Comparing global capital markets over the past three years, it is evident that the stock markets in the US, Japan, and Europe have shown strong momentum, continuously reaching new highs. In contrast, the A-share and Hong Kong stock markets have experienced a sustained decline. Under these circumstances, many investors are quite confused about the future market trends. In response, I believe in the wisdom of ancient Chinese sages: "After extreme adversity comes good fortune, and extremes meet." This means that for global capital, developed markets like the US and Japan are now highly valued, with US tech stocks showing signs of a bubble. On the other hand, the A-share and Hong Kong markets are still undervalued. Currently, the price-to-earnings (P/E) ratio of the CSI 300 has fallen to around 11 times, and the Hang Seng Index's P/E ratio is even lower, essentially near the historical bottom.
From a global capital flow perspective, profit-taking from overseas markets such as US, European, and Japanese stocks to seek new undervalued areas, the A-share and Hong Kong markets are undoubtedly two significant undervalued areas.
In fact, since April, we have observed that due to Hong Kong's fully open and global market, a considerable amount of foreign capital has flowed in. Particularly, the Hang Seng Technology Index in Hong Kong has shown a strong rebound, and trading volumes have significantly increased. The performance of A-shares has been relatively weak, with foreign capital inflows being slower, but from a broader trend perspective, future foreign capital inflows remain a significant direction. This also depends on some policy changes, such as further economic growth stabilization policies that could further boost investors' expectations for economic recovery and enhance investor confidence. Of course, there are uncertainties and variables, but I believe that extremes meet, as many high-quality companies are severely undervalued.
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I often communicate with the folk stock god Lin Yuan and attend shareholder meetings of leading enterprises with him. He often mentions a phrase that I find very reasonable: "Investing is about investing in crises." In fact, looking solely at the stock market, many high-quality companies in the A-share and Hong Kong markets may not have undergone significant operational changes in recent years, but their stock prices seem to convey a sense of crisis. Therefore, investing at this time is actually a relatively low-cost, good entry point.
Buffett often tells everyone that one must overcome greed and fear, just as it is time to overcome fear again. Recently, we have seen some investments in US stocks, and even ETFs that have just been listed in the Saudi stock market, have soared for two consecutive days, with the first day hitting the upper limit. This also shows that the mentality of chasing rises and selling falls is still very obvious, with an excessive pursuit of markets that have performed well in the past, with premium rates even reaching 15% to 30%. The so-called ETF premium rate means that the trading price of the ETF is 15% to 30% higher than its net value. This poses a significant investment risk, meaning that your implicit assumption is that the index must rise by at least 15% to 30% in the future for you to profit; otherwise, losses may occur. If the target index falls, the losses will be even greater, so this is a risk that needs to be highlighted.
I believe that from a global stock market perspective, the second half of the year may be an important turning point. Therefore, those who focus on investing in A-shares and Hong Kong stocks should not be too pessimistic now. In fact, we need to remember a famous saying on Wall Street: "Fuzzy correctness is greater than precise error." As long as we can vaguely believe that A-shares and Hong Kong stocks are already near the historical bottom, although we cannot buy at the lowest point, we can buy at the second-lowest point and invest in good assets. The rest is to wait patiently. I have always emphasized to everyone that patience and waiting are the most important qualities for value investors, and this time is also a test of everyone's mentality. We believe that A-shares and Hong Kong stocks may now be ushering in a turning point, and the bull market will only be late, not absent. I hope everyone must hold on to the next round of the market.
Looking at the recently released economic data for the first half of the year, on the one hand, China's economy has begun to recover, and investment, exports, and consumption, the three engines of growth, are still increasing. However, the growth rate is not high, especially affected by the sluggish real estate market, many industrial enterprises' product demand is insufficient. Whether to stimulate effective demand has become the most important factor affecting economic growth in the second half of the year. On the other hand, exports grew well in the first half of the year, and we still have some growth space in the new three exports: new energy vehicles, photovoltaics, and lithium batteries. However, we also face threats of increased tariffs in trade from some regions, including the European Union. Therefore, we cannot be complacent in the second half of the year. I believe that while stabilizing foreign trade in the second half of the year, we should still focus on stimulating domestic demand, mainly in two aspects: increasing investment growth and increasing consumption growth.
In terms of investment, local governments, especially local financing platforms, are under great pressure to repay principal and interest. Local governments may not have enough money to invest in infrastructure. In the second half of the year, we must continue to promote a package of debt resolution plans to reduce the debt repayment pressure on local governments. The central government can accelerate the issuance of ultra-long-term government bonds to raise funds for infrastructure construction. Currently, our country's central government's deficit ratio is still controlled within 3%, last year it broke through 3% to 3.8%. If more government bonds are issued this year, more funds can be raised for infrastructure investment. In the context of declining private investment and insufficient confidence, the central government can increase government investment through the issuance of government bonds and other forms, which can make up for part of the lack of private investment and directly create more employment opportunities, thereby increasing residents' consumption confidence.
In terms of consumption, stimulating consumption is not about stimulation; it actually needs to return to the fundamental issue of increasing residents' income. The decline in consumption growth is fundamentally due to people's declining expectations for future income, which leads to reluctance to consume and even the phenomenon of precautionary savings.
Increasing residents' income mainly involves two aspects. One is to increase residents' wage income, which is the main source of income for most workers. Data shows that the proportion of labor compensation in China's GDP has declined over the past decade. In the future, we should try every means to increase the proportion of labor compensation in GDP, give workers more wages and bonuses, which may be the most direct means to increase consumption. Of course, creating more employment, supporting the development of private enterprises, and activating the vitality of various industries are key to increasing corporate profits.
Another important aspect of increasing residents' income is property income. Chinese people's investment channels are relatively single, basically limited to buying houses, stocks, or funds. We need to take strong measures to stabilize the real estate market, at least to stabilize housing prices. The supply and demand relationship in the real estate market has undergone fundamental changes, and our policies should also be adjusted in a timely manner, shifting from policies to prevent overheating to policies to prevent cooling. In this way, if housing prices can be stabilized, for many families, especially those with houses, the family's balance sheet will stop contracting and expand, which will enhance investment confidence and consumption confidence.It is important to emphasize that boosting the performance of the stock market can directly enhance consumer confidence and create more wealth effects. We currently have 200 million stock investors and 600 million fund investors. If we can make the stock market profitable and enrich these investors, then everyone's consumption confidence, consumption ability, and willingness to consume will increase. Consumption has now become the most important engine driving China's GDP growth, surpassing the total of investment and exports. Therefore, if we can revitalize the stock market, it is actually a shortcut to resolve the current economic growth dilemma. Of course, as a member of the capital market, I also hope that investors will maintain confidence and patience. I believe that in the future, more stable growth policies will be introduced, and against the backdrop of further deepening reform in the capital market, the capital market will gradually improve, especially some undervalued good assets will usher in opportunities for valuation repair.