CITIC BANK Strategy Meeting: US stocks are expected to continue rising next year, A-shares have profit opportunities, and long-term government bond yields may rise

On December 19th, the Wealth Management Department of CITIC BANK held the 2025 Investment Strategy Conference, inviting Zhao Qian, the head of investment research at CITIC BANK's Wealth Management Department, and Han Tongli, the CEO and Chief Investment Officer of Harvest Global Investments, to share their views on the trends of U.S. stocks, A-shares, gold, and commodities for the coming year with a wide range of investors. The key points are as follows:

• After Trump took office, the U.S. economy will continue to experience strong growth in the short term, as all of Trump's policies are essentially aimed at high inflation, such as tariffs on foreign goods, tax cuts domestically, fiscal expansion, and the expulsion of low-end populations. U.S. inflation may get out of control.

• Currently, the nominal wage growth in the U.S. remains relatively high, coupled with a slowdown in inflation, which has led to an improvement in the real wage growth of Americans since the second half of 2023, supporting the resilience of consumption growth in the household sector. Additionally, the labor productivity in Europe and Japan is significantly lower than that in the U.S., therefore the market still expects the U.S. dollar to remain strong.

• U.S. dollar interest rates only affect the demand side for gold; rising dollar interest rates will suppress speculative demand. On the supply side, historically, gold supply has been relatively stable, but in the future, there may be significant fluctuations in gold supply. Since 2012, the world's top ten gold mining companies have continuously reduced capital expenditures, decreasing or no longer using a large portion of their income to purchase mines, which has led to a significant decline in the gold reserves of major global mining companies, and the remaining gold mine grades have deteriorated significantly.

• Compared to the internet bubble phase of 1999-2000, U.S. companies have stronger profitability, healthier finances, and hold a large amount of cash, which can support companies in continuing to invest in the AI revolution, demonstrating strong resilience to higher interest rates and yield levels. U.S. stocks still have a 30%-40% upside potential (in terms of the S&P index).

• There are subsequent profit opportunities in the A-share market: First, the current valuation of A-shares cannot be said to be expensive or in a bubble; at least it is reasonable, and some companies may still be undervalued; Second, the speech by the central bank governor on September 24 provided strong bottom support for the market; Third, many companies are expected to perform better next year than this year, as the profits of A-share listed companies are at a low point, and domestic PPI may continue to improve next year.

• Hong Kong stocks are currently very cheap, with valuation multiples only around seven to eight times, less than ten times. Whether Hong Kong stocks can ultimately rise depends on whether liquidity issues can be resolved. The funds for Hong Kong stocks may be influenced by global liquidity, meaning the denominator may be affected by global liquidity, while the numerator may be influenced by the Chinese economy.

• From a global liquidity perspective, if the Federal Reserve's interest rates remain high next year, the valuation expansion space for Hong Kong stocks will be relatively limited. Therefore, the driving factors for Hong Kong stocks may need to focus more on the numerator, that is, whether corporate profits can improve and whether listed companies can earn more money than before. From this perspective, the analytical logic for Hong Kong stocks and A-shares is quite similar.

Zhao Qian, head of investment research at CITIC BANK's Wealth Management Department, has 13 years of experience in the financial industry and has previously worked as a trader at a large state-owned bank's headquarters, conducting long-term in-depth research on global macroeconomics and major asset classes Han Tongli, CEO and Chief Investment Officer of Harvest Global Investments. Mr. Han has over 20 years of global market investment experience, covering bonds, equities, commodities, and more. He previously worked at PIMCO's U.S. headquarters as a fund manager, managing hundreds of billions of dollars in emerging market bond investments. According to Bloomberg statistics, the global bond public fund he managed in Hong Kong ranked first among 126 similar public funds globally during his tenure.

The full text is as follows:

Host:

Hello, audience friends. Welcome to the "New Situation, New Ideas, New Future - 2025 Xinjian Investment Strategy Conference" hosted by the Wealth Management Department of CITIC Bank, with the special session "New Situation - How to View Assets?" I am your host, Ji Zhaoyan, from Wall Street Insights. In 2024, the global macroeconomic landscape is once again facing new situations and changes.

