Source ｜ People and gods work together (ID: tongyipaocha)

Title ｜ Oriental IC

1. The relationship between Beijing Capital and US stocks

Four predictions and five alternatives for 2020 written last week “Black Swan” “article, there is a point that has caused a lot of controversy among readers. The original text was:

Once U.S. stocks undergo a drastic adjustment, it will definitely lead to a reduction in foreign investors ’risk appetite. Large-scale outflows of A-shares are likely to collapse the white horse stocks most favored by foreign investors, thereby causing panic in the market.

Many readers believe that the U.S. stock market crashed and the capital fled. Isn’t it just the A-share market?

Doubt is a good thing. Doubt makes progress. I have also had this doubt. Later, once I figure out the reasons, I will have a deeper understanding of the logic of foreign investment, the white horse market, and the concept of “core assets.”

First look at the facts. The chart below shows the monthly K-line of the Dow Jones Industrial Average for the past two years. It has fallen five times in February, March, October, December and May 2019.

The northbound capital happens to be A significant net outflow or inflow reduction in these five months.

Look at the extreme single-day market twice in the past two years ——

The first time was a rare outflow of nearly 10 billion on October 8, 2018, and U.S. stocks also started a three-month deep decline period from this day;

The second time was 10 billion outflows on March 25, 2019. The Nasdaq experienced a sharp drop the day before.

Comparatively, the inflow of northbound capital has little to do with trade negotiations. The most tense time is April to September 2018 and May and August 2019. It is also a relatively large inflow of northbound capital.

Of course, we cannot simply assume that the inflow of funds to the north depends entirely on the trend of US stocks. It is also affected by the increasing pace of MSCI’s inclusion ratio, the complex composition of Kitakami funds, and the reasonableness of A-share valuation. However, if the US stock market is not in a good trend, it often affects the inflow of funds to the north. This judgment is generally valid, not many people think that “if the US stocks collapse, the funds will come to A shares.

Understanding the facts is only the first step, and more importantly “why”. What is the logic behind this phenomenon? What enlightenment will it bring to our investment?

2. Foreign investment logic

The reason why a lot of people have the idea of ​​”America collapse” is because we used to be relatively closed. In addition, we still have an “A-share-oriented thinking inertia”. Naturally, we feel that money flowing into US stocks has nowhere to go, so come to A-shares.

But the logic of foreign investment is completely differentThat’s it. If you are a global allocation fund manager, the first consideration is the balanced allocation of large types of assets, including stocks, bonds, commodity futures, gold, derivatives, etc. As if most shareholders are just Taking out a portion of your family’s money is like buying stocks.

The proportion used for stock allocation depends on the overall risk appetite of the market at this time. Risk appetite refers to the subjective judgment of risk. A bull market is a lot of funds with a high risk appetite, while a bear market is just the opposite.

After setting the ratio, the fund manager first considers the allocation of US stocks, which is the main battlefield for global funds. There is no doubt about this. The remaining funds will be allocated globally, and some of them will flow into A shares.

So, in the past two years, foreign investment has continued to buy and buy. In addition to the increase in MSCI’s inclusion of the index, there is also a reason that US stocks have continued to rise, which has attracted global funds to raise stocks The allocation of assets has gone up, and more funds have flowed into A shares.

In fact, individual investors have similar behavioral logic. Because the stock has risen, you have moved your deposit to the stock market. A-shares have made more money. You are wondering, should you buy cheap Hong Kong stocks?

So, we must have a sober understanding of the “buy, buy, and buy” of Kitakami funds. A-shares are only more attractive than other emerging markets, and the core assets of the world are still in U.S. stocks. Valuation remains the valuation anchor for all markets.

In the past two years, research institutes have always been sour about shorting US stocks, as if US stocks have nothing to do with us. In fact, U.S. stocks eat meat and A-shares drink soup. If it is not the big bull market for U.S. stocks, there will not be as much capital to go north. Domestic investment is still a game mentality. Maotai is still 20 times PE, Hengrui is 40 times, and A-shares are still at 2400 points. nearby.

Understanding the logic of the inflow, I suddenly discovered that I also had a different understanding of the so-called “core assets” of A shares.

3. The essence of core assets

In the past two years, with the wave of white horses being higher than one wave, there is a tendency to deify the stock selection strategy of Beishang Capital. Some people have also calculated the top 100 weighted portfolios of Beishang Capital and found that they outperformed Shanghai and Shenzhen 300 in 2019. The index has 22 points, which proves the “visionary” of foreign investment.

In fact, as the only incremental funding in the past two years, of course, what foreign capital buys rises. LikeIn the previous bull market, the new additions were retail funds, like buying low-priced stocks, buying hot money, buying restructuring, and junk stocks.

Incremental funds determine the market price of the sector. This is the last word: if the incremental funds are “square dance aunts”, they are the prices of low-priced stocks, reorganized shares, and cyclical stocks; if the incremental funds are insurance, it is Banks’ real estate, public utilities and other high dividends; if the incremental funds are public funds, it is the style continuation—buy your own heavy stocks and carry yourself.

So, what really deserves to be studied is the logic of buying foreign capital, not that people are naturally correct.

If you want to understand how foreign capital judges A shares, first of all, imagine what would you buy if you were given a sum of money to buy US stocks?

I guess you will first buy domestic companies, such as Ali and Baidu; second, some global brands, such as Coca-Cola, Apple, etc. Other companies that do n’t even understand the business, naturally you will not buy.

So, the question comes. Globally allocated foreign fund managers do not have these two types of companies to buy. What should we do? The answer is to buy U.S. stocks with benchmark companies. In this way, foreign executives who rarely come to China can understand these companies selected by the managers.

