1 On January 19, Hong Kong's Hang Seng Index hit a recent high during intraday trading, with trading volume increasing significantly compared to the previous trading day, reaching HK$301.6 billion. As of the close, it rose 2.70% to 29,642.28 points. Southbound funds bought a net HK$26.335 billion of Hong Kong stocks throughout the day, setting a new single-day net buying record since the launch of Southbound Trading. According to statistics, since the New Year of 2021, the net inflow of Hong Kong Stock Connect has exceeded HK$160 billion.
Faced with the current hot market of Hong Kong stocks, Li Bei, founder of Banxia Investment, recently shouted: "Real value investors should now: sell A shares, buy H shares; sell Moutai, buy China Mobile; sell Sell out soy sauce and salad oil and buy CNOOC.”
In response, Securities Times invited Li Bei to the Times Living Room to exchange ideas on Hong Kong stock investment with investors.
Highlights of the interview
Securities Times reporter: On January 18, you published an article "Sell A shares, buy H shares". What is your main logic for being optimistic about H shares?
Li Bei: The investment logic of H shares is mainly based on the current low valuation and triple driving attributes.
From a valuation perspective, the current valuation of Hong Kong stocks is relatively low compared with historical valuation levels and valuation levels of other asset classes. Compared with A-shares, the current discount rate of Hong Kong stocks is at a historically low level; compared with overseas stocks, the current valuation level of Hong Kong stocks is also relatively low.
From a driving perspective, the low valuation of Hong Kong stocks has been maintained for half a year and will gradually improve in the future. There are three main drivers. 1. In the past year, many Hong Kong heavyweights have faced sanctions from the United States. Now that the sanctions have been implemented, many companies (such as telecom operators) have turned around. In addition, after Biden takes office, his attitude will be softened, and many sanctions may be lifted. At the same time, some US-funded institutions will change from selling to no longer selling or even buying Hong Kong stocks. For example, Traitor Fund recently announced that it will resume operations on entities subject to US sanctions that are constituent companies of the Hang Seng Index starting from January 14. invest. 2. There is an inflection point at the capital level. Southbound funds have recently purchased Hong Kong stocks in large quantities, including environmental and institutional factors. The main environmental factor is that the current AH stock price gap is large, and rational investors are more willing to allocate Hong Kong stocks. The main institutional factor is that the new fund system has liberalized the investment scope and proportion of Hong Kong stocks. 3. Driven by fundamentals, many companies have begun to see an inflection point in their own operations. For example, for operators, the revenue contributed by unit users has increased since the third quarter of last year.
Securities Times reporter: What do you think of the A-share market? Are there still investment opportunities?
Li Bei: From a valuation perspective, compared with H shares, A shares are overvalued. The current premium level of AH shares is at a historical high, and A shares have a premium of about 40% over H shares. Compared with bonds, A-shares are also overvalued. Currently, the difference between the inverse of the market-wide price-to-earnings ratio and the latest ten-year government bond interest rate (i.e., the difference between market yield and risk-free rate of return) is at a historically low level. (According to historical data observation, when the stock-bond interest rate spread is at an extremely low value, it means that the allocation of the stock market is extremely cost-effective, and the market is more likely to fall.)
From a driving perspective, in terms of exports, the logic of China’s export share increasing has been changes occur. In recent months, the industrial production and exports of countries such as Turkey, Malaysia, Vietnam, Thailand and other emerging market exporters that compete with China have returned to positive growth, while industrial production in the United States and Europe has also basically recovered. The export growth rate in December has declined month-on-month. The main support for the current high export share is that Europe and the United States are replenishing inventories. According to our forecast, inventories are expected to be replenished to normal levels by May, which means that we are about to face a contraction in export share. Case. In terms of domestic demand, domestic demand will be strong in 2020, mainly due to strong fiscal stimulus and credit stimulus. The macro leverage ratio increased by more than 25% in 2020, the second highest year in history, which is basically the same as 2009 after the financial crisis. China's current economic stock structure is highly dependent on credit stimulus, with infrastructure and real estate accounting for a large proportion, and local government financing and real estate financing accounting for a large proportion. Once the growth rate of social financing declines, there will definitely be a significant decline in the growth rate of domestic total demand in 2021. Structural factors, the increase in prices of upstream raw materials is greater than the increase in prices of midstream and downstream finished products, and the narrowing of the "scissors gap" has squeezed the profits of midstream and downstream companies.To sum up, the overall profits of the company in 2021 will be worse than expected, and the profits of A shares (excluding bank oil) may show negative growth in the second half of 2021.
From a financial perspective, there is currently an increase in funds going south, while funds going north have not increased significantly. Shanghai-Hong Kong Stock Connect has become a net inflow into Hong Kong stocks and a net outflow from A shares. In the context of deleveraging, credit lines have declined, financing conditions for private enterprises have deteriorated month-on-month, funds are no longer abundant, and stock valuations are expensive, so companies have great incentives to reduce their stock holdings. In fact, we can already see that the progress of industrial capital reducing stock holdings is greatly accelerating.
The main positive driving factor for A shares at present is the expansion of the scale of new funds, but a large part of them also buy H shares. A shares are currently at a high valuation level, and the driving force has begun to turn negative. Of course there will be investment opportunities, but they won’t be many.