On one hand, the Federal Reserve has officially begun a rate-cutting cycle, reshaping the pricing logic of economic assets; the U.S. election has concluded, with Trump winning the presidency by a landslide, and his political stance may once again disrupt the global economic and trade landscape. On the other hand, domestic incremental policies are frequently introduced, economic data is stabilizing and rebounding, and positive signals are emerging globally, restoring confidence among domestic investors. Looking ahead to 2025, how will future domestic and international policies unfold? What new surprises will the capital markets bring? As individual clients, how should we scientifically allocate our asset portfolios? To answer these key questions, we are particularly honored to invite two guests today to provide insights on asset allocation for 2025 from a macro perspective.

First, allow me to introduce today's two guests. They are Zhao Qian, head of investment research at CITIC Bank's Wealth Management Department, who has 13 years of experience in finance and has worked as a trader at a large state-owned bank, conducting in-depth research on global macroeconomic major assets. The other guest is Han Tongli, CEO and Chief Investment Officer of Harvest Global Investments, who has over 20 years of global market investment experience, covering bonds, equities, commodities, and more. He previously worked at PIMCO's U.S. headquarters as a fund manager, managing hundreds of billions of dollars in emerging market bond investments. According to Bloomberg statistics, the global bond public fund he managed in Hong Kong ranked first among 126 similar public funds globally during his tenure. Welcome to both guests.

The 10-Year U.S. Treasury Yield Below 4% is a Market Emotional Reaction, Driven by FOMO

Host:

The first question will focus on the overseas market. We have noticed that the U.S. Treasury yields have begun to rise before and after the U.S. election, with the 10-year Treasury yield returning above 4.3%. Does this reflect short-term emotional expectations, or is it a reversal in the understanding of the long-term trajectory of U.S. economic policy? What will be the future trend of U.S. Treasury rates? We will consult the bond and fixed income expert, Mr. Han Tongli, for your insights Han Tongli:

Thank you, host. In fact, starting from the past two years, my judgment on U.S. Treasury yields has been contrary to the mainstream market expectations. It has been proven that the mainstream expectations have been wrong. Why? On one hand, the U.S. economy has remained strong, and while there may be some signs of slight weakness recently, there will still be relatively strong growth in the short term after Trump took office. I do not believe that the rise in U.S. Treasury yields is an emotional reaction from the market; on the contrary, I think that the previous drop of the 10-year Treasury yield below 4% was the emotional reaction of the market, driven by chasing highs and cutting losses. Because yields reflect the rate of return on capital, which is indicative of the economic development trend. With a strong U.S. economy, Trump's presidency has extended the bull market. At the same time, all of Trump's policies are basically aimed at high inflation, such as imposing tariffs on China, cutting taxes domestically, expanding fiscal policy, and expelling low-end populations through immigration policies, all of which will lead to inflation. If the Russia-Ukraine war stops and reconstruction begins, it will also lead to inflation, and global energy supply will experience significant fluctuations due to Trump-related policies, which also points to high oil prices.

Among all of Trump's domestic and foreign policies, the only aspect that may counter inflation is his pragmatic tendency. He calls ESG nonsense and does not believe in it. Therefore, after he was elected, U.S. oil production and energy production companies were allowed to lift oil extraction restrictions.

As a result, U.S. shale oil supply and oil and gas supply will increase, which may offset some inflation, but it is not enough to counter the upward pressure on oil prices caused by the turmoil in the Middle East. Overall, after Trump took office, inflation indeed has the potential to spiral out of control.

However, there is a positive aspect now. The Treasury Secretary he appointed is Scott Basset, who is a veteran on Wall Street, coming from the hedge fund industry, with a profound insight into the essence of the economy and the market. His appointment has alleviated the market's concerns about inflation under Trump's administration. This is also why, after Trump took office, U.S. Treasury yields initially surged, breaking through 4.5%, and then retreated from 4.5%. Besides market and technical factors, Scott Basset's appointment has been an important catalyst for the retreat, easing some concerns about high inflation, which is the overall situation.

The U.S. dollar is expected to remain strong in 2025

Host:

Thank you very much, Mr. Han, for your in-depth explanation.

