Zhang Hui, Active Equity Investment Director of Huatai Berry: Focus on investment opportunities with high prosperity and reasonable valuation

Huatai Berry Zhang Hui: Looking back at the A-share market in the first three quarters of this year, complexity and differentiation are the most important keywords. The market oscillates between divergence and consensus, with huge sector differentiation, many rotations in style, and fast switching speed. The degree of market activity and local money-making effect is no less than in the past two years, but many investors, especially institutional investors, feel that it is quite "difficult to make money".

If we divide the assets of the market into four categories: large-cap value, large-cap growth, small-cap value, and small-cap growth by style, then market opportunities have been switching between small-cap value and small-cap growth for some time. Small and medium-sized companies with boom overflow have received double-click valuations and performance, and market performance continues to outperform large market capitalization leaders. The market environment is quite complex, macro variables are drastically changing, and 21 years so far seems to have experienced a "condensed version" of the market from 2009 to 14 years.

We also once wandered, but after a lot of research, we firmly believe that this year is still promising, but it poses a higher challenge to bottom-up research capabilities, and "lying to win" may mean "lying flat". We have always adhered to the stock selection around the industry and individual stock prosperity, after industry comparison and individual stock mining, focusing on the selection of profits with acceleration ability and valuation in the whole market with cost-effective areas, invested in companies with better patterns and prosperity spillover in the direction of high prosperity, and harvested a good excess return.

Looking ahead to the investment opportunities in the fourth quarter at this point in time, I am personally optimistic, although market volatility may increase. In terms of the international environment, in the fourth quarter, the market's concern that the Fed will begin to contract may enter a period of realization, becoming a major disturbance factor in the global capital market, and may not decline until taper lands. Looking forward to the next two years, the sustainability and intensity of this round of contraction are still questionable due to the degree of recovery of the US economy, employment conditions, midterm elections and other factors. On the domestic front, the Politburo meeting in July clearly stated that domestic macroeconomic policies will remain autonomous, and measures for cross-cyclical adjustment of the economy will be introduced, and many factors have made us confident that the domestic environment is biased toward stability.

The current market opportunities and risks are structural, the market valuation system is still in a fragmented state, all A-share PE (TTM) within 30 times of the company still accounted for nearly 50% of the total (data source: wind, as of 2021/8/31), indicating that there is still a lot of room for mining individual stock structural opportunities. Although the valuation of first-tier leading companies has declined, there is little room for improvement, and the opportunity for excess returns will still appear in companies with high prosperity and reasonable valuations. Our next stage is to find companies that can be double-clicked on valuation and performance based on 22 years of prosperity comparison, so as to seize the structural opportunities in the market.

Specific to the market style and industry performance, we are still the most optimistic about the direction of new energy vehicles, and the entire industry may be in a global resonance cycle in the next few years. From the past market experience, the general growth industry, before the industry penetration rate reaches 40%, its valuation will remain at a high level, so there are a number of companies in the new energy automobile industry that still have a large market value growth space, but the performance of individual stocks will show a certain differentiation relative to before. We are optimistic about companies with a good pattern and a logic of increasing penetration rate for a long time, while focusing on the shortage links in the development of the industry in the past 22 years, especially in areas with large marginal changes. Photovoltaics have recently fallen into the "price increase" problem, but in the context of energy dual control and encouragement of "green electricity", when the upstream price is straightened out, it is possible to exceed expectations in 22 years. In addition, there are also many opportunities in the localization of semiconductor equipment, VR and military industry. Looking forward to next year, we feel that there will be a greater differentiation, the state of supply constraints should exist for a long time, and there is still room for the demand to benefit from emerging industries. Outside of these mainstream sectors, we're also looking for areas where the economy could reverse next year, especially in the area of service consumption. Of course, we also see that there is downward pressure on the economy, the real estate industry chain is suffering from the hidden dangers of demand and cash flow, and power rationing has also had an impact on the predictability of performance in some areas, thus causing certain disturbances to individual stocks.

Since the beginning of the year, the market has been frequently shaken and the plate has switched rapidly, which has made the mood of many fund investors quite fluctuating. In the long run, equity investments, especially excellent active equity funds, have a considerable rate of return, but at the same time, they also need to withstand certain fluctuations. For most investors, timing is difficult, especially in today's increasingly differentiated market, the trend of indices, industries, and individual stocks may not be the same frequency, which further increases the difficulty of timing. Therefore, we recommend that investors may wish to choose a fund that is in line with their investment philosophy for a long time. For investors whose mentality is susceptible to market fluctuations, in order to reduce the investment losses caused by irrational redemption, you can consider choosing a product with a certain holding period. While cultivating long-term investment habits, avoid frequent operations and chase ups and downs, use time value to iron out short-term fluctuations, and strive to convert fund income into investment income, thereby improving the holding experience.

As a fund manager, in the face of an increasingly complex investment environment, we will make every effort to find high-quality companies, dig deep into market opportunities, and strive to achieve asset preservation and appreciation for investors. I've written about it in my book to you before: Embrace time and have wealth. Don't forget your original intention, you have to be consistent. I believe that if we can accompany us with time, we will eventually benefit from the development of China's capital market and achieve continuous appreciation of wealth.

About the Author:

Mr. Zhang Hui, 14 years of experience in securities and funds, 8 years of experience in fund management. He joined Huatai Barry Fund in 2010 and is currently the director of active equity investment of Huatai Barry, and the fund manager of huatai Berry Innovation Upgrade and Huatai Berry Innovation Power.

This article originated from the Financial Circle Network