Securities Times reporter: Another reason that has attracted everyone's attention to Hong Kong stocks in the past two days is the surge in southbound funds. As of January 15, southbound funds have flowed into Hong Kong totaling 135.7 billion, but data shows that the vast majority of funds have been bought into Tencent and China Mobile accounted for 65.8%. So in fact, the huge increase in southbound funds is not the income of all Hong Kong stocks, but the two extreme stocks absorbing 65% of the funds. How do you understand this phenomenon?
Li Bei: Hong Kong stocks will not rise to heaven. Nowadays, the main force of capital going south is public funds, which are generally more rational. There is a rational thought in choosing these two stocks. China Mobile's single-digit valuation and dividend investment of around 7% are relatively safe, and its fundamentals have reached an inflection point and capital expenditures have peaked. As the core assets of the Internet, and Tencent are relatively cost-effective.
The main components of the Hong Kong State-owned Enterprise Index (HSCEI) include operators, Internet companies, and financial real estate. I personally have reservations about financial real estate. Residents will gradually deleverage this year, and the performance of real estate will be suppressed. At the same time, interest rates have not bottomed out, and banks and insurance may not perform particularly well. However, the financial sector of Hong Kong stocks is significantly undervalued compared to A-shares. A-shares in the brokerage sector are on average twice as expensive as Hong Kong stocks, and A-shares in the banking sector also have a 30-40% premium over Hong Kong stocks. Investing in financial stocks in Hong Kong stocks may not yield absolute returns, but they are relatively safer than A-shares. There is not much price difference between real estate AH shares, and mainstream companies and even A shares are cheaper. However, it should be noted that real estate companies are highly leveraged and have certain security issues, especially private enterprises.
Securities Times reporter: You just mentioned that some A-share companies may experience negative profit growth in the second half of this year, and the A-share investment environment will also fluctuate. Will this phenomenon be related to Hong Kong stocks?
Li Bei: The economy may experience a certain downturn in the second half of the year. Financial and real estate stocks will be affected, and Hong Kong stocks will also be affected. Investments should try to choose industries and targets that are less affected by the macro cycle, such as operators, which can be regarded as necessary consumer goods.
Securities Times reporter: You mentioned in your article, "Sell A shares and buy H shares; sell Moutai and buy China Mobile; sell soy sauce and salad oil and buy CNOOC." What do you think of Moutai and other recognized core assets? Is it time to sell too?
Li Bei: Stable consumer goods companies are favored mainly because they can provide stable returns. The annual performance growth rate of such companies is about 10%. This has been the case for the past ten years. There are no surprises or surprises. The company's valuation has increased from 20 times ten years ago. From about 100 times to about 100 times now, it is mainly due to the decline in interest rates and their stable performance growth rate. At the same time, a certain grouping effect has been superimposed this year. However, the future returns of the valuation of more than 100 times are very limited. In addition, there has been a change recently. The proportion of foreign investment in such companies is relatively large. Now foreign interest rates have begun to rise and will return to more than 1.5% in the next year. They may no longer be able to support stable consumer goods valuations of more than 100 times.
Securities Times reporter: Hong Kong stocks have been relatively undervalued in the past ten years. What is the core reason?
Li Bei: Intuitively, you will feel that Hong Kong stocks have always been undervalued. Looking at the data, it does not mean that they have always been undervalued. The Hang Seng AH Premium Index is currently around 140, and it was 88 in mid-2014. Overvaluation and undervaluation are not constant but fluctuate, depending on the liquidity and risk appetite of the two markets.
Securities Times reporter: How do you define core assets? How do you think investment targets should be screened?
Li Bei: The measurement standards for professional investors must be judged: whether the company is in a core competitive position in the industry, whether the industry trend is upward or starting to show an inflection point, and whether the company is at a reasonable valuation. The targets we need to look for are companies whose industry is on an upward trend or near an inflection point, whose company has a significant competitive position in the industry, and whose valuation is reasonable.
core assets will change dynamically. If an industry changes from an upward trend to a downward trend, its industry leader will also change from core assets to marginal assets. If an industry enters an upward cycle in the next few years, it will also breed new ones. core assets.
Securities Times reporter: What industries do you think are turning upward now?
Li Bei: I am personally optimistic about high-end manufacturing. China has been in the process of industrial upgrading. With each round of upgrading, Chinese companies are grabbing a larger share. This industry is an industry with rising prosperity, but there must be reasonable reasons for choosing a specific company. Valuation.
Securities Times reporter: What kind of valuation level do you think is “reasonable”?
Li Bei: A common approach is to compare the mid-term growth level with the current valuation level, that is, PEG.
Securities Times reporter: What kind of overall asset allocation plan do you think is more reasonable?
Li Bei: Looking specifically at various major asset categories, Chinese government bonds are expected to have significant returns by the end of this year. The interest rate differential between China and the United States is currently at a historically high level, which has certain investment value and can be allocated as a strategic bottom position. There are currently many undervalued stocks in Hong Kong stocks, which can be screened and allocated accordingly. There are currently very few low-valuation stocks that can be selected from A-shares. Commodities are currently in a relatively differentiated state, and it is necessary to conduct meso- and micro-level research to observe the specific supply and demand levels of each variety.
Securities Times reporter: Do you think the global water supply cycle has come to an end? How will loose liquidity affect the market?
Li Bei: In fact, China has stopped releasing money since mid-2020, and the trend of M2 is to fluctuate slightly downward. The current expansion of fund scale is not the result of total easing, but the profit-making effect of following the trend.
This article comes from Securities Times website