Next, I would like to ask Mr. Zhao a question. In September, the Federal Reserve began to cut interest rates. Theoretically, the U.S. dollar should be under downward pressure, but recently the U.S. dollar index has shown strong performance, even briefly breaking through the level of 107. What does Mr. Zhao think is the underlying logic for the strong performance of the dollar recently? Will the dollar continue to remain strong in 2025?

Zhao Qian:

From the overall fundamentals of the U.S. economy, the U.S. economy is in a state where nominal wage growth remains relatively high. Due to the previous inflation rate dropping from 9% to around 3%, the real wage growth for Americans has improved since the second half of 2023, supporting the resilience of consumption growth in the household sector. Consumption accounts for about 70% of the U.S. economy, so the U.S. economy has not experienced the hard landing risk that everyone expected in early 2024 From an international comparative perspective, the US Dollar Index is an overall reflection of the dollar's exchange rate against a basket of currencies. Currently, labor productivity in Europe and Japan is significantly lower than that in the United States, and this disparity in labor productivity among countries leads many investors to have expectations for the dollar's future. Although the Federal Reserve has implemented a certain degree of interest rate cuts in the short term, there is still uncertainty regarding the pace, magnitude, and duration of interest rate cuts by the Federal Reserve in 2025, which keeps expectations for a strong dollar intact.

Future Gold Supply Side May Experience Significant Volatility

Host:

Next, I would like to ask a question about gold. The performance of gold prices in 2024 has been very strong, repeatedly breaking historical highs. What trading logic does this reflect? Will gold prices continue to remain strong in 2025? How should short-term investment in gold be managed? Let's first hear from Zhao Qian on this issue.

Zhao Qian:

Regarding gold prices, I believe that if we were to fully articulate the factors influencing gold prices, it should be as follows: Generally, we consider the US dollar interest rates, especially real interest rates, to be a core variable affecting gold prices, but this only influences the demand side for gold. A decline in real interest rates will stimulate speculative demand for gold, while an increase in dollar interest rates, especially real interest rates, will suppress this speculative demand, but this is just one factor. Another factor that is often overlooked by the market is the supply issue of gold. In the past, we have not paid much attention to gold supply when analyzing gold prices. Real interest rates can be used to analyze gold prices, but currently, supply-side factors can no longer be ignored.

In the past, gold supply was relatively stable, without significant fluctuations. However, in the future, there may be noticeable volatility in gold supply. Since 2008-2009, starting from 2012-2013, the world's top ten gold mining companies have continuously reduced capital expenditures.

During the commodity bull market from 2001 to 2008/2009, prices rose steadily, and large resource companies would invest a significant portion of their profits into acquiring mines to gain more revenue. However, after 2011, the situation changed, the commodity bull market ended, and a price inflection point formed, leading gold mining companies to cut capital expenditures, meaning they reduced or ceased to invest large amounts of revenue into acquiring mines. This has resulted in a significant decline in gold reserves of major global mining companies, dropping by about one-third, and the remaining gold mines' grades have deteriorated significantly.

This may lead to a non-linear decline in global gold production in the future, thereby affecting gold prices from the supply side. Historically, there have been two similar situations: between 1970 and 1980, global gold production decreased by 19%, while gold prices increased by about 15 times; from 2001 to 2007/2008, global gold production decreased by about 11%, and gold prices increased by about 5 times. If gold production contracts, experiences low growth, or even negative growth in the future, it will stimulate speculative demand for gold. In fact, since 2019, global gold production has entered a phase of low growth, and negative growth may occur in the future. Therefore, in the long term, the outlook for gold is positive, but in the short term, the price of gold rose from $2,000 to $2,300 at the beginning of 2024, and then to $2,600 - $2,700, with excessive short-term gains reflecting significant concerns over geopolitical conflicts and high speculation From the perspective of COMEX positions, net long positions have reached a historical high, while net short positions are at a historical low. When the shorts are completely squeezed out, the longs may turn into shorts, so gold prices may fluctuate around $2,700. If it falls back to $2,300, it would be a good buying position, while $2,600 is relatively high. Investors who do not mind short-term fluctuations can also invest through a regular investment plan.

