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【Introduction】After a sharp drop, the global market rebounded. Private equity firms focused on core variables, adjusted their allocations, and responded to overseas uncertainties

After a sharp drop, private equity firms are still wary of overseas markets

China Fund News reporter Wu Jun

Recently, major overseas markets such as the US and Japanese stocks have adjusted significantly, which has attracted market attention. Private equity firms interviewed by China Fund News believe that this round of volatility is caused by market concerns about the US economy and high valuations of technology stocks, coupled with the reversal of the yen carry trade. Some private equity firms said that the reversal of the carry trade has led to short-term local liquidity problems, and there has not yet been a global liquidity shock.

With the rebound after the sharp drop, market sentiment has warmed up. Some private equity firms believe that the short-term adjustment may come to an end, but there are still concerns in the later period, and we should continue to pay attention to the changes in factors such as the monetary policy statements of overseas central banks, economic data, liquidity conditions, geopolitical risks, etc.; some private equity firms also said that this round of adjustment has ended, and they are optimistic about the market and are optimistic about the boosting effect of the Fed's interest rate cut on the global market.

The market rebounded after a short-term sharp drop

Since August, overseas markets have experienced ups and downs. The Dow Jones Industrial Average and the Nasdaq Composite Index fell 3.29% and 4.85% respectively in August, the Nikkei 225 Index of Japanese stocks plummeted 10.43%, and the "fear index" VIX volatility index soared to 64.9% on August 5. However, with the Bank of Japan's call and the release of US economic data, major market indices rebounded and VIX also fell from its highs.

Looking back at this round of adjustments, Yuankui Asset Management said that the market volatility this time was due to the sharp increase in expectations for interest rate cuts after the release of the US June CPI on July 11. The US stock market was the first to adjust due to the overcrowded market structure in the previous period. The recent greater monetary tightening by the Bank of Japan and the dislocation of the upcoming easing by the Federal Reserve have led to a rapid reversal of the yen carry trade, the appreciation of the yen, and the selling of assets linked to the carry trade.

Fang Lei, deputy general manager of Xingshi Investment, analyzed that global market fluctuations are mainly affected by changes in expectations and trading deleveraging. In terms of expectations, due to the weak US manufacturing PMI and the non-farm payrolls data hitting the Sam's rule, the market directly jumped to trading recession expectations, suppressing the performance of risky assets; but the US non-manufacturing PMI released later was higher than market expectations. The proponents of the Sam's rule said that considering the changes in the US job market today, the rule has become ineffective and cannot prove that the US economy has fallen into recession. The market's recession expectations have been partially alleviated, and major global stock markets have stabilized and rebounded. At the trading level, due to the Bank of Japan's interest rate hike and the market's concerns about continued interest rate hikes, the carry trade reversed, bringing about a deleveraging effect on funds, affecting the performance of risky assets; but as the Bank of Japan officials stated that "if the market is unstable, there will be no interest rate hikes", the yen fluctuated and pulled back, market sentiment was eased, and the impact of the carry trade reversal was also weakened.

Kou Zhiwei, partner of Chongyang Investment, believes that there are two main reasons for this round of volatility: first, the volatility of overseas markets has dropped to a historical low since May. The rapid rise in asset prices and extremely low volatility levels mean that investors have high positions, the market has accumulated a large leverage risk, and the trading structure is fragile; second, the marginal weakening of the US economy, market expectations have gradually shifted from "no landing" to recession concerns, and the US election has also increased market uncertainty, thus triggering the market. The AI ​​sector, Japanese stocks, and USD/JPY carry trades, which had seen large gains in the previous period, quickly reversed.

In the eyes of private equity, the high valuation of overseas markets is the reason for the adjustment. Cao Xiongfei, CEO of Chengze Asset, said that the fundamental reason for the recent sharp fluctuations in US and Japanese stocks is that the previous continuous rise has accumulated too much gains, and both valuations and sentiment have reached high levels. In this case, any slight change in major factors will lead to extreme fluctuations, not to mention the sudden occurrence of various major unexpected events in Europe, the United States and Japan in the past two months. In addition, the reversal of carry trades played an important role in this.

