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Transactions in the 2024 capital market have already reached August. With the recent important meetings, the market has finally seen a significant boost in sentiment, and investors have long been "eagerly looking forward to" a rebound in the A-share market.

Looking ahead, where will the long-term funds that boost the momentum of the A-share market come from? What is the attitude of international investors towards Chinese assets? How do international funds currently view the allocation opportunities of the high dividend theme? Which types of companies with growth prospects have the opportunity to achieve capital appreciation?

Recently, Meng Qiao, director of investment strategy at Fidelity Funds, was a guest on The Paper's "Chief Connection" 2024 mid-year outlook program, where he gave an in-depth interpretation of the above issues.

Overall, Meng Qiao believes that the changes in the Chinese market in the first half of 2024 are in line with expectations. She said that in general, the Chinese economy is switching from a rapid growth with exports and real estate as the main driving force of economic growth to a pattern dominated by high-quality new economy.

Regarding the current attitude of international investors towards Chinese assets, Meng Qiao said, "Whether it is the size of the Chinese market, the trading volume of A-shares and Hong Kong stocks, or the position and activity of the Chinese market in the global market, and the depth of investable industries, China is a market that overseas investors should pay the most attention to. This has never changed, and this is also what I have clearly felt during my recent overseas roadshows."

Meng Qiao stressed that compared with all other markets in the world, the overall valuation level of A-shares and Hong Kong stocks is extremely attractive. A large amount of overseas funds are waiting for the opportunity to flow into the domestic market.

In terms of investment strategy, Meng Qiao said that he would prefer some companies with outstanding manufacturing industries, and was also optimistic about defensive dividend sectors, including cyclical sectors, coal sectors, as well as stable sectors such as electric power, energy, and banks. "If we see that some listed companies have sufficient cash flow, are relatively strong in the entire industry, and perform very steadily in the current market environment, we will also make arrangements."

The following is a lightly edited transcript of the interview:

The Paper: At the beginning of the year, Fidelity Funds' outlook for the Chinese market in 2024 was "the direction of economic momentum switching is clear, and challenges and resilience coexist." Could you please briefly review the first half of 2024? How do you evaluate China's economic momentum switching process and market recovery? What economic changes did you not expect?

Meng Qiao: Overall, the changes in the Chinese market in the first half of 2024 are still in line with our expectations.

In general, our economy is switching from a rapid growth model with exports and real estate as the main drivers of economic growth to a model dominated by high-quality new economy.

This may also be a major reason for the current slowdown in economic growth, because the original real estate, infrastructure and other related industrial chains accounted forGDPHowever, in the process of economic momentum transformation, we have also seen some good directions, such as the machinery-related industrial chain and exports, and the country's policy promotion efforts in these areas are still relatively strong.

However, in the latest data, we can see that people still have some gaps in expectations, and we can also see that the pessimism of mass consumption is relatively strong. Overall, the current macro environment is still in a weak recovery and is in the process of bottoming out in the transformation of economic momentum.

Against this background, the policies in the first half of this year are still very powerful, especially in the real estate sector. From the launch of a series of real estate policies in May to the clear attitude of regulators to push the real estate market back on track, I think this is a highlight of the first half of this year.

In addition, in several important meetings held during this period, we can also actively see that the government has placed great importance on the balance between supply and demand. For example, the government has clarified its attitude towards the purchase of some local real estate in order to reduce the excessive real estate supply in some cities, although from the perspective of policy implementation, it may not recover so quickly. In the short term, we can look at the transaction situation of real estate in the top 30 cities. If compared with the transaction peak from 2020 to 2022, there will definitely be a certain degree of decline.

In addition, the market is currently calling for more policies, hoping to achieve the 5% GDP growth target in the second half of 2024. We also believe that more powerful policies will be introduced in the second half of the year.

The Paper: The Third Plenary Session of the 20th CPC Central Committee was held in Beijing from July 15 to 18. How do market investors view the communique and decisions of the Third Plenary Session? Which statements do they pay attention to?

