Zhang Yidong: The main uptrend of this round of the Chinese market may start before or after the Spring Festival. It is a good time to sow now.

On January 15, Zhang Yidong, Chief Global Strategy Analyst of Industrial, made an analysis and outlook on the Chinese and American stock markets in 2025 at the 2025 Overseas Investment Strategy Conference of Fuguo Fund. He mentioned that at the beginning of the new year, the impact of overseas funds on the Chinese capital market, whether it is A shares or Hong Kong stocks, may be gradually diminishing. Before and after the Spring Festival, China may usher in the main upward wave of this round of market, with September 24 as the starting point of this Chinese bull market. In terms of indices, the performance of the Hang Seng Index is likely to be inferior to the CSI A500 index. He believes that in 2025, China's risk-free rate of return will continue to hover at a low level. In an era of low interest rates, the logic of the middle and micro aspects are more important for the fundamentals. Zhang Yidong said that it is now mid-January. At the end of the year and the beginning of the year, the impact of overseas funds on the Chinese capital market, whether it is A shares or Hong Kong stocks, may be gradually diminishing. From February to the end of the second quarter and the beginning of the third quarter, there is hope that long-term US bond rates will weaken, which will be relatively positive for the stability of the renminbi exchange rate and the monetary policy space in China. In 2025, the central government proposed to implement unconventional and moderately loose monetary policy, as well as more active fiscal policies, which will gradually be implemented in 2025. Based on China's own situation, the risk-free rate of return will continue to hover at a low level in 2025. This will contribute to the policy efforts to develop new productive forces, promote high-quality development, and drive domestic demand in China. Regarding China's monetary policy, he believes that in the next stage, considering that the pressure on the renminbi exchange rate at the end of the year is gradually being released, and the renminbi exchange rate has shown strong resilience, so in the next stage, the renminbi exchange rate is expected to gradually present a stable bi-directional fluctuation pattern, which will further benefit the trend of further easing of China's monetary policy. China's fundamentals can be viewed from three aspects: At the macro level, he believes that China's macroeconomics is relatively stable in 2025, with changes focusing on the private economy. The proportion of the private economy's GDP will increase compared to 2024, so we should pay less attention to actual GDP. Actual GDP represents a kind of stability and a bottoming out process. When making investments, we should focus on changes, rather than on things that are relatively well-known, because these do not affect investments. On the contrary, changes have an impact on investments. In 2025, China's macroeconomic situation could possibly be compared to the year 2000. In that year, we can see that GDP was just a bottoming out process, hovering at the bottom, but the average price index began to stabilize and rise, indicating a change. The second dimension is the middle level, which is more important. In 2025, whether it's the Chinese stock market or the American stock market, it is more important to look at the middle level than the macro level. Changes at the middle level, known as "innovation fervor," are more noticeable because ultimately investments are in listed companies, so those changes at the middle level, such as improvements in competitive landscape, efficiency enhancements, will ultimately affect EPS. From a middle-level perspective, looking at new momentum and domestic demand. From the perspective of new momentum, it refers to new productivity, which is the dividend of the times, such as the AI era. If the period around 2000 was the era of mobile internet 1.0 from the 90s to 2000, and 2010 was the big era of mobile internet, then now is the big era of the AI wave, so this is a dividend of the times. From the perspective of new quality productivity, where should the focus be in 2025? Represented by AI, Siasun Robot & Automation, semiconductors, these are new technological developments related to intelligence, which have an impact on various industries. The third dimension is the micro level perspective. From the micro level perspective, it is important to increase shareholder returns, increase dividends, increase buybacks, so that these core assets can be revalued by enhancing shareholder returns. In Europe and America, in their era of low growth, low interest rates, and low inflation, the US macroeconomics was also in this state, but the micro level was very active. They increased ROE through buybacks and cancellations, driving up EPS. In terms of the outlook for the capital markets, he believes that before and after the Spring Festival, this round of market in China may welcome the main upward wave, which is considered the starting point of this Chinese bull market. This Chinese bull market is characterized by large increases, large fluctuations, and large differentiations, so from September 24 (new policy) to October 8, after a vigorous short squeeze, it has been consolidating. Furthermore, as the world's second largest economy, China does not need to maintain high growth. Many people think that if the fundamentals are not good, it means that the fundamentals need to have high growth to be considered good. This is not the case. The key to investment lies in the profitability of listed companies, so the logic of the middle and micro aspects are more important for the fundamentals. For China, the valuation of the SSE 300 Index is around 12 times, corresponding to a potential return rate of around 7%. For China, the dividend yield of A shares was around 7% in September, and now after a few months of adjustment at the beginning of the year, it remains at a high level, around 6%. Historically, in every large-scale bull market in China, the risk premium has returned to around zero. The performance of the Hang Seng Index is likely to be inferior to CSI A500. When looking at Hong Kong stocks, there are two categories of assets to consider: assets dominated by domestic capital and those dominated by foreign capital. Assets dominated by domestic capital such as dividend assets of some central state-owned enterprises, like the four major banks, utilities, coal, and other high dividend assets, with the funds of domestic insurance companies becoming the dominant factor in related Hong Kong stock assets, giving them a say. Taking Hong Kong stocks as an example, if the discount rate remains the same, and the return rate is based on China's 10-year government bond yield of 1.59%, the risk premium of Hong Kong stocks is still historically high at around 10%. So from this perspective, assets dominated by domestic capital still have very strong strategic allocation value. However, for European and American funds, the risk-free rate corresponds to the 10-year US Treasury bond yield, which is currently around 4.8%. If we measure risks against their own cost of funds, this would be the benchmark of risk.Premium, it will be found to be at a relatively low level in history. This explains why some consumer stocks or internet companies, because they are dominated by foreign capital, may not see their valuation go up even with a slight movement, and may even be killed in valuation, that is the reason. As for 2025, he believes that in terms of index performance, the performance of the Hang Seng Index is very likely to be worse than the CSI 500.In terms of the US stock market, he believes that there will be increased volatility in the US stock market by 2025, but it is not a major bear market. There are still opportunities in the US stock market, so everyone should pay attention to its intermediate dimensions. This year, the US stock market mainly relies on profits. However, the opportunity lies not in raising valuations, but in focusing on its fundamentals. Especially the opportunities brought by the relaxation of regulations by Trump, and some opportunities brought by the AI wave in terms of fundamentals. Overall, the US stock market is expected to have a growth of around 10% this year, but the opportunities lie within a few structures. One structure is tech growth, focusing on AI applications. Another, within tech growth, is related to AI, for example, companies like Starlink, Siasun Robot&Automation, and energy storage, which may also be worth paying attention to. With the relaxation of regulations brought about by Trump in areas such as energy, finance, pharmaceuticals, and industry, there may be opportunities for mergers and acquisitions, leading to a climax in mergers and acquisitions. Among them, the opportunities for mergers and acquisitions that may have higher elasticity and better cost-effectiveness are more attractive. There is also discretionary consumption and tech consumption. Of course, major tech consumption includes companies like Tesla and Amazon, which are definitely related to AI consumption. American tech consumption is also worth paying special attention to.