Lin Minghao, fund manager of Jinyu Investment, said that the number of first-time unemployment claims in the United States in the first week of August was significantly lower than expected, which to some extent offset and eased people's concerns about economic recession, and the U.S. stock market rebounded significantly. "We believe that whether it is the concern of funds about the U.S. economy or the forced liquidation caused by 'carry trades', they are only the surface factors of this price fluctuation. The underlying factor is still the deviation of prices from actual values. Simply put, the yen is too cheap, and the prices of U.S. stocks, led by the Nasdaq, are expensive. It's just that some macro factors make the market fluctuate more rapidly."

Carry trade reversal sparks heated debate

Along with the volatility in overseas markets, the recent reversal of carry trades has sparked heated discussions.

"Due to low or even zero interest rates, Japanese yen is usually borrowed by investors to invest in high-interest currencies or assets with high expected returns in order to gain interest rate differentials. However, carry trades generally carry a certain amount of leverage, so when the premise of the relevant transaction is broken (interest rate differentials narrow or exchange rate fluctuations are large), there is a strong motivation to close the position in the opposite direction. There have been many times in history when carry trades have reversed due to a sharp shift in the central bank's monetary policy, causing related assets to fluctuate significantly." said Zheng Xiaoqiu, general manager of Mingshi Partner Fund.

He believes that, from the current perspective, on the one hand, according to relevant research, the global carry trade has been largely closed after experiencing this round of fluctuations; on the other hand, relevant central banks, especially the Bank of Japan, will be more cautious in subsequent policy operations and implementation. Coupled with the certain uncertainties faced by Japan's actual economy and inflation, the pace of interest rate hikes may slow down.

Yuanxing Fund said that since Japan's fund interest rate is low among major economies and the yen continued to depreciate before July, capital represented by the US market has the motivation to borrow yen, exchange it and buy US dollar assets to earn interest rate differentials. However, the unexpected tightening of the Bank of Japan and the recession concerns caused by the US economic data that was lower than expected caused a short-term stampede of market bulls, and the flattening of carry trades helped boost it. The impact of carry trades on the abnormal fluctuations in overseas stock markets this time should take into account the proportion of US stocks or Japanese stocks directly held in carry trades. In addition, it is also necessary to pay attention to the liquidity risk factors brought about by the flattening of exchange rate positions caused by the high volatility of the foreign exchange market.

The private equity investors interviewed believe that the liquidity shock caused by the reversal of carry trade is short-term. Yinye Investment said that in the early stage, US technology stocks ignored liquidity restrictions and rose together, and their recent adjustments have also been amplified relative to fundamentals. The "amplifier" of the US stock adjustment came from the liquidation of yen carry trades, which has not yet spread to the stage of liquidity crisis.

Fang Lei believes that there has not yet been a global dollar liquidity shock, but the reversal of carry trades has led to local liquidity problems, and its short-term impact is more obvious. It is expected that the probability of a rapid deterioration in sentiment is small, and the short-term liquidity shock brought about by the reversal of carry trades may gradually be controlled. Fundamental factors remain the underlying logic.

Private equity remains vigilant

Focus on core variables

The private equity firms interviewed had different views on whether the global market adjustment has ended.

Fang Lei believes that the stage with the most severe impact on recession expectations and trading levels may have passed, but it is not possible to judge that the adjustment of the global market has ended for the time being. The volatility of overseas markets may be amplified in the future, and we need to continue to pay attention to changes in factors such as the US economy, the Federal Reserve's interest rate cuts, and carry trades.

"Although the influencing factors have weakened recently, the global market seems to be still in a pricing game of negative factors. As the yen and Japanese stocks stabilize, the negative impact at the trading level is also weakening," he said.

Zheng Xiaoqiu also said that the short-term adjustment may come to an end, but there are still hidden worries in the later period, and it is necessary to closely observe relevant developments: First, the real situation of the U.S. economy. The stability and reliability of U.S. economic data have been poor recently. Conflicts between different data and large-scale subsequent revisions of data have occurred frequently. Therefore, it is necessary to observe more signals to make relevant judgments; second, the Federal Reserve’s policy statement, judgment on the economy, and guidance on subsequent market expectations at the Jackson Hole Central Bank Summit in late August; third, the coordination of interest rates, exchange rate policies and capital markets by the Bank of Japan and the government.