Compared to the 1999-2000 Internet bubble phase, U.S. stocks still have 30%-40% upside potential

Host:

Zhao Qian is optimistic about gold in the long term and has provided asset allocation advice for investors. We discussed the U.S. dollar, U.S. Treasury bonds, and gold, and I would like to ask Han about how U.S. stocks should be allocated next.

Han Tongli:

Regarding U.S. stocks, I have made predictions in many occasions over the past decade, but the accuracy has been low due to numerous influencing factors, especially unexpected events. Judging from the price-to-earnings ratio and market logic, U.S. stocks are still a good investment. The first reason is that, from a valuation perspective, U.S. stocks are not cheap, and even quite expensive. Excluding the "seven sisters" like Google, Apple, and NVIDIA, the price-to-earnings ratio is 20 times, which is relatively expensive compared to the past twenty years. However, compared to previous technological revolution cycles, we should consider the current AI technology revolution phase; otherwise, the comparison is meaningless. Compared to the 1999-2000 Internet bubble phase, U.S. stocks still have 30%-40% upside potential (in terms of the S&P index). The second reason is that after Trump took office, there may be inflation expectations, and stocks are assets that can hedge against inflation. Their future cash flow discounting reflects current asset prices; higher inflation means higher cash flow. In terms of the quality of American companies, compared to 1999-2000, American companies now have stronger profitability and healthier finances. At that time, leading Internet companies were similar to today's cryptocurrencies, lacking a profit model, while companies leading the AI revolution, such as Google, NVIDIA, and Apple, can generate cash flow and profits from their main businesses and have the ability to pay for the costs of the AI revolution, which is the third reason.

The fourth reason is that there are actually many more. Why are U.S. stocks so healthy? The fourth reason is that we look at a macro data point: the five hundred companies in the S&P index have cash or cash equivalents on their balance sheets accounting for about ten percent of the total balance sheet.

What does this mean? American companies have a large amount of cash and are not short of money. On one hand, this cash can support companies to continue investing in the AI revolution; on the other hand, they have strong resilience to higher interest rates and yield levels. Therefore, people previously found it strange that the Federal Reserve raised U.S. interest rates (dollar rates) from zero to 5.5, yet the U.S. stock market did not crash but instead kept rising every day.

There are two reasons. On one hand, American companies are not short of money and have accumulated a large amount of cash, with strong profitability and cash flow generation capabilities. On the other hand, they previously accumulated a large amount of cash and have long debt maturities. In other words, during the era of zero interest rates (during and before the pandemic), American companies issued long-term corporate bonds, resulting in long-term liabilities rather than short-term liabilities, locking in the cost of issuing bonds On one hand, they are hoarding cash, and on the other hand, they have locked in the cost of issuing bonds.

Therefore, when the Federal Reserve raises short-term policy rates, the impact on them is minimal because they have already locked in long-term liability costs in advance. This is the fourth reason why the financial condition of American companies is very healthy.

Now, the fifth reason, looking at the overall health of the U.S. stock market, is to examine its leverage ratio, which is often referred to by Chinese investors as the margin ratio. The leverage ratio of the entire U.S. stock market is very low, at a mid-to-low level compared to the past twenty years, in a very mild state.

Thus, there is no situation of excessive speculation followed by a sudden collapse, because people are not borrowing money to invest in stocks, and the leverage ratio is at a very low level. Overall, I believe that the U.S. stock market will at least be a direction worth paying attention to next year.

There are profit opportunities in the A-share market

Host:

Thank you, Mr. Han, for providing investors with some insights on asset allocation for next year. After discussing the overseas market, let’s refocus on the domestic market. Everyone should have noticed that since the market on September 24, A-shares have started to rebound in bond yields.

From the end of September to early October, the investment return rate of A-shares ranked first globally, but recently A-shares have entered a period of adjustment. I would like to ask Mr. Zhao Qian, how do you view the future market development?

Zhao Qian:

Thank you, host, for the question. Since 2022, investors have been concerned about the Chinese economy, leading to changes in domestic bond yields. We have seen the yield on ten-year government bonds continue to decline, and the yield on thirty-year government bonds has also dropped significantly.

In March, the spread between thirty-year and ten-year bonds was only about ten basis points at its lowest, reflecting the market's lack of confidence in future economic growth prospects. Therefore, after 2022, many assets related to future growth have gradually been avoided by the market, resulting in a significant adjustment in A-share asset prices.

