more, in the 14th Five-Year Plan, we put common prosperity at a high priority, which will also be of great benefit to the long-term stability of our economy.

Related opportunities have performed very well this year. With the decline in the opportunity costs, everyone gradually adapts to the decline in target return under low interest rate environment. This will bring a huge increase in valuation, especially for companies that continue to grow at a high rate. Great return power. However, many of the increases this year seem to have exceeded this rate, and they may have overdrawn part of their future earnings. In the long run, if some manufacturing companies do not have sustained technological leadership, even if the industry has continued to grow at a fast pace for many years, the steady state market share and profit margins are still not attractive.

Recently, the anti-monopoly of Internet companies was also a hot topic. We believe that while Internet companies are efficient, they do have some new problems that need to be redefined by supervision. In the future, these companies will become more open and better serve the public. There may be many opportunities for major changes brewing.

The competitive landscape of education companies has deteriorated. Online education companies have a large amount of financing to expand their armaments, making it difficult to determine the outcome of competition for a while. The differences in operations are difficult to tell. However, the long-term potential of the industry remains unchanged. Driven by the promotion of marketing, the development speed will be accelerated. In the long run, it depends on the products and operations, whether they can better serve customers.

With the launch of vaccines, the visibility of economic recovery next year will increase. In the process of economic normalization, various assets will also undergo a rebalancing process. Some companies that have been suppressed this year will have the opportunity to prove themselves.

Looking to the future, the banner of common prosperity will make our economy go further and more stable. Efforts to make up for shortcomings will make our economy stronger. The measured policy orientation also reduces the risk of roller coaster. The universal market will give us a lot of energy. After several years of rising, the attractiveness of stocks has declined according to past standards. But compared with the opportunity cost, it seems to be the best choice, especially for those companies which are creative.