The earliest “Shanghai Airport” purchased by foreign investors was not a white horse in the true sense of the time, but it was 100% benchmarked against other international airports, and the valuation at that time was only half that of the benchmarking company. Who bought it? Let’s look at the companies that used to have a relatively high foreign shareholding ratio. Almost all of them have large benchmarks in overseas benchmarks, such as Han’s laser benchmarking IPG Optoelectronics, China Test Testing and benchmarking SGS, and Hengrui benchmarking Pfizer …

Once there is a benchmark, there will naturally be a valuation comparison. Why is the condiment headed by Haitian up to 50 times, because the overseas benchmark Kikkoman has been around 50 PE, and the growth rate is not as good as Haitian. Similarly, leading companies such as dairy products, banks, home appliances, and cyclic products all have valuation differences with overseas benchmarking companies. This is the real driving force for the restructuring of A-share valuation in the past two years.

The stock selection criteria of “high ROE, high dividends, and stable growth” that we usually talk about is just a sound choice in the high-volatility and low-credit market that they see-as a spillover fund for US stocks, it is a natural choice. There are hedging properties.

The problem is clear. The background of the inflow of foreign capital is that while US stocks have been rising all the way, they have attracted a large amount of high-risk appetite funds to request the allocation of stocks.Allocate funds to overseas benchmark companies with low valuations.

But the farmer’s thinking and the turkey’s thinking are always different. In our opinion, the “core asset” theory of A shares has been formed. After the rise, there will always be reasons for the rise. In fact, the core assets are Essentially, foreigners can understand that there are reasonable targets for global benchmark valuations.

So the next question is, when is Easter?

4. If the U.S. stock market crashes

When we talk about the possibility of a US stock market crash, what are we talking about?

The previous adjustments of U.S. stocks are all because of a certain bad economic data that has caused investors to lower their economic expectations in the future, resulting in higher valuations now.

This behavior of decreasing risk appetite has triggered the withdrawal of funds from high-risk assets such as global stocks and the entry of stable assets such as national debt. It is impossible for the phenomenon of “selling US stocks and buying A stocks” to occur. It’s as if if you judge that the stock market has entered a bear market, it should be selling stocks for financial management. There is no reason to necessarily transfer A-share funds to Hong Kong stocks and US stocks.

In fact, when I analyzed the relationship between US stocks and Kitakami funds, I found that outflows of Kitakami funds sometimes fell sharply before US stocks.

For example, on October 8th, the capital going northward was 10 billion, followed by the most violent adjustment of US stocks in recent years.

I understand the logic of it : Because the assets allocated globally are the funds with the highest risk awareness, once the global economy is considered to be at risk, the first is to sell the globally allocated stocks. After a period of time, if the risks are found to be increasing The larger it is, the core US stock assets will be sold (the trend in the fourth quarter of 2018); if the problem is not considered serious, it will return to the A-shares (the trend in March 2019).

Some people ask, if it is not because of bad economy, but pure valuation is too expensive, will the withdrawal of funds go into A shares on a large scale?

The answer is still not. If the economic data continues to improve, the decline of US stocks itself will release risks and improve the price-performance ratio of US stocks. As a result, the amount of funds flowing into A-shares will decrease.

The difference is that the outflow of foreign investment in the front is flowing out to stable assets such as bonds; the outflow of foreign investment in the back is flowing back to US stocks.

So back to the title, what would happen to A shares if U.S. stocks collapse:

First, it is very likely that there has been a continuous outflow of foreign capital before, and the white horse stocks have stalled, showing a “kill valuation” market;

Second, if U.S. stocks decline further , as current research institutions increasingly prefer to use overseas benchmarking companies to judge the valuation of A-share-related “core assets”, once this valuation logic is broken, it will Enter the tragic “kill logic” stage.

Third, if U.S. stocks officially enter a bear market, the era of unidirectional inflow of foreign capital and leading the A-share style will come to an end, but the allocated assets will not exit on a large scale, and A-shares will enter domestic institutional funds, foreign capital and retail investors. In the era of mutual games, the style of the market and the next “core asset” still depend on the next continuous source of incremental funding.

If you have money, you will lead the way. This is the eternal logic of the capital market.

Of course, the opening of China’s stock market to foreign capital has forever changed many rules of the game in this market.

5. The era of globalization of A-share funds

The higher the degree of openness of A-shares, the higher the proportion of foreign-owned A-shares, which means the deeper connection between A-shares and the global capital market. In the past, the situation in which global stock markets plummeted and A-shares stood alone was impossible. appear.

Because the Shanghai-Shenzhen Stock Connect has been open for more than three years and has not encountered a global stock disaster, I think that everyone generally lacks awareness of this issue. Therefore, in the previous article, I Make the U.S. stock market crash as one of the Black Swan events of 2020-in fact, it may not happen in 2020, but it will certainly happen at some time in the future.

Of course, as a value investor, I still believe that style comes and goes, and the intrinsic value will last forever. Foreign investmentThe concept of “pursuit of certain enterprise intrinsic value” brought to us has changed the A-share market forever.

But this does not mean that we want to “myth” foreign investment. In any style of interpretation, there will be many “extreme” logics derived from the results, similar to the “core asset” theory. The global capital market and A shares also have a rule: many styles will be interpreted to the extreme by the market, and eventually become a bubble burst.

What gets you into trouble is not what you don’t understand, but what you believe in.

* It was first published on the WeChat public account of “Idea Steel Seal (ID: sxgy9999)”, telling the concept and method of value investment