Sometimes, we feel that the valuation has become very cheap, so why is it still falling? It is because everyone is worried that the central tendency of future profit growth will decline. After September 24, I believe the overall market sentiment has improved significantly.

Especially the speech by the central bank governor has boosted market confidence, so the market has entered a process of repricing (or correcting pricing) since September 24, and we have seen a noticeable rebound in the A-share market.

Looking ahead, I believe there are several factors that may present opportunities in the A-share market, at least structurally. First, from the perspective of A-share valuations, I think the current valuations cannot be said to be expensive or bubble-like; they are at least reasonable, and some companies' valuations may be reasonably low. This is the first factor.

Second, the speech by the central bank governor on September 24 seems to have provided a strong bottom support for the market, which is the second point. Third, regarding corporate profit growth, based on the data from this year's third-quarter reports, many industries have begun to enter the right side I believe that corporate profits next year will be better than this year. What is the reason? The reason is that the profits of A-share listed companies are currently at the bottom. Next year, our PPI may continue to improve. Recently, there has been a noticeable decline in domestic PPI, largely due to external factors.

Since 2022, due to the pandemic, residents in Europe and the United States have shifted their consumption more towards goods. Starting in 2022, American households began to spend more on service consumption, leading to a decrease in the proportion of goods consumption, which in turn affected their import prices and subsequently impacted China's PPI. But what is the situation now?

Currently, the ratio of goods consumption to service consumption among Americans has balanced out and returned to pre-pandemic levels. This means that the drag on our PPI from this rebalancing may have ended. I believe that next year, the external factors dragging down PPI may completely dissipate.

A gradual recovery in PPI will lead to a stronger recovery in corporate profits. In this context, I believe that from a fundamental perspective, A-shares should rise next year. Of course, in addition to fundamental factors, we also need to consider other emotional factors. But overall, I think there is an opportunity looking ahead in a big direction.

Main Speaker:

Thank you, Zhao Qian. Recently, the Ministry of Finance also announced a 10 trillion yuan debt relief plan. Will debt relief become the core logic of market trading in the future? What impact will debt relief have on the domestic bond market? We would like to ask Mr. Han about this.

Long-term Government Bond Rates May Rise

Han Tongli:

Thank you, host. I believe that the Ministry of Finance's debt relief plan is absolutely correct in direction and is an important measure and correct starting point for resolving current liquidity issues and some economic problems in China.

From this perspective, we believe that there is no turning back once the bow is drawn. There has been much debate in the market about whether this 10 trillion yuan is enough; many bearish individuals say it is not enough, while those like me who are bullish believe this is a very good and correct starting point, so I still maintain my basic judgment.

That is to say, future debt relief measures are definitely correct, and there is no turning back once the bow is drawn; it will continue in the future, and if it is not enough, it will definitely increase. Moreover, from an overall perspective, is the government debt ratio in China high? In vertical comparison, it is relatively high compared to China's past, but in horizontal comparison? The average government debt ratio of G20 countries is 120% of GDP. Currently, China's situation is that local statutory debts plus hidden debts total 55 trillion yuan. City investment bonds are now counted as corporate bonds, but in reality, they are government liabilities; the assets of city investments are all government payables. If we include city investments, it exceeds 100 trillion yuan, which is less than 100% of GDP. Adding the central government's liabilities, I believe that compared to the G20, it is not low but also not excessively high, unlike Japan, the UK, or Italy, and our overall interest rate level has been declining.

Previously, there were concerns about city investment bonds and fears that local governments could not repay them, but these concerns are decreasing. This means that the cost of government debt is declining, which will trigger a positive cycle. Previously, the market criticized the 10 trillion yuan as insufficient, with about 50 trillion yuan in city investment bonds remaining, but it should be noted that this is a liquidity crisis, and money needs to circulate Once local governments have money, they can pay off some accounts payable, even if selectively, it is still an incremental selective repayment. After repaying accounts payable, the operating conditions of urban investment will improve.

