Since the beginning of this year, the A share market has been in a bleak market, and all kinds of factors are changing the market. China Fund reporters interviewed well-known fund managers.

1.China Foundation:

as of August 3rd, this year, the Shanghai Composite Index fell 17%, fell 2800 points, the gem set a new low adjustment, what do you think is the cause of this year's market adjustment?

Zhang Jintao:

First, the negative impact of trade frictions on economic growth, and the possible capital outflow caused by the depreciation of the RMB. Trade friction is one of the major causes of investors‘ risk preference this year, which has not been experienced before, and the policies of Trump have had a significant impact on the market.

Second, in the first half of 2018, there were some credit default events, which were similar to the same period in 2016. More than the same period of 2017, the credit spreads increased and the risk premium of risk assets was higher than that in the same period of 2017.

Third, after last year's rising, the valuation of blue chips has returned from a relatively undervalued level to a reasonable level. In this case, the pressure to adjust in the high position is more obvious when the risk or risk preference is lower and the capital side becomes more tense.

Wang Jun:

I think there are three main reasons for the decrease of the market.

First of all, from the economic fundamentals, it represents the profit problem of the whole listed companies. The fourth quarter of last year is one of the high growth points of the small cycle of the economy, and the economic growth is declining gradually, and this will bring pessimism to the profit of the enterprise and the economic prospect.

Secondly, deleveraging intensified the expectation of the decline of economic growth;

finally, it was a series of "black swan" events brought about by China-US trade frictions, which had a negative impact on the market.

It is worth noting that the market accelerated downward since June 15th, the main reason is that the central bank did not follow up properly after the Fed's interest rate increase in June, and the central bank raised the repo rate by 10BP in March when the Federal Reserve increased its interest rate. In fact, the depreciation of the CNY is also from that time, resulting in excessive market pessimism on the long, medium and short-term economic expectations.

Xiao Zhigang:

First, the current stock market decrease is continued after the end of the 2015 bull market, 2016-2017 years of economic unilaterally uplink, the stock market is the valuation downlink, EPS uplink, part of the cyclical stocks rise to form a structural calf market, this year to next year, the economy unilaterally down, can only depend on the stock market itself to digest valuation bubbles.

Secondly, the contraction of deleveraging and the contraction of social finance has caused pressure on the capital chain of some enterprises, which has a great impact on some listed companies using leverage to do capital operation.

Third, the current economy is also in a downturn cycle, from the median revenue growth rate of listed companies, from 2.1% in the 3rd quarter of 2015 to 2 years, 19.4% in the 3rd quarter of 2017, 15.8% in 4th quarter of 2017, and 14.5% in 1st quarter of 2018, respectively, to predict the current cycle or to enter the downward channel, expected reaching bottom in the second half of 2019. This is a sign that the economy is declining and is also one of the reasons for the stock market's decline.

Chen Yifeng:

Generally speaking, we don't make predictions and judgments on the market. Our focus is mainly on the analysis of companies and industries. However, from a personal point of view, there are many reasons for the market decline this year, the downside of the stock and real estate cycle, the fermentation of China-US trade frictions, the deepening of the deleveraging and so on, which have affected economic performance and economic expectations.

Hong Kong Yongfeng Investment Fund chief investment officer Hong Liu:

A shares is essentially a market mainly guided by policies. The macro financial policy of "preventing financial risk and deleveraging", put forward by the Political Bureau meeting in 2017, was gradually landed in 2018. The new regulation of asset management confirmed the medium-term "de-leveraging" policy tone. "Tight credit" caused the credit risk of the bond market to accelerate exposure. "De leveraging" has caused great pressure on the stock pledge of the large shareholders of some private enterprises in the secondary、market. At the same time, the overheating of the real estate market and the further strengthening of the regulation policy have caused the market to worry about the macroeconomic downside.

The second important reason is that the violent fluctuations in the US stock market at the beginning of 2018 have triggered the violent fluctuation of the main index of the A share market. The investment model of the absolute income products represented by the "new" fund is collapsing, and the liquidation of a large number of absolute income type fund products with "SSE50" as the bottom intensifies the adjustment of the A share market. Third, the trade war launched by the United States has caused investors to worry about exports and the exchange rate of RMB. This factor has become an important variable in the market adjustment with the further escalation of trade war.

2. China Fund report: has the market reached the bottom area at this stage? Why?

Zhang Jintao:

At this stage, the market is at the bottom area. Mainly from the valuation and macro policy has reached a relatively low position, the current valuation is not far from the lowest level in history. The valuation of GEM has been near the lowest level in history, and there is still about 20% for the Shanghai and Shenzhen 300 to go from the lowest level in history. Therefore, from the valuation point and the policy point of view, it should be said that the market is in the bottom area. Blue chips and other stocks have become relatively cheap, investment opportunities are getting better and better, but at this stage investor need to control the pace and position.

