Newsletter commentary Mar 2021

In March, the market initially continued its decline , then stabilized and rebounded.

There were many reasons for the decline that began in February. The most important one was valuation. U.S. Treasury yield was more of a catalyst. The problem of expensive valuation can be solved either through the price decline or through time.  Looking at it now, a large part of it has been resolved through the price decline, and it will also take some time.

Recent market trends  have also verified that some important changes are taking place in the market environment:

Long-term investment and participation in the stock market through the purchase of wealth management products have taken root in many people's hearts and have withstood the test of market volatility.

The evaluation of value rather than some fluctuations in the external environment has become the basic consideration for investment.

The response of China to the external environment more reflects the mentality of self-centeredness, and the market is also corresponding to this. After all, we are a market dominated by domestic demand.

Globally, the pace of the fight against the epidemic is different, and the pace of economic recovery is also different. The trend of China's bond yield reflects the pace of our economy. External demand will recover in the future, and supply capacity will also rise, but it does not seem to affect the market as the main factor. Some of China's past effective economic policies may have more imitators, which will help mitigate the gap between the rich and the poor and improve the aggregate demand.

The environment of some domestic industries has also undergone a lot of changes. Some platform economic entities will have more responsibilities while struggling to move forward. At the same time, competition strategies will also be partially restricted. The development environment of some industries that the public is concerned about is also facing swift changes, such as online education and e-cigarettes.

Because the pace of economic recovery is different, and some new growth areas bring new demand, some supply side issues such as the shortage of chips will bring a lot of disturbance. Relatively speaking, carbon neutrality is a longer-term issue, and short-term effects may not be as large as what the market reaction suggested. But we think the long-term impact will be great. In the future, all industries may face a national or even a global unified test to reduce carbon emissions, which will have a profound impact on the competitive landscape. At the same time, consumers will consume virtual and non-physical products. The growing trend is also obvious.

In the past few years, there has been the price discount of high-quality stocks. Many investors have discovered this and achieved good returns. Now basically this movement has ended. The high returns and low volatility of the past few years have passed.  Future returns will likely be lower than before , meanwhile the volatility will not necessarily be lower. Nonetheless,  stock as an asset class is still more attractive than other investment categories. After the sharp rise in the past few years, investors’ impression of the Chinese stock market has changed, even reaching a boiling state for a while. Now it is gradually returning to a normal state. The market environment this year is indeed very complicated with many new changes. From bottom up perspective, it is still vigorous. Chinese companies have made obvious progress in a large number of industries, as well as in marketing and design. We strive to find these companies to grow with together.