Once the operating conditions of urban investment improve, it will drive improvements in various other industries, creating a cycle. Therefore, I believe that overall, the outlook is very optimistic. Regarding the direction of bonds, combined with Zhao Qian's judgment on A-shares, I also agree and am relatively optimistic about A-shares.

Although we have not seen the large bull market we previously expected, and may have made some mistakes, the overall direction is correct. There may be errors in the operation process, but the correct overall direction is the most important. If China's crisis can be resolved, A-shares will emerge from a slow bull market as we expected; a fast bull market cannot be achieved, and it cannot be fast.

Now, if it is a slow bull market, as long as a bull market is established, what does it mean for bonds? The yield curve of bonds will definitely steepen. Why will it steepen? Short-term interest rates will continue to be suppressed by the central bank, while long-term interest rates will rise.

Why will long-term interest rates rise? Because the economic environment improves, the capital market performs well, the stock market is bullish, and the real estate market stabilizes, funds will inevitably flow from the bond market to the real economy. This is the process of steepening the yield curve.

Investors can allocate 20%-30% of their assets to stocks

Host:

We have just had a series of in-depth discussions on the domestic macro environment and the outlook for policies in 2025. At the end of the event, I would like to ask Zhao Qian again, what do you currently think the allocation strategy and rhythm for A-shares in 2025 should be?

Zhao Qian:

Okay, I think first of all, for ordinary investors, there is definitely a question to consider, which is, if I have 100 yuan to invest, how should I invest it? In the past, everyone might have invested all 100 yuan in bonds, for example, by buying bond funds or bank wealth management products.

Now, I think you can appropriately take out, say, 20 or 30 yuan to allocate to stock assets. This is our first suggestion. Why do we suggest this? Because the current interest rates on bonds are relatively low, while the cost-performance ratio of stock investments is better compared to bonds.

A-shares have experienced a downturn of more than two to three years, during which many companies' stock prices have actually fallen to relatively reasonable or even low levels. In this case, if you look at this investment from a three-year perspective, the cost-performance ratio is quite good. This is the first point about the need for a proper rebalancing between stocks and bonds, that is, to take out 20-30 yuan to invest in stock funds, while the remaining 70-80 yuan can continue to be placed in bonds.

Of course, we believe that the current interest rates on bonds are relatively low, which also means that the investment return rate for holding for one or two years may not be as good as it was in the past two years, and everyone should be prepared for this. This is the first aspect. The second aspect is regarding stock funds; people may ask what type of fund to buy, which type of fund might be better? If we speak in professional terms, some investors may ask whether growth-style funds or value-style funds are better. My answer is that growth-style funds may perform better next year. Why do I say this? There are several reasons. First, if we look at the style changes in A-shares over the past ten years or the past twelve to thirteen years, we find that there has never been a deep value style that can outperform the growth style for more than three consecutive years. At most, it can outperform for three years, and by the fourth year, it will reverse, meaning the growth style will start to catch up. In the years 2022, 2023, and 2024, we can say that value has outperformed growth in A-shares, with blue-chip value outperforming technology growth.

I believe that in 2025, overall, the performance of growth-style investments may be better than that of value-style investments. This is the first reason. The second reason is that in the past, due to investors' concerns about economic growth prospects, the prices of growth-related assets have fallen significantly, leading to many growth companies being severely undervalued, making their cost-effectiveness quite good.

Some growth companies have attractive dividend yields combined with other factors. So I think this is the second point. The third point is that from a bottom-up perspective, we can see a clear turning point in the fundamentals of industries such as semiconductors and consumer electronics.

Next year, there will be investment opportunities in areas like artificial intelligence (AI), pharmaceuticals, and new energy. These investment opportunities will not appear simultaneously but will gradually emerge from the bottom. Therefore, from this perspective, growth-style assets also have good investment value.

In summary, I believe that growth-style investments will perform better than value-style investments. Of course, assets in the growth style will be more volatile, and we can make an appropriate allocation within this. For example, if you take 100 yuan, you could invest 30 yuan in funds and 70 yuan in bonds or wealth management products.

Then, from the 30 yuan allocated to funds, you could, for instance, invest 10 yuan in growth-style funds and 20 yuan in value-style funds. This way, it is relatively more balanced and will not cause your assets to fluctuate significantly. I think everyone can make appropriate adjustments based on their risk preferences.