Wang Jun:

From the perspective of policy expectation, the current market rate is at the bottom. Because both national and recent political bureau meetings have mentioned the need to expand domestic demand and stabilize the economy, which can be said to be an important bottom signal, to a certain extent, to reverse the pessimistic expectations of the market. In fact, the market has also been reflected, although the market also fell a lot on August 3rd, but the SSE50 did not reach new low, but also shows the current overall market or in a relatively important bottom area. Neither the fundamentals of the economy nor the pessimistic expectations of the economy support the further decline of the market. Looking back, with the "steady growth" policy and other repair pessimistic expectations of the economy, or the market will form a significant boost.

Xiao Zhigang:

At present, the stock market has reached a very low position. From the valuation point of view, the market median PB is now around 2.4 times, historical data shows that the market median PB will appear at a low point every few years. I think 2.2 of PB is relatively low, but it may fall below 2.2. At the 5000 point, the PB high point is 7.5 times, and now only 1/3 of that time, it is a relatively low position.

Now the market is in the stage of excessive pessimism. There should be 1,000 stocks bottoming out before the market really bottoms out, and now at least 100 stocks bottoming out. Just like crossing the river one after another, until there are about 1000 stocks crossing the river, I believe the market will really see the bottom.

Chen Yifeng:

I think it is near the bottom area. First, from the overall valuation, CSI300 and SSE50 are close to the lowest historical intervals. We compared with the history of 2008, 2012, 2014, 2016, and the current PB and PE valuation is close to the lowest 2014, and the risk free interest rate as the opportunity cost is obviously lower than it was at that time; secondly, monetary policy And fiscal policy tends to ease, and market funds are looser than before.

Torrent:

A share market has reached the bottom region, but the cyclical factors of bottom adjustment have not subsided, the adjustment cycle is uncertain.

The support for the A share market to the bottom area is based on the following judgments: First, the securitization rate of the A stock market. By the end of 7 2018, the total market value of the A share market was 50 trillion and 620 billion yuan, and China's GDP was 82 trillion and 710 billion RMB at the end of 2017, and the securitization rate was about 0.61. If the rate of GDP growth rate was 6.5% this year, the securitization rate of A shares was about 0.58, and the securitization rate of the mature market was basically over 1.

Second, the valuation level of the A share market. From SSE50, CSI300 and other major A stock market index, compared with the mature market and historical valuation compared with the same period, it has been in a reasonable low position. If the macroeconomic earnings forecast has not been substantially reduced, the space for the further decline of the A share index is limited.

Third, the market risk is relatively fully released. Since the second quarter of 2016, the blue chip slow bull market has gone through the fierce market fluctuations in 2018, the concentration of blue chips has declined, the secondary market leverage rate has gradually subsided, and the share price of listed companies is gradually amicable with the growth of profit growth. Small and medium-sized market capitalization companies have experienced 3 years of bubble burst adjustment since 2015, and market trading risks have also been substantially released.

Fourth, the number of repurchase and large shareholder holdings of listed companies has increased significantly. Although the market is still in the process of cyclical adjustment, the investment behavior of industrial capital confirms that some companies in A-share market already have medium and long-term investment value.

Fifth, foreign capital through MSCI to accelerate the strategic layout of the A-share market, the domestic social security, enterprise annuity as the representative of long-term funds are gradually entering the market.

3． China Foundation: last year, the value investment is in the road, the blue chip effect was obvious, but this year, the market volatility increased, the SSE50 also fell close to 15%. Do you have an adjustment of investment strategy in this period? Is there any readjustment in the position?

Wang Jun:

As for this year's investment, the overall investment strategy and ideas have not been adjusted too much, because the market expectations have not been very high since the beginning of the year, although the market falls are somewhat over-expected at present, but the overall strategy has not changed much. I still insist on buying the growth of the profits of listed companies, rather than buying the expansion of valuation of listed companies.

Xiao Zhigang:

I think the adjustment of white horse stocks has just begun, including Guizhou Maotai, Hengrui Medicine, these indicators stocks short-term rise too much, appropriate decrease is normal. My blue chip stock position is not high.

Chen Yifeng:

Our strategy will not change with the fluctuation of the market, always insist on the value investment, buy the cheap good company, and will not reduce the stock market because of the stock market fall, if further fall we will even further increase our position.