Meng Qiao:The Third Plenary Session of the 20th CPC Central Committee set a ten-year modernization goal anchored in 2035, which included important future deployment decisions and the possibility of comprehensively deepening reforms. These are the main themes of this meeting. I think that whether from the perspective of Fidelity or from the perspective of the entire market, this Third Plenary Session is in line with the expectations of the entire market.

Specifically, the content that is most relevant to the investment opportunities of listed companies is "comprehensively arranging ultra-long-term special treasury bond funds to increase support for large-scale equipment renewal and consumer goods replacement", which will be conducive to related transactions in the automotive industry chain. In addition, individual investors will also have special discounts when purchasing companies that were originally related to the upstream and downstream of real estate, such as home appliances. These are all very direct measures to actively promote the consumption end.

In addition, from the direction and layout of the reform, we can also see that the government has proposed to support the entry of long-term funds into the market, and also hopes to improve the overall quality of listed companies, enhance the internal long-term stability mechanism of the entire capital market, and improve the dividend mechanism of listed companies. In terms of industrial upgrading, for scientific and technological enterprises, the inflow of long-term funds can also play an important role in financing.

The Paper: At the end of July, the Political Bureau of the CPC Central Committee held a meeting to analyze and study the current economic situation and deploy economic work for the second half of the year. What positive signals do you think this Political Bureau meeting released?

Meng Qiao:Compared with the Politburo meeting held in April this year, the Politburo meeting at the end of July strengthened its attitude in some aspects, or made clearer statements.

The most important point is that the country's determination to achieve the 5% GDP growth target this year has not changed. Judging from the macro data in the second quarter, if we want to achieve the 5% GDP growth target in the second half of this year, we still need more and stronger policies to support it. This Politburo meeting showed that "the determination to stabilize growth is very strong."

At the same time, the Political Bureau meeting at the end of July also emphasized the importance of revitalizing the consumer side. From an investment perspective, we are optimistic about the future of related industrial chains that increase people's willingness to buy through state subsidies.

In addition, the Politburo meeting also emphasized support for the purchase of existing commercial housing as affordable housing, and added more statements than before. From the perspective of destocking, for those third- and fourth-tier cities with high real estate inventories, the above content is conducive to the stabilization of the overall real estate market and enhances the survival rate of real estate companies.

The Paper: In general, the policy strength of regulatory authorities in the first half of this year is unprecedented for the capital market and the stock market. A series of government agencies and regulatory authorities, including the China Securities Regulatory Commission, the State-owned Assets Supervision and Administration Commission, the central bank, and the State Council, have all expressed support for the A-share market and played a significant role in promoting policies. At present, do you think there is room for further macroeconomic policies? In what areas do we need to step on the gas again?

Meng Qiao:Since last year, the market's demand for increased liquidity in the monetary cycle has been relatively strong.

Previously, due to concerns about the depreciation of the RMB exchange rate and the Fed's failure to make a clear statement on the overall macroeconomic and internal and external situation of the interest rate cut cycle, the country was relatively restrained in terms of monetary liquidity. After the Third Plenary Session of the 18th CPC Central Committee, my country's monetary policy easing provided sufficient liquidity, which was very powerful and exceeded the market's expectations.

Looking ahead to the second half of the year, first of all, for China, from a global perspective, the relatively good thing is that the valuations of A-shares and Hong Kong stocks are relatively low, and compared with global assets, the cost-effectiveness is very high. Taking the assets of other countries that have seen higher growth in the first half of the year as an example, under the recent clear interest rate cut cycle of the Federal Reserve, the liquidity and risk appetite of these assets may reverse in September.

With the Federal Reserve's upcoming interest rate cut cycle, the pressure on the Chinese bond market to depreciate its exchange rate will be reduced, and the suppression of monetary space in the future will also be reduced. Therefore, we also look forward to further opening up space for interest rate cuts and reserve requirement ratio cuts in our country in the second half of the year.

The Paper: Despite the release of intensive policies, the A-share market is still volatile. Looking ahead to the second half of 2024, do you think the situation of insufficient domestic effective demand will change? What are the positive endogenous driving factors for economic growth?

