1. Don’t look at this round of long-term adjustments with a short-sighted attitude.

2. 2021 is not only a turning point for real estate, but also a turning point for population aging and a turning point for our export share in the world to decline. This very special year also determines the simultaneous occurrence of asset shortage and "asset panic", that is, a shortage of low-risk assets and an excess of high-risk assets.

3. The Chinese economy is facing structural problems on the one hand and cyclical problems on the other. When these two problems are combined, the pressure on this round of economic downturn is unprecedented.

4. Future asset allocation will still be based on low-risk assets with stable returns and relatively high dividend rates, whether it is government bonds, state-owned enterprises in equity assets, large-cap high-dividend stocks, or gold.

5. We still need to be cautious in the liquor industry, especially high-end liquor.

6. It is very normal for the economy to be in both the upward and downward phases. There is no need to be overly pessimistic or panic. Structural opportunities still exist in this process.

7. After years of adjustment, this market should be brewing opportunities in all aspects.

Above areZhongtai SecuritiesChief Economist Li Xunlei,Yesterday (July 16), CITIC Academy hosted an onlineThe latest ideas shared in the above exchanges.

Li Xunlei gave a comprehensive interpretation of the causes of asset shortage and "asset panic", as well as the problems it reflects.

He analyzed that the asset shortage actually reflects the decline in investors' risk appetite. From the perspective of specific investment targets, it is manifested in the shortage of low-risk assets and the excess of high-risk assets. And this round of "asset shortage" and "asset panic" coexistence will continue for some time.

Looking back at Li Xunlei’s two judgments in 2006 (buy things you can’t afford) and 2018 (buy things you can’t buy), they have basically been fulfilled. As for the basis for his judgment, Li Xunlei said that he has always made investment recommendations based on the logic of economic development.

Under the current economic environment, Li Xunlei believes that future asset allocation will still be dominated by low-risk assets with low dividend volatility. Of course, the so-called high-risk assets in the past will also have allocation value after falling to a certain level.

But he also stressed that under the current situation of slowing economic growth, it is still necessary to lower expectations for investment returns.

In addition, Li Xunlei also talked about the main risks currently faced, which are caused by insufficient effective demand, and local government debt risks, real estate risks, and risks of small and medium-sized financial institutions are the three major risks at present.

Smart Investor (ID: Capital-nature) has compiled the key points of this exchange and shared them with everyone.

The current "asset shortage" and "asset panic"

 ask I read an article you wrote some time ago, called "Asset Shortage and "Asset Panic"(Note: Released on June 10, 2024)

At present, everyone is very concerned about the issue of assets. Whether it is the institutional side or the resident side, everyone has a common feeling - they can't find suitable high-interest assets.

In contrast, 30-year and 50-year ultra-long-term government bonds continue to be popular, so many people call the current popularity of low-risk assets an asset shortage. Do you think there is really an asset shortage in China at present?

Li Xunleireally,The asset shortage itself reflects the decline in everyone's risk appetite.

According to McKinsey statistics, China's net asset value increased 16 times from 2000 to 2020. Therefore, China's asset scale should be very large, and there is no problem of asset shortage.

The so-called asset shortage now refers to a shortage of low-risk, high-yield assets or low-risk, high-dividend assets.

However, there is no shortage of high-risk assets, such as equity, growth or real estate.

The vacancy rate of our houses and shops is very high now.

This reflects thatThere is a shortage of low-risk assets and an excess of high-risk assets.

 ask You also mentioned a point in your article, "Behind the 'asset shortage' of low-risk assets, there is actually a larger-scale 'asset panic' of high-risk assets." How do you understand it?

Li Xunlei We are in a down cycle in real estate.

Short cycles can be hedged through countercyclical fiscal and monetary policies, but once the long cycle reaches a turning point, hedging with loose monetary policies or the US QE (quantitative easing policy) will not be effective.

After experiencing an upward cycle of more than 20 years, China's real estate began to enter a downward phase, and the turning point occurred in 2021.

Now looking back,2021 is not only a turning point for real estate, but also a turning point for population aging, and a turning point for our exports to change from rising to falling share of global exports.

Therefore, 2021 is a very special year, which also determines the simultaneous occurrence of asset shortage and "asset panic".

 ask Is this a cyclical phenomenon, or is it caused by external forces such as the epidemic or the global economic downturn?

Li Xunlei It is endogenous, not caused by external forces.

I think this real estate cycle should peak earlier.

In 2016, the Central Economic Work Conference raised the issue of high real estate bubbles, so decision makers have long discovered this problem.

But the market still goes its own way, because real estate is tied to too many interests and plays an important role in stabilizing growth.

If real estate is considered as a driving force for GDP growth, it contributes about 25% of GDP growth, so no one wants the real estate market to fall too early.

Even in 2020 when the epidemic broke out, China's real estate market was still booming. This also shows that it has nothing to do with the epidemic. It is more about our own structural problems, which were caused by the long-term rise in housing prices leading to an excessive real estate bubble (economic phenomenon).

Falling interest rates may be a long-term trend

 ask How long do you think the coexistence of asset shortage and "asset panic" will last?

Li Xunlei It may take some time.

The reason for the shortage of low-risk assets during this period is that everyone's risk appetite has declined and everyone's expectations for future economic growth have declined.

This phenomenon is most typical in Japan. After the bursting of the real estate bubble in 1991, interest rates continued to decline and eventually became negative.

I don’t think China will have negative interest rates.But downward interest rates are likely to be a long-term trend as the underlying momentum for economic growth is declining.

We need to see the long-term nature of this cycle.This is not a short cycle, nor a medium cycle, but a long cycle.

In 2019, the economic growth rate began to slow down, and the momentum of various consumption and investment weakened relatively.

Since the investment-driven economic growth model has not changed in the past 20 years, some problems have become difficult to sustain after reaching a certain stage.

We must have a deep understanding of the problems facing the Chinese economy.

On the one hand, there are structural problems; on the other hand, there are cyclical problems. When these two problems are combined, the pressure on this round of economic downturn is unprecedented.

BackLooking back at the two judgments in 2006 and 2018

 ask In 2006, you wrote an article called "Buy Things You Can't Afford." At that time, you suggested that readers buy more expensive assets at the time, such as real estate in the core areas of first-tier cities and Moutai stocks.

In 2018, you wrote another article called "Buy Things You Can't Buy", for example, if you can't buy patented technology, you can buy (stocks of) related technology listed companies.

It now seems that both judgments have come true.

Li Xunlei Basically, it was fulfilled. My purpose was not to provide specific investment guidance, but to try to make people think about it from my statement.

Of course, my way of thinking was eventually verified by the market.

When I wrote "Buying Things You Can't Afford" in 2006, I had some deeper thoughts.

For example, before 2000, people first wanted to buy some durable consumer goods, because durable consumer goods were scarce at that time. Color TVs, refrigerators, and washing machines were very popular at the time. If you could buy imported original color TVs, refrigerators, and washing machines, you would be even more envied.

In this context, everyone's consistent idea is to configure things that they did not have in the past.

However, after 2000, these commodities went from being in short supply to being in balance between supply and demand, and even to being in surplus.

In addition, at that time, assets were scarce and few people owned houses.

People who have just started working want to wait until they have money before buying a house, but that is exactly the time to allocate a large amount of assets. If you can't afford it at that time, when you have money, the asset prices will have risen a lot, and you still can't afford it.

So, I wrote that article because I saw that the proportion of Chinese residents' household asset allocation would increase rapidly, and the proportion used for food and clothing would decrease.

I remember that the Engel coefficient in China was around 0.4% at that time, and now it is about 0.28%. Naturally, there is a demand for asset allocation.

However, the current market is developing very rapidly, both the capital market and the real estate market.

After 2015, there was an asset surplus, housing prices continued to rise, the real estate sector faced adjustments, and the stock market also underwent a certain degree of adjustment.

In 2018, the Sino-US trade war broke out, everyone was pessimistic, and the stock market continued to fall.

I think that’s the time to buy “things that you can’t buy yourself”.

What can’t be bought?

(I was thinking at the time) The economy was in transition, and some core technologies and patents, including those of the United States at the timeappleCan we buy assets related to emerging industries?

Even if it is difficult to buy in China, investors can buy ETFs, or use various channels to match things that they cannot buy themselves.