Whether Hong Kong stocks can rise depends on whether liquidity issues can be resolved

Host:

Thank you, Mr. Zhao, for your response. Not only does he remind everyone to rebalance their asset allocation, but he also provides new suggestions on specific styles, which are derived from deep communication with the market and users, and are very much needed by investors. At the end of the program, we would like to hear the views of both guests on the allocation strategy for Hong Kong stocks. First, let's invite Mr. Han to share his views on Hong Kong stocks.

Han Tongli:

Okay, since I am in Hong Kong, I have been working and living here for over ten years. Overall, the Hong Kong market is indeed facing some difficulties, especially in terms of liquidity Actually, I think it's fundamentally a liquidity issue; the liquidity in the stock market is very poor. As everyone can see, the trading volume of Hong Kong stocks in a day is less than that of Apple’s stock in a day, not to mention NVIDIA and Tesla.

First, it's a liquidity problem. So I believe the key issue is whether we can solve the liquidity problem. If we can solve it, then Hong Kong stocks are a very good investment choice. Why? Because they are very cheap, with valuation multiples only around seven or eight times, less than ten times. Of course, this refers to the valuation multiples.

Some non-professional investors may be easily misled by valuation multiples; it’s not that a low valuation multiple means you should buy, and a high valuation multiple means you should sell. Because the stock price itself is a core issue, and the core and root of the price issue is liquidity.

When liquidity dries up, valuation multiples may drop to two or three times, and the Russian stock market is a vivid example. Conversely, when liquidity is very abundant, valuation multiples may rise to twenty times, which is also explainable.

Therefore, valuation multiples can only indicate whether it is cheap; it is indeed cheap, but that does not mean that cheap things will definitely rise in price, nor that expensive things will definitely fall in price. This is a distinction that investors must make between the concepts of cheap and expensive. First, we should not buy things that are too expensive.

However, this statement sounds correct but is actually incorrect. Saying that I will only buy cheap things and avoid expensive ones sounds right, but it is problematic. Because investing is about making money, about price appreciation, not just that cheap things will definitely rise; they may become even cheaper, and expensive things may also become more expensive.

We want to buy assets that are both cheap and can appreciate; that is the ideal. So Hong Kong stocks first possess the characteristic of being cheap; can they appreciate? I think it depends on whether we can ultimately solve the liquidity problem. Currently, I am relatively optimistic.

Because regarding the overall domestic policy and the trend direction of A-shares, I believe it is correct. The premium rate of A-shares relative to Hong Kong stocks has an index of nearly forty-five percent. The same listed companies are listed in both A-shares and Hong Kong stocks, and on average, Hong Kong stocks are forty-five percent cheaper than A-shares, which is more than a 60% discount, so they are absolutely cheap. Moreover, H-shares listed in Hong Kong, i.e., Chinese companies listed in Hong Kong, may have better quality.

Why? Because their corporate governance is healthier, the system better protects investors, and the corporate governance structure is also healthier. Additionally, they have strong complementarity with A-shares; previously, most companies listed in Hong Kong were internet companies and some high-dividend companies, and their dividend yields are also higher than those in the A-share market. Therefore, if we only compare Hong Kong stocks with A-shares, Hong Kong stocks are superior to A-shares in terms of both cheapness and company quality.

However, returning to the fundamental logic, this does not mean that buying Hong Kong stocks will definitely make money, because they need to appreciate; if they do not rise, the situation of Hong Kong stocks has persisted for many years, and if they do not rise, they will continue to decline, resulting in losses. So currently, I believe that as long as the issues in China are resolved next year and policies take effect, the benefits for Hong Kong stocks will be greater On the other hand, the reason is the different market structures. Market structure refers to the investor composition; the A-shares are basically played by domestic investors, while the Hong Kong stock market is different. The majority of investors in the Hong Kong stock market used to be foreigners, and the proportion of foreign assets is very high. Even if it has a Chinese background, purchasing with Hong Kong dollars is still different.

This is because Hong Kong dollar assets can be converted into any currency, such as USD, EUR, JPY, etc. Therefore, comparing the upside potential of Hong Kong stocks involves comparing several different markets. I will only keep my money in Hong Kong to invest in Hong Kong stocks when they have absolute attractiveness, which is different from A-shares.

