Holding large blue-chips & participating STI Board placement

Liam Zhou   2019-03-05 本文章179阅读

Since January, China stock market has been rising and the CSI 300 index risen 26%. Kweichow Maotai and Industrial Bank hit a new high today. The market is hot and it seems easy to make money in the stock market, but it may not be the truth.
In the stock market, it is possible to make money temporarily, but not easy to accumulate return for a long time. When the market is hot like past two months, it's easy to rush in and make profit. Two months ago, it was not easy to hold stocks with full position at the market bottom.

These are not easy tasks but we have made it. Investors who have read the last letter “Is 2019 a risky year?” would have a better understanding.

In addition to conventional equity analysis on macroeconomy, fundamental and technical aspects, we use an innovative investment methodology of Behavioral Finance to identify misunderstandings/bias of most people, find the mispricing of market and the investment opportunities with high return to risk ratio. Over the past ten years, we have selected right sectors and stocks, achieved significant excess returns. This year, our investment direction is to hold large blue-chips and actively participate in the STI board placement.

Since 2nd half of 2016, we began to hold large blue-chips in full position. In the fourth quarter of last year, according to our latest research, we added liquor makers into our portfolio and adjusted the weighting of banks by reducing large banks and increasing second tier banks. The newly added bank stocks have reached historical highs this year. Our holdings now cover five sectors: banking, insurance, consumer staples, consumer discretionary, property development.

We believe large blue-chips cycle will last for several years. We have pointed out five dimensions of majority bias on blue-chips, including supply and demand, scarcity, allocation, valuation and market sentiment. Please refer to our letter to investors dated June 13, 2017 “the show of large blue-chips just started”. Short-term market fluctuations may occur, but as long as these five dimensions do not change fundamentally, the bullish large blue-chips will not end. We will continue to hold high positions in the large blue-chips in these five sectors.

TI Board is a hot topic this year. Compare with the current Main Board private placement rules, STI Board has made two adjustments. On the one hand, STI Board increases the private placement proportion from 10% to 60-70%. On the other hand, the number of investors allowed to participate private placement will be reduced by eliminating individual investors, which will significantly increase the potential return of placement. All of our products meet the new requirements and will actively participate in the STI Board placement.

We are very cautious about participating in the secondary market of STI Board. In the early time, price in the secondary market of STI Board is likely to be overvalued. It's not easy to make excess return where everyone is buying.