Moreover, at that time, the price of Moutai was slowly rising, and the stock price was only around 400 yuan. (I thought at the time) Since I couldn’t buy Moutai, I might as well buy some of its stocks.

In 2006, I also recommended that everyone buy Moutai stocks. At that time, the share price of Moutai was more than 100 yuan, which seemed very expensive at the time. But later, the economic upturn led to consumption upgrades, and this kind of high-end consumer goods was very popular.

At that time, a bottle of wine cost 400 yuan. In 2006, even if you didn't buy Moutai stocks, but bought Moutai wine, the price would be 4,000 yuan a bottle now, which has increased tenfold.

so,The previous “can’t afford” was due to asset shortage; the later “can’t buy” was due to shortage of core assets.

After these two logics reach a certain level, if the price is too high, that is, when the degree of bubble is too large, it is still necessary to reduce holdings.

The stage of economic development is an important basis for judging the assets to buy

 ask What is the most important basis for making each judgment?

Li Xunlei The stage of economic development is the most important.

I have experienced an era of commodity shortages, an era of high inflation in 1993 and 1994, and a period of sharp rise in asset prices.

I have a very clear view of the trajectory of economic growth and a relatively clear view of the logical relationship between asset prices and commodity prices.

soI have always made investment recommendations based on the logic of economic development.

Of course, in order to make the principles I was talking about more understandable, I used expressions like "affordable", "can't afford" and "can't buy" to make everyone understand.

At the Boao Forum for Asia in 2017, I clearly stated that China's real estate cycle will end around 2020, and there will be a general decline in housing prices from first-tier cities to fifth-tier cities.

My basis is the logic (of economic development). There is no news or game.

On the one hand, economic growth comes from reform and opening up, and from the Chinese people's pursuit and desire for wealth, as well as their hard-working attitude.

On the other hand, it is also subject to the demographic cycle. 2021 is actually a major cyclical turning point where the demographic cycle and the real estate cycle overlap.

Looking back at “Buy What You Can’t Buy” now, perhaps what you couldn’t buy at the time was more American high-tech.

If you have a global vision, you may be able to choose better "unavailable" assets at the time.

In the era of asset surplus, it is more suitable to allocate safe-haven assets with stable returns

 ask What do you think you should buy at this stage?

Li Xunlei Generally speaking, our total assets are in excess, not only in terms of commodities, but also in terms of the size of our assets.

This hugeness is reflected in the high valuation level.

For example, in real estate, the current rental-to-sale ratio in core cities is about 1.5%-2%, but the rental-to-sale ratio in core cities around the world is about 4%.

This shows that our rental return rate is very low and will continue to decline.

The excess of assets makes us pursue those undervalued, high-dividend assets more, which also represents the future trend - we may pay more attention to risk aversion.

Especially during this round of real estate adjustment, people's demand for risk aversion and pursuit of certainty have increased significantly.

When risk appetite was high, everyone was full of imagination and wanted to pursue these high-growth industries. Funds would flow to the track that ran faster, and now there needs to be an adjustment process.

So I think,Future asset allocation will still be based on low-risk assets with stable returns and relatively high dividend rates, whether it is government bonds, state-owned enterprises in equity assets, large-cap high-dividend stocks, or gold.

Of course, it cannot remain unchanged. When the so-called high-risk assets in the past fall to a certain level, they will also have allocation value.

We still need to wait for this part, and don’t think that the bottom will be reached immediately. Don’t look at this round of long-term adjustment with a short-sighted mentality.

 ask Does it mean that there is still room for growth in the future for real estate or liquor like Moutai?

Li Xunlei The liquor industry, especially high-end liquor, still needs to be cautious.

High-end liquor is closely related to the cycle. When the cycle is down, business activities decrease and people's expectations for future income decrease. At this time, people may be more inclined to high-cost-effective consumption.

For example, after the Japanese real estate bubble burst, consumption of non-brand products such as Uniqlo increased significantly.

Moreover, after 2021, the market price of high-end liquor began to decline, almost in line with the real estate cycle.

The logic we used to talk about has also changed.

In the past, there was a large demographic dividend and a shortage of assets, so we could allocate some high-risk, high-growth assets, which represented everyone's optimistic expectations for the future economy.

But at this stage, it is still necessary to allocate more low-risk or safe-haven assets.

Of course, you don’t have to buy high-dividend, stable assets; you can also invest in some thematic ones.

For example, as the aging of the population accelerates, industries related to the "silver economy" are worthy of attention.

China's "post-90s" and "post-00s" have become the main consumers today. It is also worth studying how their consumption preferences will affect our asset prices.

We can learn from which industries prospered after the bursting of Japan's real estate bubble.

should say,It is very normal for the economy to be in both the upward and downward phases. There is no need to be overly pessimistic or panic. Structural opportunities still exist in this process.

Focus on three economic data

 ask When observing the economic performance data in the first half of the year, what are the key points to focus on?

Li Xunlei The first thing I noticed wasData from the National Bureau of Statistics.

For example, our investment is recovering, consumption is recovering, and the growth rate of exports this year is higher than in previous years. So judging from the total data of the National Bureau of Statistics, it is good.

But from a structural point of view, there are still some problems. That is, the growth of the supply side is relatively fast, while the growth of the demand side is relatively slow. This is the problem we are facing now.

If the purpose is to stimulate investment in order to stabilize growth, new supply will eventually be formed.

The new supply is of no help to solve the problem of overcapacity in some industries that we are currently facing. From the first half of this year, it seems that we have not effectively solved the problem of overcapacity in some industries.

Secondly, IData from the Ministry of Finance from January to May(The data for June has not been announced yet) We can see that the growth rate of fiscal revenue has declined compared with last year, which also reflects that the quality of economic growth needs to be further improved.

Because most of the data released by the National Bureau of Statistics are aggregate data, the revenue and expenditure situation announced by the Ministry of Finance is more of a quality indicator, so this should also be paid attention to.

third,What I am concerned about is the profitability of listed companies.At present, the profit growth rate of listed companies has declined significantly, and is still lower than in 2022, which also forms a contrast with our total data.

 ask Where are the main pressures on China's economy currently concentrated?

Li Xunlei Overcapacity.

Currently, the added value of domestic manufacturing accounts for 31% of the world's total, while consumption accounts for only 13%, which is obviously too low.

Improving residents’ income and adjusting economic structure are key factors in economic transformation

 ask In recent years, you have been paying attention to the insufficient effective demand. In your opinion, in what aspects does the insufficient effective demand mainly manifest itself?

Li Xunlei I became aware of this issue quite early on. Ten years ago, I had already seen that China's economic growth model was mainly driven by investment.

For example, building highways, high-speed railways, tunnels, and bridges will help to significantly reduce transportation costs. What actually increases is supply, and the demand side is used relatively little.

So I think there might be some problem on the demand side.

I wanted to explain this phenomenon in a simple way, so I wrote "How Many People in China Have Never Sat on the Toilet?"

In 2015, a large number of Chinese tourists traveled to Japan to buy two things: one was rice cookers and the other was toilet lids.

So, the impression we give to everyone is that Chinese people are very rich and they all go to Japan to buy toilet lids.

Then, I did some research and calculations, and found that 600 million people in China have never sat on a flush toilet; among these 600 million people, about 400 million use squat toilets, and 200 million have no sanitary facilities at home.

This data is very important, as it shows that we are not without demand (but lack effective demand).

Our economic growth model is driven by investment, while other economies are driven by consumption.

Therefore, we should find ways to increase residents' income and promote consumption.

After that, I wrote two more articles, also to express our problem of insufficient effective demand.

For example, "There are still 1 billion people in China who have never been on a plane." It's not that they don't want to take a plane, but that they may not be able to afford it. Another article, "Less than 100 million Chinese have traveled abroad," shows that our consumption is weak.

(To improve) this aspect, we still need to further increase (residents' income) and adjust China's economic structure.

The Central Economic Work Conference in 2021 clearly proposed to give priority to restoring and expanding consumption, including common prosperity and so on.

This is a key factor in economic transformation.

 ask Because the current economy is in a downward trend, whether from the perspective of corporate or personal income, increasing income is no longer as easy as in the past.

Li Xunlei Yes, there is now a clear downgrade in consumption.

China's luxury consumption has decreased significantly in the past two years. 2020 was the peak year for China's luxury consumption, and sales (in the Chinese market alone) accounted for one-third of the world's total.