So this is both an advantage and a disadvantage. The disadvantage is that the funds in Hong Kong are not locked in Hong Kong but are accessible globally. In other words, global funds can also converge in Hong Kong, and when the situation is not good, funds in Hong Kong can quickly disperse globally. This is a significant structural difference from A-shares.

Host:

Okay, Mr. Han reminds everyone to buy good products at good prices. We also want to hear from Mr. Zhao Qian, what do you think about the future trend of Hong Kong stocks?

Zhao Qian:

I think at this stage, from a fundamental analysis perspective, the logic of Hong Kong stocks and A-shares is generally similar.

However, the assets of Hong Kong stocks and A-shares are different. The funds in Hong Kong stocks may be influenced by global liquidity, meaning the denominator may be affected by global liquidity, while the numerator may be influenced by the Chinese economy.

From the perspective of global liquidity, if the Federal Reserve's interest rates remain high next year, the valuation expansion space for Hong Kong stocks will be relatively limited. It is unlikely to see a significant valuation expansion like that brought about by a large influx of USD liquidity or a substantial drop in USD interest rates. Therefore, the only driving factor may depend more on the numerator, that is, whether corporate profits can improve and whether listed companies can earn more money than before.

From this perspective, the analysis logic is similar to that of A-shares. I believe that Hong Kong stocks are currently cheaper in terms of pricing and asset prices compared to A-shares, so once the fundamentals improve, I think the elasticity of Hong Kong stocks will be greater than that of A-shares.

Investors who prefer high volatility may consider pairing A-shares and Hong Kong stocks for investment. Next year, whether it is A-shares or Hong Kong stocks, I believe the core driving logic still lies in the numerator and denominator, and it may not be easy to see a large-scale index rally.

Because from the perspective of external liquidity, such as USD interest rates, the conditions are not yet in place. So a favorable scenario would be a slow bull market for both A-shares and Hong Kong stocks. Is it possible to have a slow bull market? This is a topic that has been widely discussed among domestic investors and is also the most controversial issue. Some believe it is possible, while others think it is unlikely.

However, yesterday at noon, I felt that recently some overseas funds have been betting on a slow bull market in China. A couple of days ago, I saw reports from overseas media saying that a mysterious overseas trader bought triple leveraged call options on the FTSE China A50 Index, spending about a few hundred million USD. Not only did he buy this, but he also purchased double leveraged call options on the CSI 300 ETF. He is betting on a slow bull market in China through this method because we know that buying options requires paying a premium, and the option premium is quite expensive. If it doesn't rise, the premium becomes worthless, and the volatility is particularly high In fact, you need a significant rise in the index to cover your option fees. So this trader, I think, is mainly betting that a slow bull market may emerge in China, making bets on both A-shares and Hong Kong stocks, one betting on the FTSE China 50 and the other on the CSI 300.

From his trading logic, he is betting on a slow bull market, which I just shared with everyone. I believe that if the overall PPI external negative pressure completely dissipates next year, our corporate profits may indeed see significant improvement.

At this time, it is possible to drive the index to rise slowly. During the gradual rise of the index, you will find that the structural opportunities between different industries will definitely increase. Here, it is essential to identify those industries with very good fundamentals next year. Of course, I think this leads to another topic, which is whether it is better for ordinary investors to buy broad-based indices or actively managed funds. I believe that actively managed funds may perform better in next year's market environment. So everyone can make choices based on their preferences, that's about it.

Host:

Thank you, Zhao Qian. So, investing is actually a relatively difficult task, and everyone can continue to pay attention to some viewpoints and product shares from CITIC BANK.

Today, in the major asset special session, we discussed the changes in U.S. stocks, A-shares, Hong Kong stocks, U.S. bonds, and Chinese bonds, covering almost all major asset categories. We also thank the two guests for their wonderful sharing, as they deeply analyzed the core logic of the current domestic and international economic new situation and policy changes, and elaborated on their views on future market changes from an extremely professional perspective.

I believe that friends in front of the screen must have gained some insights, and will feel more confident in dealing with future complex changes.

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk