Long-Term Investment: Public Funds Foster Positive Ecology

The Federal Reserve announced on September 18th that it would lower the target range for the federal funds rate by 50 basis points, bringing it to a level between 4.75% and 5.00%. This marks the first interest rate cut by the Fed since March 2020 and signifies a shift in monetary policy from a tightening cycle to an easing cycle. In terms of A-shares, mainstream indices such as the Shanghai Composite Index and the ChiNext Index saw significant increases on September 19th. Will the A-share market continue to experience volatility? Can equity public mutual funds further recover? Recently, many public mutual fund institutions have expressed optimism about the medium to long-term prospects of A-shares, suggesting that A-shares may be entering a window of opportunity for long-term layout.

Marginal improvement in the capital market is expected.

HSBC Jintrust Fund told reporters from China Securities Journal that the current valuation of A-shares is at a historically low level; compared horizontally, it is also lower than other major overseas markets. Chinese assets are not only undervalued at present but also rank among the top in the world in terms of economic volume, with GDP growth still maintained at a relatively high level, and global investors will not ignore the investment opportunities in the A-share market.

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"The Fed's interest rate cut may be a positive factor for the A-share market, representing a further release of global capital liquidity and more room for adjustment in domestic monetary policy," a public mutual fund macro analyst in Shanghai told China Securities Journal. "Factors such as the Fed's interest rate cut and the appreciation of the yuan may play a role in boosting market confidence. Overall, market sentiment has been improving since September, and the capital market has seen marginal improvement. From a medium to long-term perspective, the present may be a good time for long-term investors to enter the market."

According to observations from Neuberger Berman Fund, long-term capital such as social security funds, insurance funds, and QFII institutions are actively allocating A-shares, showing a preference for artificial intelligence, pharmaceutical directions, and some leading enterprises in traditional industries.

As one of the important forms of inclusive finance, the entry of long-term capital into the public mutual fund market is timely. In the view of Tian Yuanquan, the head of the research department of CCB Fund, as a representative of equity investment in the asset management industry, fund managers should firmly establish the concept of rational investment, value investment, and long-term investment, focus on the sustainability of investment and the long-term growth potential of enterprises, abandon short-term speculative behavior, guide capital to key areas and strategic industries, and better play the role of stabilizers and ballast stones in the capital market. At the same time, guided by investor returns, more products and services that match the needs of medium and long-term capital should be launched, further increasing the proportion of equity assets to meet investors' needs for long-term investment returns, enhance investors' expectations of the capital market, and build a "long-term money for long-term investment" benign ecosystem.

HSBC Jintrust Fund stated that the valuation of core assets in the A-share market is already at a historically low level and has a relatively high allocation value in the long term. As a buying institution, HSBC Jintrust Fund will continue to improve its own investment research strength on the one hand, helping investors to explore high-quality opportunities in the market, and on the other hand, it will develop various products including diversified fixed income strategies, fixed income +, pension FOF, QDII, etc., to meet the diversified allocation needs of long-term capital with different risk preferences.

Facing market fluctuations head-on,

"Although the Fed's interest rate cut may inject more liquidity into the capital market, we are still aware that the primary factor determining the trend of A-shares is the economic fundamentals," a fund manager at a public mutual fund institution in South China told China Securities Journal. "At present, there are still uncertain factors in the domestic economic demand pattern. Although many favorable policies have been introduced to promote incremental growth, we believe that before economic data is verified, it is difficult to say that market risk appetite will rise."

From the perspective of corporate performance, some public mutual fund institutions have stated that the semi-annual report performance shows that the overall revenue and net profit data of A-share listed companies are not satisfactory, reflecting that there are still uncertain factors in the total demand. As the market enters a performance vacuum period, A-shares may react more strongly to macro events such as the Fed's interest rate cut. Investors need to be alert to possible market fluctuations."The fundamentals of China's economy are an important factor influencing the decision-making of overseas investors," said Neuberger Berman Fund. "The resilience and long-term positive trend of China's economy, along with policy measures to expand domestic demand and improve expectations, may attract the attention of long-term investors."

Furthermore, regarding the rapid growth in the scale of public funds in recent years but the shrinkage of equity funds, a public fund professional analyzed that the first reason is the weakening profit effect brought by the fluctuation of the A-share market; the second is the continuous decline in market risk preference, which promotes the continuous flow of funds to low-risk fixed-income assets, further exacerbating the imbalance of capital.

A public fund professional in Shanghai suggested that to solve the problem of capital imbalance, first, it is necessary to further enhance the profit effect of A-shares to attract more on-the-side funds into equity assets; second, long-term funds such as insurance and pension funds can increase their long-term allocation to equity funds to a certain extent; third, public equity products can be more diverse in strategy, in addition to the current high-elasticity track-type products, more low-volatility strategy products should be developed to help investors share the benefits of the equity market more steadily and improve the investment experience.

New quality production capacity contains huge opportunities.

Looking forward to the future market, Caitong Fund said that A-share investors may focus on four clues: First, the space and magnitude opened by the domestic stable growth under policy drive; second, domestic and foreign monetary policies are expected to resonate; third, the sequential repair of industrial prices; fourth, after the market sentiment calms down, the repair of asset pricing. "Under the background of macroeconomic fluctuations, the industrial cycle is the most controllable direction at present. Going abroad and technology direction are medium and long-term strategic choices based on the development trend of the industry. For dividend assets, overseas pricing experience can be referred to, and attention can continue to be paid before the defensive style strategy changes."

In terms of specific investment strategies, Neuberger Berman Fund said it would pay more attention to the transformation and upgrading of China's economy, especially investment opportunities in emerging fields such as new energy, artificial intelligence, and digital economy. In addition, Neuberger Berman Fund also mentioned that with the introduction of policies such as the new "Nine National Articles," the reform of central and state-owned enterprises, domestic substitution of scientific and technological innovation, consumption, green and low-carbon, and other directions may become the main investment lines of the future market.

Tian Yuanquan specifically mentioned the investment value of the science and innovation field. He said that the implementation of a series of policy systems such as the new "Nine National Articles," "Sixteen Articles on Science and Innovation," and "Eight Articles on the Science and Innovation Board" fully reflects the support of the capital market for technology-based enterprises in aspects such as hard technology positioning, distribution and underwriting, debt and equity financing, and equity incentives, providing a broad financing channel and a good market environment for science and innovation enterprises. In the future, the institution he is in will further accelerate the layout of technology-related products, focus on mainstream technology sub-tracks, covering high-end equipment, intelligent vehicles, high-end medical care, innovative drugs, new materials, information industry, electronics, and other industries, to enhance the support for technology-based enterprises by deeply integrating investment research. In addition, it will rapidly expand the ETF product line and layout in the directions of new energy vehicles, new materials, innovative drugs, etc.