Newsletter commentary Dec 2019

2019 has passed. As far as A-share investment is concerned, this year is a good year. The CSI 300 has increased by more than 30%. The median return of stock biased mutual funds has significantly surpassed the CSI 300. This is rare in history.

With the passage of the new Securities Law, we believe that this market will create a better investment environment in the future. This market has a better history than expected and a better opportunity in the future. Considering the significant decline in the attractiveness of other asset classes, the long-term returns are good. Don't miss the most liquid secondary market investment opportunities.

We think China's economy in 2020 will be better than 2019. The first is the lagging effect of monetary policy. Considering that prices other than pig prices are very low, the actual pressure of monetary policy cannot be seen for the time being. Fiscal policy in 2019 is to reduce revenue without increasing expenditures. In 2020, expenditures will increase slightly, and the global economy will also improve, giving a little pull to China’s economy.  China's manufacturing CAPEX also has a chance to improve in 2020. In fact, the balance sheet of large industrial enterprises has been repaired for many years. Due to exports and uncertainties, there has been no increase in capital expenditure and there will likely be a turnaround in 2020. The extremely low inventory is also a driving force. On the whole, the global economy has just emerged from the turbulence. Although the long term visibility is low, it seems that there are no major problems in the short term. The driving force for valuation to rise in 2020 will be weak, but there is no particularly significant reversal in the short term waiting to happen. The further decline in long-term interest rates is also a gradual process; the rise in valuation may come from some companies in traditional industries. With the economic recovery and a re-understanding of the profit stability of these companies, many companies in the traditional manufacturing industry have the opportunity to be shortlisted for core assets.

On the whole, we feel that the Chinese economy and stocks have undergone a cognitive update in 2019. The Chinese have re-examined the Chinese economy and Chinese stocks, and foreign investors have re-recognized the Chinese economy and Chinese stocks. The understanding of China's economic model has changed greatly in the past. The scale advantage of the Chinese economy, a unified market, a large team engaged in scientific and technological projects, a focus on education investment, a sound infrastructure, strong and effective administrative capabilities, motivation for a better life and precious and stable social environment are the driving forces of long-term value. 2019 is the beginning of a gradual change in the perception of A-shares by domestic investors and the first year that foreign investors have bought Chinese stocks and bonds exceeding FDI. For foreign investors surrounded by a large number of negative-yield assets, our long-term interest rate is still 3%. Stocks are just above 10 times the earnings that are at the bottom of the cycle. Chinese economy still contribute more than 30% to the global economic growth each year. We also have the second largest stock market in the world. The attractiveness is continuous.

Our view on the medium and long-term is definite optimism, and the short-term view is also optimistic. If you look at the present from the lens of future, many companies still have a lot of room to increase their market value in the process of China becoming a manufacturing power, a consumption power, and an innovation power. In the short term, the overall valuation of the market is now in a more reasonable position than previous valuations post market rallies. Companies has improved significantly, investors have become more mature, long-term prospects are certain, and the short-term uncertainty is also less than before.

To sum up, the old wisdom is likely behind us that Chinese stocks are very difficult to perform well for two consecutive years. This market has really changed. Our economy is becoming stable, good companies are constantly emerging, and policies are becoming more stable. With the implementation of the new securities law, capital market supervision has matured, and the investor structure has also been rapidly institutionalized. We can also better invest in China with better investment tools. The ideal slow bull market has never been as close to reality as it is now. If you want to share the fruits of China's upward economic growth, the secondary market with good long-term returns and good liquidity deserves your attention.