Meng Qiao:Judging from the data, the overall consumption situation is still relatively weak, but in fact, personal deposits are still at a relatively high level.

That is to say, in terms of personal savings, people still have relatively more money in relatively stable assets, but less money is actually spent on consumption. Therefore, the release of the policy of "comprehensively arranging ultra-long-term special treasury bond funds to increase support for large-scale equipment renewal and consumer goods trade-in" gives us hope to see the growth of consumer sales of listed companies, as well as the stabilization of their overall profit growth rate, or the process of turning losses into profits.

At the same time, we also hope to see greater efforts in domestic consumption in the next two quarters and a clearer focus on the policy side.

The Paper: What is the attitude of international investors towards Chinese assets in the second half of the year? What factors do they value more in Chinese assets?

Meng Qiao:I just happened to share something about this. I was overseas recently and met quite a few international investors. I had the opportunity to communicate with them face to face.

Since the beginning of this year, it can be clearly seen that overseas investors have very clear demands on the current changes in China's policies, the degree of economic momentum conversion, and the direction of future policy efforts. They hope to have a clearer understanding of the domestic market. From this point of enthusiasm, it can be seen that overseas investors' attention to A-shares and Hong Kong stocks is obviously increasing. A large amount of overseas funds are waiting for the opportunity to flow into the domestic market.

From an economic perspective, for international investors, whether it is the size of the Chinese market, the trading volume of A-shares and Hong Kong stocks, or the position and activity of the Chinese market in the global market, as well as the depth of investable industries, China is a market that overseas investors should pay most attention to. This has never changed, and this is something I felt very clearly during this overseas roadshow.

In addition, 2018 may be the historical peak of global investment in A-shares and Hong Kong stocks. Currently, global investors are underweight in both A-shares and Hong Kong stocks.

At the same time, we also believe that the market's attention and understanding of A-shares and Hong Kong stocks, as well as the attention to future changes in the market, are increasing. Therefore, once our data on economic fundamentals stabilizes and the economic structure truly transforms into a high-quality growth trend, overseas funds will quickly flow back to the A-share and Hong Kong stock markets.

As long as the current direction of China's economic momentum is correct, the overall valuation level of A-shares and Hong Kong stocks is very attractive compared with all other global markets. This is also a point that overseas investors are very optimistic about and agree with during my overseas communication process this time.

The Paper: Currently, many institutions in the market believe that,ETF, insurance funds are expected to become medium- and long-term incremental funds. What do you think about this? Where do you think the long-term funds that will boost the momentum of the A-share market in the second half of the year will come from, and why?

Meng Qiao:I agree with the view that “ETF and insurance funds are expected to become medium- and long-term incremental funds.” In addition, overseas investors are also expected to become a very important part of medium- and long-term incremental funds.

Let me first talk about insurance funds. From the perspective of overall equity positions, the market value of A-shares in which insurance funds are held is still at a historical low, and currently, long-term insurance funds are mainly buying stable products such as dividends and high dividends.

As for ETFs, since 2023, ETFs have played a vital role in the transaction growth of the entire market. I think there will be no major changes this year or in the future. For example, the "New Nine National Policies" released this year particularly emphasize that it is expected to accelerate the process of continuous expansion of the domestic ETF market and promote the entry of medium and long-term funds into the market, including the establishment of a fast approval channel for exchange-traded ETFs, the promotion of the development of index investment, and the improvement of the market for related ETF industries. It is hoped that medium and long-term funds will be promoted to join the market investment by increasing their holdings of ETFs.

At the same time, the ETF interconnection mechanism has now been included. In addition to active investment and stock selection, overseas investors can also increase their holdings of domestic assets through ETFs.

The Paper: Compared with the A-share market, how do you view the development of the Hong Kong stock market in the second half of the year?

