Minority AM Liam Zhou: We Are at the Beginning of the Recovery; Treasure the Equity Funds and Stocks You Hold

Minority Asset Management   2023-01-13 本文章18阅读


2023 is the first year of Covid-policy relaxation in China, the first year of a new term of government as well as the first year after a tough three-year struggle for many industries. From the government to the society, from the corporates to the individuals, the common goal is recovery. Hence, the biggest investment theme for the stock market in 2023 is recovery.  

Compare to the volatile 2022, a few key factors that constrained the market have been eliminated.  

As the China Covid infection peaks, the negative impact from the pandemic is quickly diminishing. Based on foreign countries’ experience, the pandemic quickly faded out of the daily focus once the daily infection peaked. Both the government and the corporates are re-focusing on economic growth and companies’ development, and jointly driving China growth in 2023. 

China’s demand for property as well as consumption will recover. In 2022, the domestic personal income expectation was low, leading to significantly less demand for property and consumption. As a result of that, domestic saving increased by 17.84 trillion Rmb, a record high in the past years. Once the personal income expectation adjusted upward after Covid-policy normalization, the newly added savings in 2022 can be transformed into demand and revenue in industries such as property, tourism and catering in 2023.  



Foreign investors’ confidence in China market is coming back. Rate hike by the US Fed in 2022 led to weakened Rmb and to a certain extent, foreign investment outflow from China. In 2023, as the US Fed slows down its rate-hike pace, Rmb has strengthened. In the first two weeks of trading this year, there has been a net inflow of more than 50billion Rmb into China equity market via the northern bounding trading of the Hong Kong stock connect. The continuous inflow will help repair the confidence and the valuation of the market.  

The recovery is on the way. However, with the net export slowdown and domestic consumption remain at the historical low level, most people are still doubtful of the extent of the recovery. The China Central Economic Work Conference has addressed the respective questions as the policy tools will prioritize the recovery and expansion of domestic demand rather than using investment and export to stabilize the economic growth. They policy will target to increase domestic income and release demand in property and in automobile. This is a huge turn of our economic policy. Based on global experience, consumption will be more effective than investment in terms of driving economic recovery and growth. Because a lot of people are still doubtful of the recovery pace, the result is more likely exceed the expectations.  


Based on China’s own opening and reforming experience, the small challenges faced by the economic growth might be mitigated by monetary policy, but the major challenges will need reforms to tackle.  

The policy going forward will focus on improving private enterprises confidence, and encouraging private sector investment. The Central Economic Work Conference re-emphasized “unwaveringly solidify and develop Public-ownership entities, the same time unwaveringly encourage, support and guide the development of Private-ownership entities.” The government is reiterating the equal treatment of state-owned-enterprises and private-owned-enterprises from a regulatory and legal standpoint, and vocally encouraging and supporting companies to lead growth, create employment and participate in global competition from a policy and public opinion standpoint. 

The policy will also focus on release demand in housing and automobile sector, leading the overall growth along the supply chain. The property sector was again named as the “pillar industry of the economic development” The property policy has changed from project-based bail-out to entity-level bail-out. Quality property developers have been given support in multiple fund-raising channels. So far in January, 22 provinces and cities have announced 22 demand-side relaxation policies including down-payment reduction, lowering house loan rate, and increasing housing subsidy etc. The current market expectation for property recovery is still very low, leaving space to delivery beat. 

More supporting policies in housing, consumption and private enterprises are expected after the “two-conferences” in March. It will provide us more observation data points on how the confidence recoveries in these areas are progressing.  

The stock market is now at the beginning of the recovery, offering very attractive risk-reward opportunities. After 2-year’s adjustment, valuations across all kinds of styles are at historical low, while the economic growth is about to recover. 

Though 2022 was full of challenges, it created a bottom for future return. While fully invested throughout the year, we managed to control drawdown risk well. We increased the portfolio beta along the way, well-positioned to capture the market recovery. We added some Hong Kong stocks exposure in Q4 to increase the overall portfolio’s beta. 


We actively explored the combination of logic, behavioral finance and quant methodologies. We also applied some of the research results successfully into our investment process.  


We expanded our investment universe taking the opportunities of sharp market drop. Our portfolio adjusted from big-blue-chip domination to a more balanced composition including stocks in prosperous sectors as well as Hong Kong stocks. This enables us to be more agile in response to market changes.  

Currently, the ratio of value stocks and growth stocks in our portfolio is about half and half. Hong Kong listed shares take up 30% of the NAV. Our top sector exposures include Real Estate, Internet, Banks, Capital Goods, Electronics, Materials and Auto. We adjusted sector exposures in Q4 based on our view of different path to recovery.  

After two years’ NAV decline, we feel pressure just as our investors. But the pressure was transformed into motivation for us to deeply reflect our investment philosophy and renew methodologies. The future market movement largely depends on the future events. It is difficult to predict what will happen to the world in the future. But we remain confident in Chinese economy’s resilience, in Chinese people’s strive for better life, and in our tested investment approach. We work together towards the new high of our fund NAV. 


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