Now, not only the price of Moutai has fallen, but the prices of Swiss watches have also fallen (secondary market), including luxury cars, antiques and artworks, calligraphy and paintings, etc., the prices are all falling.

This is a typical sign that the real estate cycle has peaked and is declining.

Fiscal policy is the main policy, but monetary policy is also necessary.

 ask Boosting domestic demand and expanding consumption has gradually become a consensus of the whole society, but we still have the problem of overcapacity. Is there any better solution?

Li Xunlei This is a long-term problem. Don't expect it to be solved in the short term. It requires a process of resolution.

For example, the proportion of our residents' disposable income to GDP is lower than that of almost any other country.

How can we make residents’ income grow faster than GDP growth? We need to carry out fiscal and tax reforms to increase residents’ income through multiple channels.

In addition, local governments are under great debt pressure and have therefore lost their ability to invest.

Therefore, we must find ways to solve the debt pressure of local governments, expand the issuance of treasury bonds, and use this money to make up for the gap in people's livelihood, which will also help improve the problem of insufficient effective demand.

Interest rates also need to be lowered. Currently, residents’ deposits are close to 145 trillion yuan (as of the end of March 2024).

Such a large scale means that there are no good targets. Everyone buys low-risk or risk-free assets, or deposits a large amount of money in bank fixed-term deposits, making it impossible for this part of the funds to play their due role.

It is still necessary to reduce the proportion of deposits by lowering interest rates, which will be of certain significance for getting out of the current economic cycle as soon as possible.

 ask The time deposit interest rates of major banks are already at a low level. If the interest rates are lowered again, will it be possible to encourage people to transfer part of their deposits to other investments?

Li Xunlei When the economy is in a downturn, interest rate cuts are not as direct as fiscal policy. Fiscal policy is the primary policy, but monetary policy is also necessary.

For example, now everyone is worried that house prices will continue to fall. If the mortgage interest rate is further lowered, that is, an interest rate cut specifically for real estate, this will be beneficial to real estate financing and will also be beneficial to the improvement of structural problems.

Therefore, monetary policy is not as effective as fiscal policy, but it still has a certain effect.

The market is brewing opportunities in various aspects

 ask When you predicted the overall economic situation in 2024 at the beginning of the year, you made a judgment that "the opportunities in 2024 will outweigh the risks." Now that 2024 is halfway over, what opportunities are there worth noting?

Li Xunlei Although investors' expectations are still weak now, opportunities may arise when everyone's consensus expectations are weak.

For example, now that everyone has abandoned core assets and growth stocks, does it mean that it will continue to fall sharply?

But if it falls to a certain level, it may also bottom out.

After all, China's fundamentals have certain advantages compared to Japan back then. Our system and government financial resources determine that our ability to cope with cycles is relatively strong.

Therefore, we need to think in multiple dimensions. We cannot assume that a comprehensive decline will occur when the market falls, nor can we assume that a comprehensive rise will occur when the market rises. We should see the structural opportunities that exist.

State-owned enterprises account for a high proportion of the A-share market. If the operational efficiency of state-owned enterprises can be improved, it will also be beneficial to the A-share market, and there will be more opportunities for mergers and acquisitions and restructuring in the future.

Overall,This market has undergone years of adjustment and should be brewing opportunities in all aspects.

Now is not the best time to go to sea

 ask One of the hot topics this year is going overseas. There has been a new upsurge in Chinese companies going overseas. How effective is this phenomenon in solving the current economic difficulties?

Li Xunlei Going overseas also reflects that (the domestic business environment) is now quite internally competitive.

but,Now is not the best time to go overseas because the RMB exchange rate has slightly declined in the past two years.

The best time to go out to sea is

On the one hand, the local currency continues to appreciate significantly;

On the one hand, enterprises have certain advantages.

In specific industry segments, there are still opportunities (to go overseas).

But overall, the current advantages of going overseas are not as good as when large Japanese companies went overseas in the past. (Back then, Japanese companies went overseas) with both the leading advantages of manufacturing and the advantage of the appreciation of the yen.

The three main risks we face today

 ask Whether internationally or domestically, what are the main risks we face today?

Li Xunlei There are three main risks, which are caused by insufficient effective demand.