Hong Liu:

The main part of the SSE50 index is financial sector, which are sensitive to macroeconomic trends. The blue chip stock performance in 2017 and the bank property market in January 2008 reflect investors' optimistic expectations of a macroeconomic recovery. The readjustment of the SSE50 Index in 2018 is a prejudgment of macroeconomic downside pressures on the macro economy when "deleveraging" and "overseas uncertainty" occurred, as well as the impact of a large amount of clearance on the new fund of the absolute income type.

From the current market situation, the A share market, which has been fully adjusted, has ushered in the micro adjustment of macro policy. The gradual matching of fiscal policy and monetary policy will steadily stabilize the expectation of the investor to the macro-economic downturn. The core assets represented bySSE50 are currently valued at 9.7 times in PE, 1.27 times in PB, and the dividend yield is close to 3%. If the macro-economy is stable, the current index has a relatively limited downside space.

From the main index of the A stock market, the median valuation is not low, so from the point of view of configuration, the investment strategy of insisting on the bottom up and selecting the core assets is still effective. The key depends on the investor's assessment cycle and tolerance to retracement.

From the current index point of view, position adjustment depends mainly on product attributes. If it is an absolute return product with a clear stop limit, controlling the position is still meaningful; if it is a relative yield product, the reduction in the position in the bottom area of the historical valuation may lose the investment opportunity for long-term gain.

4. China fund daily: today, the SSE Composite Index has fallen below 2800 points. Is it optimistic or pessimistic about the market outlook? What is the expected return on investment for the whole year?

Zhang Jintao:

Now we should still be more cautious. It does not mean that our position should be reduced to very low, but that we should select stocks carefully.

Wang Jun:

Only from the dimension of the third quarter, I am more optimistic about the market rebound, but the rebound kinetic energy is expected to be readjustment from overly pessimistic expectations of the economic downturn, so the rebound may not be too high. This year, the market will test the timeliness and the degree of the policy adjustment. If the adjustment is in place, the market will be good. The third quarter rebound reflects the policy adjustment. And the fourth quarter market still needs to observe issues such as trade friction between China and the United States with the market interpretation. As for the current disclosure of information (250 billion dollars, 25% tax rate) the impact is limited, but uncertainty may still increase, and this round of trade friction will also directly affect the profitability of listed companies. The important meeting in the fourth quarter is also a factor to be concerned about.

Xiao Zhigang:

I may be more optimistic about the future market than others, the more optimistic I am, we can find a lot of short reasons, but the stock market has its own rules. The stock market has fallen for three years since 2015, and the adjustment is almost in place, and I think the stock market may be relatively good in the next 1 years. This year my earnings forecast is not high, I hope to earn positive returns for investors, this is still hopeful.

Chen Yifeng: when the market performance is very terrible, the risk is smaller. From a long-term perspective, the current point of view we remain optimistic about the future market, the present is an important time to prepare for a higher composite yield in the future. The short-term market trend and the rate of return are more difficult to predict.

Hong Liu:

It is neutral in short term, but optimistic in medium term and long-term. This year's investment returns are similar to those in 2011, when the major index fell by about 20%, and some of the A-share market indexes have exceeded this range this year. The expectation of investment earnings in 2018 is not more pessimistic than that in 2011. The main reason is that the valuation level is more reasonable and the macro policy has been fine-tuning. The current predicament needs time to digest and more uncertain factors are needed, and the overall second half of the year may be more optimistic than the first half of the year.

5. China Fund report: what is the investment strategy in the second half year? W What is the direction of reduction and increase? How to control the position?

Zhang Jintao:

As for the strategy of this year, I think we should not blindly purchase. Because the overall market is weak now, the pursuit of high is easy to be locked in a short time, so this year's strategy is also to select a long-term optimistic direction. We have been interested in the two areas, big consumption and technology, which we think can be configured for a long time. The high quality consumer stocks have been relatively strong in the past, and a strong patch has recently emerged. In fact, this wave is a long-term direction after falling. With regard to positions, the focus of fund positions is still underestimating the value stocks and stable growth of consumption and medicine stocks.

Wang Jun:

At present, the third quarter will be more optimistic. The main line will be centered around the "deleveraging, accurate poverty alleviation, environmental protection" and so on. Now the policy of "stable domestic demand and short board" is also worth paying attention to. The direct benefit should be construction, cement and other fields, but more importantly, the traditional industry, which has completed or is carrying on the supply side reform, ushered in the opportunity. On the one hand, the "steady growth" policy is expected to obviously ease the market demand for these industries. On the other hand, the development of the structural reform of the supply side makes the profits of these industries be maintained, whether it is the absolute level of profit, or the sustainability of the profit.

Xiao Zhigang:

My next half year strategy is a selection from bottom to top. I think it is a good time for the fund manager to be active next year. Now we can have enough time to do deep research, select and hold good stock, and wait for the bull market, and the good stock will soon bring rich returns. At present, my position is very high, about 90%, but now the main contradiction in the market is not in the position, I think the downward decline is limited, and the average valuation of the high growth stock I hold is only about 15 times, in the market relatively low, the selected undervalued stocks are heavy, the risk is not big.

Chen Yifeng:

For a big country like China and the United States, the market of both sides is big enough and the industrial structure is perfect enough. The trade friction will not affect the long-term fundamental trend of both sides of the economy, and the exchange rate and the microeconomy will also constantly adjust themselves. We're not going to change our investment strategy very much. We'll just add trade frictions to the company's fundamentals and valuations when choosing stocks. The increase or decrease is determined by your own judgment of the company's long-term performance and valuation, and the position is still as planned.

Hong Liu:

Investment strategy in the second half is looking for certainty. Considering the concerns of trade frictions, the investment strategy is biased towards parts related to domestic demand, such as infrastructure related to fiscal policy, consumption, medicine and some of the leading real estate companies related to domestic demand. The direction of reduction is related to the external highly related industries, and external orders account for relatively high companies. The increase will be directed towards cement, steel and some cyclical industries benefiting from fiscal policy; food, beverages, medicines and leading real estate benefiting from rising domestic demand. The position control is mainly based on the product attribute, and the absolute income product can increase the position on the basis of the safety mat accumulation; the relative income product can actively arrange the stable or high quality leading company in the industry.

6. China Fund report: where is the market risk in the second half year? What are the key factors that need to be observed? How will trade friction and exchange rate affect A shares?

Zhang Jintao:

The continued evolution of trade frictions and our domestic economic policies must be an important observation point in the second half of the year. In fact, people are not so concerned about short-term performance, now we need to focus on the future, we need to see how the policy to deal with. Policy makers have introduced measures to reduce the impact of the market, such as tax reduction, orienteering, and the expansion of credit collateral. At present, China's real estate inventory and industrial inventory are still in low position, industrial enterprises' profitability is healthy, capital expenditure is low, the deposit reserve rate is still at a higher level of history, and policy operation space Larger. In the short term, if we can maintain the stability of the exchange rate and isolate the credit risk, we will boost the confidence of the equity market.

Wang Jun:

the first half of the market risk point, the first is the trade friction, which is the most important risk to the economy; the second is the risk of the structure of the market capital. Since last year, more and more "funds", including private funds and bank financial funds, have entered the market with the goal of pursuing absolute income. The probability of making money from these funds is not high. For some funds with rigid liability costs, whether they are affected by the new management regulations or the investment model, these "funds" or the existence of the exit market are also an important risk point for the market; the third is the risk of the equity pledge of the listed companies. A series of negative feedback may also be a concern.

Xiao Zhigang:

In the second half we should avoid cycle shares, such stocks in the future may be in the economic downturn in the sales and profit decline; then we should avoid industrial capital stock, deleveraging against these stocks is relatively large. The third is to beware of the blue chips stocks continue to kill value, such as liquor, household appliances, medicine and so on; Fourth, avoid the financial statements of risk stocks, such as balance sheets, cash flow statement poor companies to avoid, including a variety of companies with impairment risk.

Chen Yifeng:

The impact of deleveraging, trade friction and the business cycle on the market should continue to be observed. But we are not good at that. We are still focused on finding good companies.

Hong Liu:

the market risk in the second half is whether the macroeconomic forecast will deteriorate further. In the second half year, we need to pay attention to the RMB exchange rate, the fluctuation of overseas markets, and the landing speed of domestic financial policies. Monetary policy, trade frictions and exchange rate changes are related, but generally speaking, the pessimism in the market has been relatively adequately reflected in the index volatility.

8. China Fund News: Is the decrease of white horse stocks in place? In the direction of allocation, is the overall layout of white horse stocks good? What is the stock selection standard?

Zhang Jintao:

Looking at the long term, we are not pessimistic about the blue chip market. Of course, small-cap stocks also have the opportunity to rebound to a certain low. From the perspective of various industries, the trend of the strong will become more and more obvious, the larger the growth rate of corporate profits will be faster, valuation is more attractive. The future will still be based on performance and valuation to select stocks, rather than artificially to distinguish between GEM, or non GEM.

Wang Jun:

If the growth rate of income and earnings does not match the valuation level, there is still a big decreasing pressure for the large market capitalization companies that have risen better last year. This is mainly because of the decline in the economy since last year, such as household appliances and other industries, such as income, profit and other decline, some industries are more competitive, consumer companies are less profitable than expected; in addition, these household appliances, food and beverage industries before the adjustment of valuations are valued. At historic levels, if incomes and profitability do not reach levels, the pressure is indeed greater.

Xiao Zhigang:

I think the white horse stocks will slowly fall. At present, it has only been adjusted for more than half a year. It is expected that the overall bubble release cycle will last for two years. Because white horse companies are very good quality, most of the results will not crash, the reason for the adjustment is that the stock price has risen too much.

For the adjustment of white horse stocks, we should distinguish between periodic white horse and non-periodic white horse. White spirits and household appliances are periodic white horses, and their performance will fall more in the economic downturn; most of the non-periodic white horses may be faced with a long process of gradual release of foam. The maximum withdrawal or reaching 30% may basically maintain a low price with fluctuation.

Chen Yifeng:

Most of the white horse stocks in our stock pool have entered a reasonable low range. We are optimistic about their trend in the next three years. In terms of stock selection criteria, we still insist on good industry, good company, good management and reasonable or low valuation.

Hong Liu:

The systematic risk of white horse shares has been fully released, similar to the more concentrated plates in the previous institutions, such as medicine and consumption, there have been obvious price adjustments and chips loosening, but the adjustment of periodicity has not subsided. The reason is that institutional investors are extremely sensitive to high-frequency data and earnings forecasts in the context of macroeconomic weakness, and stock price volatility remains high. Whitehorse stocks still need to observe the overall layout of the opportunity for 3-4 quarters of macro data, but in the short term downward space is limited. The stock selection criteria first look at the quality of the balance sheet, the ability of the growth of the enterprise and the hematopoiesis of the operating cash flow; secondly, the competition pattern of the industry and the position of the enterprise in the industry are dominant. The most important thing is whether the enterprise can cross the "deleveraging" cycle of financial adjustment.

13:57:00 China Fund News: In the industry sector, which sub-sectors and industries have more investment value in the second half of the year? Can you talk about your investment logic?

Zhang Jintao:

Measured from a global perspective, A shares have major long-term advantages in areas such as big consumption, big technology and so on. However, as the high quality stocks in the field of science and technology are mostly listed in the overseas market, the advantage of A shares is more concentrated in the big consumption field. Although the large consumption has risen considerably in the past, the valuation is still not high and the growth rate is relatively fast compared with the international similar companies.

From the capital data of fund via Stock Connect Programs to observe, funds prefer leading enterprises, good assets, such as the current valuation between 20 to 25 times, which is more preferable than their country's 30 times, 40 times PE enterprises, and also has a faster growth, which will keep for medium and long term. In addition, there may be a corresponding adjustment in the short run of enterprises, but in the long run, such enterprises will run ahead as long as the performance continues to grow.

The overall valuation of Hong Kong stocks is low, but the number of related stocks in the consumer sector is small, and the quality and valuation of Hong Kong stocks are not comparatively advantageous. In addition, in the partial cycle and large financial areas, Hong Kong stocks with higher performance-price ratio are more likely to be favored by foreign investors. However, the A shares and the Hong Kong stock market have reached integration. There is no need to separate the A shares from the Hong Kong stocks. We will not only put the two together, but also compare with those of the same kind at overseas. If there are still advantages, we will configure it. The choice of target still depends on the company's performance, the marginal changes and the improvement of individual stock valuation.

Xiao Zhigang:

I don't think there may be a lot of sector opportunities. My investment is mainly a selection of stocks, a selection of undervalued, high growth stocks that have more investment value, and these stocks may be scattered in all sectors.

This kind of stock has the following common features: the first is that the stock industry is dispersed, the performance is growing at a high speed, the valuation is very low, and the performance is completely unmatched; the second is the new stock that most of them are listed after 2014 and has three years' performance report.

Chen Yifeng: the reassuring "good company" can let investors cross the cycle, resist the bear market stock, they are widely distributed in a large number of industries, in the large consumption, big finance and China has the advantage of the high-end (precision) manufacturing industry. In addition, according to the law of the economic cycle, we also began to pay attention to interest rate sensitive early-cycle industries.

Hong Liu: Some cyclical industries that benefit from fiscal policy and supply-side reforms have more investment opportunities in the second half of the year. Fiscal policy has driven the demand of cyclical industries, while supply side reform and environmental restrictions inhibit the supply of products. Further optimization of supply and demand and further appearance of leading enterprise advantages will stabilize the valuations of these industries and companies. And from the dividend rate point of view, that for the leading cement enterprises and steel companies are close to 5%, so the value of investment is outstanding.

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