The A-share market suffered larger fluctuation lately. However, some investment managers are not pessimistic about the future trend. They believe that in spite of the fluctuation, the key is to know what they should do is to choose high-quality companies through in-depth research in fundamentals. In their opinion, excellent companies will finally go through difficulties and create Alfa earnings.
Currently, the bottom of stock valuation is commonly expected. But financial deleverage and external friction still exist, which means that this period will last longer. It is a period to find high-quality companies during the second half of this year and even the first half of next year.
Fund managers should focus on three major aspects when making investment deployment in the future, including the undervalued companies leading in finance and real estate sectors, consumption and medicine companies which are less influenced by economic cycle, and growth stocks in technology and innovation sectors. They should wait for realization of value creation of these companies and return of market sentiment in certain time in the future.
Common consensus on bottom of valuation
Based on historical statistics, valuation of A shares is lower than that in February of 2016 when Shanghai Composite Index came at 2,638. Its PB ratio is close to that period when the benchmark index stayed around 2,000.
Yang Delong, chief economist of First Qianhai Fund, PE ratio of Shanghai Composite Index is estimated to be 12 times now, much lower than the 24 times of PE ratio of Down Jones Industrial Average. The A-share market has been undervalued when compared with global major capital markets.
A senior investment manager said that the median decline in individual stocks of A-share market has been over 70 percent since June of 2015, which clearly implied the bottom. He added frankly that he is will to undertake short-term turmoil as some individual stocks have excellent cost performance.
The market will stay at the bottom for a longer period. It is a period to find high-quality companies during the second half of this year and even the first half of next year, according to Ye Song from Chang Xin Asset Management.
Quality growth stocks expected to see switch in valuation
Many fund managers view that quality growth stocks with long-term stable performance are quite cheap now and are expected to experience significant change first.
An Yun, the assistant general manager of Changxin Asset Management Co., Ltd., believes that the profit of stocks with high investment value is relatively more measurable. Therefore, the valuation of these stocks should be smoother.
In the financial industry, the valuation of some large banks has dropped to 0.8 PB, implying a more pessimistic expectation. An Yun believes that the risk of the big bank is controllable. From the perspective of absolute returns, there is a relatively certain valuation repair space in the future.
Bullish on consumption and technology innovation sector
Pharmaceutical and consumer stocks, which are less affected by the economic cycle, have once again become favored by funds. In fact, in the long run, consumption and technological innovation stocks are those that fund managers believe worthy investment.
“Since the second half of 2016, the information technology industry makes steadily increasing contribution to GDP growth has steadily increased. China’s economic structure has undergone a relatively obvious adjustment.” An equity investment director of a fund company in Shanghai believes that the larger opportunities in the A shares will focus on new energy, semiconductor, 5G and other sectors.
Speaking of the selecting technology growth stocks, Ye Song said that in the electronic field, the domestic substitution process of consumer electronics is coming to an end. But there are still many areas where the progress of domestic substitution will gradually accelerate, and the mainstream assets of the next round are still flowing in.
In fact, many leading companies in the industry segments have long-term investment value. A foreign investment manager with more than 20 years of experience has observed that China is already leading the world in many Internet segments. China is increasing its value-added in the manufacturing value chain. Huawei, Xiaomi, OPPO, and VIVO's mobile phones are catching up with Apple. Dajiang UAVs account for 60% of the global market. It's hard to imagine in the past. China has more and more high value-added products. The new economy will become stronger and stronger. These changes are really happening
A fund manager based in Shanghai said that he is still optimistic on the prospects for innovative industries as trade conflict reinforces the urgency of China's support for innovative industries. Yet when making allocations, funds should dig deep these innovative industries so as to avoid pseudo-technical enterprises.
Zhang Yanmin, fund manager of Rongtong Fund, says that his portfolios have no sufficient allocation in the technology sector, and will increase their allocation ratio in the sector.
Translated by Vanessa Chen & Coral Zhong
Currently, the bottom of stock valuation is commonly expected. But financial deleverage and external friction still exist, which means that this period will last longer. It is a period to find high-quality companies during the second half of this year and even the first half of next year.
Fund managers should focus on three major aspects when making investment deployment in the future, including the undervalued companies leading in finance and real estate sectors, consumption and medicine companies which are less influenced by economic cycle, and growth stocks in technology and innovation sectors. They should wait for realization of value creation of these companies and return of market sentiment in certain time in the future.
Common consensus on bottom of valuation
Based on historical statistics, valuation of A shares is lower than that in February of 2016 when Shanghai Composite Index came at 2,638. Its PB ratio is close to that period when the benchmark index stayed around 2,000.
Yang Delong, chief economist of First Qianhai Fund, PE ratio of Shanghai Composite Index is estimated to be 12 times now, much lower than the 24 times of PE ratio of Down Jones Industrial Average. The A-share market has been undervalued when compared with global major capital markets.
A senior investment manager said that the median decline in individual stocks of A-share market has been over 70 percent since June of 2015, which clearly implied the bottom. He added frankly that he is will to undertake short-term turmoil as some individual stocks have excellent cost performance.
The market will stay at the bottom for a longer period. It is a period to find high-quality companies during the second half of this year and even the first half of next year, according to Ye Song from Chang Xin Asset Management.
Quality growth stocks expected to see switch in valuation
Many fund managers view that quality growth stocks with long-term stable performance are quite cheap now and are expected to experience significant change first.
An Yun, the assistant general manager of Changxin Asset Management Co., Ltd., believes that the profit of stocks with high investment value is relatively more measurable. Therefore, the valuation of these stocks should be smoother.
In the financial industry, the valuation of some large banks has dropped to 0.8 PB, implying a more pessimistic expectation. An Yun believes that the risk of the big bank is controllable. From the perspective of absolute returns, there is a relatively certain valuation repair space in the future.
Bullish on consumption and technology innovation sector
Pharmaceutical and consumer stocks, which are less affected by the economic cycle, have once again become favored by funds. In fact, in the long run, consumption and technological innovation stocks are those that fund managers believe worthy investment.
“Since the second half of 2016, the information technology industry makes steadily increasing contribution to GDP growth has steadily increased. China’s economic structure has undergone a relatively obvious adjustment.” An equity investment director of a fund company in Shanghai believes that the larger opportunities in the A shares will focus on new energy, semiconductor, 5G and other sectors.
Speaking of the selecting technology growth stocks, Ye Song said that in the electronic field, the domestic substitution process of consumer electronics is coming to an end. But there are still many areas where the progress of domestic substitution will gradually accelerate, and the mainstream assets of the next round are still flowing in.
In fact, many leading companies in the industry segments have long-term investment value. A foreign investment manager with more than 20 years of experience has observed that China is already leading the world in many Internet segments. China is increasing its value-added in the manufacturing value chain. Huawei, Xiaomi, OPPO, and VIVO's mobile phones are catching up with Apple. Dajiang UAVs account for 60% of the global market. It's hard to imagine in the past. China has more and more high value-added products. The new economy will become stronger and stronger. These changes are really happening
A fund manager based in Shanghai said that he is still optimistic on the prospects for innovative industries as trade conflict reinforces the urgency of China's support for innovative industries. Yet when making allocations, funds should dig deep these innovative industries so as to avoid pseudo-technical enterprises.
Zhang Yanmin, fund manager of Rongtong Fund, says that his portfolios have no sufficient allocation in the technology sector, and will increase their allocation ratio in the sector.
Translated by Vanessa Chen & Coral Zhong
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