First, the risk of local government debt; second, real estate; third, the risk of small and medium-sized financial institutions.

These risks are all directly exposed to the market.

In fact, the structural problems of China's economy had already been planted during the stage of high economic growth; when the economic growth rate slowed down, many problems will emerge.

Therefore, this round of adjustments in the real estate sector should continue, while the pressure of local debt still exists.

As for the problems of small and medium-sized financial institutions, if PPI continues to decline, banks may face a significantly accelerated contraction process in the next few years.

The above are the three main risks; the secondary risks are more complicated.

This is the law of economics. When the economy is on the rise, it may cover up many problems, but when the economy is on the decline, risks often bring about a multiplier effect. For example, you may only see one risk event, but in fact other risks will arise.

 ask How do you view the impact of current demographic factors on the economy?

Li Xunlei China's total fertility rate is about 1.1 so far, which reflects everyone's concerns about future prospects.

At the same time, the cost of raising children is getting higher and higher. Without corresponding policies to encourage childbirth, this problem will become more serious.

The key is how to solve this problem more appropriately.

For example, if we want to promote economic transformation now, the traditional model will no longer work, but the new model lacks influence in the market.

My suggestion is that fiscal policy and monetary policy should be more proactive, and there is still a lot that can be done.

Or should we lower our expectations of return on investment?

 ask Under the current situation of slowing economic growth and investment returns generally falling short of expectations, what kind of investment return expectations should we establish now or in the future?

Li Xunlei We still need to lower (investment return expectations) now.

The current growth rate of private GDP is around 4%, which is a significant drop compared with the past.

At present, domestic funds are still very abundant, especially the scale of residents' savings is relatively large.

However, if we want to increase everyone's risk appetite, we still need to eliminate investors' concerns about certain issues.

For example, the Third Plenary Session of the 20th CPC Central Committee proposed to build a high-level socialist market economic system.

Therefore, we still need to adhere to the economy, and we can be more proactive at the policy level to slowly address the unnecessary worries of the past.

There are still certain structural opportunities in real estate

 ask From a more specific asset composition perspective, real estate used to be the largest asset class for Chinese households, accounting for more than half. But as the real estate market has gone down, people have generally started to adjust their asset mix. Do you think there are other assets that can replace real estate in the future?

Li Xunlei The proportion of real estate is very high, and there are indeed problems.

However, it is not realistic to replace such a huge asset with any other asset.

However, it (real estate) is also a double-edged sword. When housing prices rise, it will fuel the economy; when the economy is in a downturn, it will also fuel the downturn.

When everyone truly feels that there are fewer opportunities in the property market, they will start to allocate assets that they previously did not dare to allocate.

 ask The investment return rate of the stock market in the past two years has not been particularly ideal. What would be a more reasonable expectation?

Li Xunlei The Shanghai Composite Index should still maintain 3,000 points, which is crucial to increasing popularity and boosting investor confidence.

From the perspective of asset allocation, it is still necessary to allocate financial assets.

Although real estate can be seen and touched, the logic of real estate has changed against the backdrop of an aging population, and houses may become increasingly difficult to sell.

However, there is a wide range of choices for financial assets, and you can find corresponding financial assets for any preference.

 ask We see that the current real estate market is clearly divided, and luxury homes in Shanghai have been in hot demand recently.

Li Xunlei There are still certain structural opportunities in real estate.

Although the overall housing prices are falling, first-tier cities cannot avoid a decline in housing prices.

However, real estate is related to population migration. If the dependency ratio increases and population aging accelerates, the property market will be pushed down.

Structural opportunities lie in the regional mobility of populations.

Therefore, when allocating assets, we should follow the mainstream thinking and not throw ourselves into darkness once a decline occurs.

 ask The last question is, you have been doing research work on a daily basis and constantly writing articles to spread your views and analysis to the public. You have been doing this for many years. What do you hope to achieve?

Li Xunlei Writing is my hobby. The fun of analytical research lies in the fact that I not only discuss economics, but also look at the cultural phenomena behind economic growth and the diligence of the Chinese people behind economic growth.

These non-institutional factors also have a driving effect on China's economy. If we can conduct more in-depth research in this area, I believe there will be some new results.

—— / Cong Ming Tou Zi Zhe / ——