Newsletter commentary Nov 2020

In November, the market maintained the upward trend, with a change in style. We continued to maintain an active investment approach.

The trading environment surrounding the epidemic this year reversed in November. The progress of vaccines has changed the market's view of economic recovery. Those companies benefiting from the epidemic have consolidated, and companies impacted by the epidemic have been favored with investors' expectations of economic normalization.

We also noticed that both the Fed and ECB continued their pro market stance. In the mean time, the PBOC has advanced the process of normalization of its monetary policy. From the perspective of open market operations, it is still very gradual. The growth rate of China's total social financing will drop significantly next year. It will moderately smooth the increase in leverage this year, but we believe the process should be very orderly.

Our judgment on the continued increase in the demand for Chinese stocks remains unchanged. For domestic investors, the default of Yongmei Bonds last month shows that some economic entities can not bear current level of interest rates. The likely consequence is that overall yield investors could actually receive should continue to decline. This will make investors' demand for stocks rise further, as more people will choose stocks due to their relatively attractive returns. The demand of overseas investors for Chinese assets is reflected in the RMB exchange rate. This is not only an affirmation of China’s fight against the epidemic, but also a recognition and reassessment of China’s economic model. Compared with China’s global share of about 15% of GDP, global investment allocation of about 4% of Chinese assets is facing long-term rebalancing need.

The 14th Five-Year Plan painted the roadmap of  areas of development in the years to come. They include common prosperity, unified market, dual-circle, and high-quality development. A new round of investment cycle based on the digital society for the future has arrived.

With the prospects for economic normalization becoming clearer next year, some industries that have been suppressed this year will continue to recover.  At the same time, after recent pullback, the risk reward  of those good quality companies will also get better.  After seeing two years of good returns, we should lower our expectations for the next year. But the relative attractiveness of stocks remains, and we should actively participate in equities for the long-term.