China Onshore
Yajun Zhang
24Q2 saw weakening economic growth compared with 24Q1.
The economy showed signs of weakening in the second quarter compared to Q1. Despite ongoing policy support for the real estate sector and an uptick in government bond issuance, domestic economic demand remains subdued. The real estate industry continues its decline with persistent sales and price decrease, and yet there’s limited improvement in household income expectations. Credit growth is on a downward trajectory with moderate company financing demand. The bright spots are export-driven industrial production and manufacturing investment growth.
Capital markets are still under the dual pressure of mild domestic demand and tempered investor confidence. In the bond market, despite PBOC warning about long-term bond risks, bond yields have been fluctuating downward. With the ongoing weak financing demand, weak expectation, and persistent limited asset supply, bond yields are likely to continue the declining trend. Nevertheless, given current valuations, a neutral but slightly aggressive stance may be appropriate, with a barbell strategy being a prudent choice for term structure.
As for equities, dividend-stock-focused strategies continue to outperform in the short term, though profit margins have significantly narrowed. A more rigorous approach to stock selection and more balanced allocation are advisable to navigate the current market.
Zhongyang Li
Amidst the broader cycle of economic transformation, our focus remains on uncovering structural industry trends, targeting:
1. Companies with a competitive edge that are increasing their global market share through superior products;
2. Sectors poised for upgrades due to the structural economic transformation, where niche markets offer attractive returns for early entrants;
3. Industry leading companies. Currently, we notice a decrease in corporate capital expenditures, with a shift towards more prudent industry capacity expansion, potentially leading to a more favorable competitive landscape for established market leaders. Therefore, we anticipate enhanced return stability for industry leading companies and thus better investment performance.
