Keep calm and cross the storm

Liam Zhou   2018-08-17 本文章159阅读

Facing the escalating China-US trade war and RMB depreciation pressure, most investors been pessimistic. Market is extremely depressed and major indices have hit new lows. The question whether to hold or leave is particularly challenging.


The difficulty of stock investment lies not only in the investment strategy, but also in the execution process. The basic characteristic of stock market is volatile, sometimes even large fluctuation. The long-term investment results are often determined by the choice made when the market in big swing. The hardest test for investors is self-discipline at the peak and perseverance at the low.


When the market is depressed, there are countless reasons for pessimism. But in fact, the downturn has reflected the pessimistic expectations of most people, and the falling share price has contained various negative effects. We need to pay extra attention to the marginal changes, because marginal improvements can be easily overlooked in a pessimistic market. In the late stage of a bear market, people tend to magnify the negative news and overlook the positive one.


There are obvious marginal changes of monetary and fiscal policies in the second half this year. On April 23, the Political Bureau of CPC Central Committee first time mentioned "combining accelerated structural adjustment with sustained expansion of domestic demand". On July 23, the State Council proposed that fiscal policy should be more active and capital expenditure should be bolstered at weak spots, which expected to stabilizing growth through infrastructure investment. The shift of monetary policy is reflected in the dropping inter-bank borrowing rate, and the new credit likely to be maintained at a high level in the second half. Meanwhile, financial supervision will be moderately relaxed, and off-balance-sheet assets and supplementary capital pressure of banks and other financial institutions will be eased, which will help improve the overall liquidity of the economy and financial system.


The increase of long-term capital inflow changes investor structure. On August 31, MSCI will implement the second phase of incorporating A shares into its index, raising the existing A Share weighting from 2.5% to 5% which will bring about 11 billion USD (75.5 billion RMB) additional inflow to A-share market. The percentage will continue to increase every year. Meanwhile FTSE Russell could include A shares in its flagship index next month with a higher percentage weighting than MSCI.


The decline will not impair the risk-return ratio of the large blue-chips, and we have been very cautious about the weak market in the past two years. After analyzing the structure of supply and demand, scarcity, allocation, individual stock valuation and market sentiment, currently, we only hold the large blue-chips with low valuation, including top banks, insurers, real estate developers and consumer staples/discretionary companies. These stocks are severely undervalued, scarce and under-allocated by most investors with small downside risks. The fall in stock prices would make the risk-return ratios even better.


Every market correction is good time to buy large blue-chips. Weak markets tend to magnify negative news, such as the escalation of trade war and the decline of economic growth likely to hit the already weak market again. But the market correction in the late stage of the bear market always presents opportunities to buy large blue-chips at cheaper price. Be steadfast in the bearish market and embrace the coming bull market.


Xinhua News Agency recently released article “creating a better Life regardless of hardship". This attitude is very important when coping with international environment change, and also valuable for stock investment.


It has been five years since the establishment of Minority Asset Management. Over the past five years, we have experienced the recovery and surge of the market together, as well as crash and downturn. Our innovative investment strategy constantly helping us to find market inefficiency and majority misunderstandings. We captured opportunities with high risk-return ratio and our value gradually recognized by clients and institutional partners. It is our goal and joy to accumulate wealth for investors and grow steadily in the fierce competition. Looking forward to the next five years, we will continue to maintain a calm attitude and cross the storm with courage.