Meng Qiao:At present, the recovery of A-share earnings growth is still in the process of turning from negative to positive, or in other words, narrowing the process of earnings slowdown, but the earnings growth of many listed companies in Hong Kong stocks has turned positive. Therefore, from the perspective of cost-effectiveness and profitability, Hong Kong stocks are still relatively strong compared to A-shares.

However, the most important difference between Hong Kong stocks and A shares is that Hong Kong stocks are more affected by overseas macro factors, so the volatility of Hong Kong stocks will be higher than that of A shares. But from the perspective of cost performance, Hong Kong stocks are very attractive.

We are still optimistic about the development of the Hong Kong stock market in the second half of the year, especially for many companies listed on the Hong Kong stock market. The stability of their dividend payments and the proportion of dividend payments each year are relatively high.

The Paper: In the latest Q3 Asian Investment Outlook report, Fidelity Funds believes that "China's economic recovery will continue to appear in various industries." Can you elaborate on this? Focusing on investment themes and sectors, where do you think investment opportunities will appear?

Meng Qiao:We prefer some companies with more outstanding manufacturing industries. In addition, we are also optimistic about defensive dividend sectors, including cyclical sectors, coal sectors, as well as stable sectors such as electric power, energy, and banks.

If we see that certain listed companies have sufficient cash flow, are relatively strong in the entire industry, and perform very stably in the current market environment, we will also make arrangements.

In addition, in some consumer electronics, we also see opportunities brought by the global industrial chain, such as the replacement cycle will bring some opportunities for listed companies. In this growth-oriented sector, we are also relatively optimistic about some companies with high-quality cash flow in the entire sub-sector.

The Paper: At this point in time, do you think that the high dividend track is crowded with people? Can their future performance continue to recover? And how do international funds currently view the allocation opportunities of this theme?

Meng Qiao:When interest rates are relatively low or continue to fall, dividend assets perform relatively well. This is the case whether we look at the US market, the European market, the Japanese market, or other Asia-Pacific markets. This is a long-term view.

While we are currently in a lower-growth macroeconomic environment, we believe that the long-term trend of dividend assets will not change, and it remains the most dominant type of investment asset.

Since the beginning of this year, we have actually seen a lot of hot money, or the most risk-averse money in the market has flowed into dividend assets. In addition, judging from the overall industry index this year, cyclical industries with strong risk-averse properties such as banking, electricity and coal have also seen relatively large increases.

From the perspective of domestic investors, when the market has not found the next big investment opportunity and direction, and the market style changes rapidly, most of the money will flow into dividend assets. Regardless of the quality of the listed company, if it is a dividend asset and the dividend rate reaches 3% or 4% or more, a lot of money will flow in.

Of course, there are some low-quality companies among the dividend assets, and they are indeed overcrowded, which can also be seen from the recent pullback of overall dividend assets.

The Paper: As listed companies continue to disclose their semi-annual reports, which types of companies with growth prospects do you think may have the opportunity to achieve capital appreciation?

Meng Qiao:At present, the data disclosed in the semi-annual reports of listed companies is not comprehensive enough. The subsequent disclosure of more semi-annual report data may give us a clearer signal.

However, in the related industrial chains such as machinery and energy, their profits may be relatively better than those of some companies that have gone overseas. In the field of essential consumption, according to the current data, there is still no obvious stabilization. However, in the sub-segment of consumer electronics, there may still be some companies with relatively strong performance.

The Paper: In terms of risks, what disturbances do you think the domestic macroeconomic operation will face in the second half of the year? What uncertainties at home and abroad should investors pay special attention to and guard against?

Meng Qiao:First, in terms of restoring investor confidence, the subsequent implementation of government policies to enhance investor confidence may cause certain disturbances to the market. When and how the policies are implemented will directly affect the profitability of listed companies and the inventory cycle turnover.

Second, in terms of real estate, we need to continue to pay attention to the transaction situation in the real estate market in the future. Through this data, we can test the effectiveness of real estate measures and the manifestation of national strength in this field. If the data is not as expected, it may also become a disturbance factor in the market.

The third is overseas macro factors. The changes in trade policies under the US election will also cause significant disturbances to global stock markets.