Cao Xiongfei believes that the adjustment of the global market has not yet ended, and the recent market rebound is only a sharp swing back and forth caused by the first wave of impact. Many factors that caused the turmoil still exist and are still strengthening. The subsequent market performance depends on economic data and recession concerns, monetary policy and interest rate expectations, the progress of the US election, geopolitical risks, corporate profits and valuations, liquidity conditions and other factors.

Yuanxing Fund believes that this round of global market adjustment has ended, because the driving factors have shown signs of easing, such as the reassuring statement of the Bank of Japan and the improvement of US economic data, and the peak of market liquidity risk has apparently passed. "Considering that the fundamentals of overseas artificial intelligence chip industries are still strong, we are optimistic about the market outlook, and the performance of overseas equity markets may be strong. The market expects that the Federal Reserve may cut interest rates in September. Although this will further reduce the interest rate spread of carry trades, the start of interest rate cuts will still have a boosting effect on the global market."

Private equity firms remain cautious about subsequent market trends and pay attention to changes in important influencing factors.

Yinye Investment believes that the deleveraging process is difficult to be fully cleared in a short period of time, and the trend of global liquidity needs to be observed in the future. The fundamentals of the US economy and policy changes after the election are still the main factors affecting the global financial market in the second half of the year. In the case that the two key assumptions of whether the US has entered a recession and whether Japan will continue to raise interest rates cannot be fully confirmed, we still need to remain vigilant.

Kou Zhiwei said that the US economy is indeed weakening, but the risk of recession is not great at present. The risks mainly come from the rapid rise of US stocks and high valuations. Buffett's cash position hit a new high in the second quarter, which also shows a cautious attitude. The subsequent performance of US stocks, on the one hand, depends on whether AI can be well applied and then drive a wider range of investment in the industrial chain; on the other hand, it is necessary to observe whether other stocks whose profit growth has stagnated or even declined can return to the growth track after the Fed cuts interest rates.

Yuankui Asset Management said that since the market has experienced a liquidity run, asset volatility may remain high in the short term. The stability of the US stock market will be the key to ending the liquidity run. The underlying assumption is that the US economy will not have a hard landing. At the same time, the development of the AI ​​industry is only a short-term bump, but we must also pay attention to whether there are potential "black swans" that change these assumptions.

Private equity: The huge shock in overseas markets has limited impact on A-shares and Hong Kong stocks

China Fund News reporter Maureen

Last week, overseas stock markets fluctuated sharply. Although the A-share market fluctuated more, it performed relatively well, with the Shanghai Composite Index fluctuating around 2,900 points. There are optimistic voices in the market predicting that the sharp drop in overseas assets and the appreciation of the RMB will lead to capital flowing back to A-shares and Hong Kong stocks.

Many private equity firms believe that A-shares and Hong Kong stocks, which are in a valuation trough, may usher in a new round of opportunities and develop independent trends amid the decline in the external market. In the future, we will pay attention to the macroeconomic policy impact brought about by the Fed's interest rate cuts and the US election.

Kou Zhiwei, partner of Zhongyang Investment, believes that the impact of overseas market fluctuations on Chinese stock assets may not be significant. A-shares and Hong Kong stocks are not asset categories that overseas mainstream funds have previously flocked to, so they are also resilient in the overall market deleveraging.

Fang Lei, deputy general manager of Xingshi Investment, believes that the sharp fluctuations in the global market have a greater impact on the emotional side, but a weaker impact on the capital and fundamental factors.

He further pointed out that as domestic investors pay more attention to overseas risks, the impact of global risk appetite on domestic investor sentiment is also gradually increasing. The decline in global risk appetite caused by this round of overseas market fluctuations may suppress the sentiment of A-shares and Hong Kong stocks. From the perspective of funds, the volatility of the Asia-Pacific market may cause some allocated funds to reduce their positions in the overall Asia-Pacific stock market, and A-shares and Hong Kong stocks may face capital outflow pressure. At the same time, due to the weakening correlation between the performance of Chinese assets and overseas assets in the past two years, coupled with the possibility of continuous appreciation of the RMB exchange rate supported by fundamental and policy factors, overseas market fluctuations may instead cause some funds to increase their allocation to Chinese assets for risk aversion and hedging considerations. Overall, the impact of funds on A-shares may be neutral at present.

Zheng Xiaoqiu, general manager of Mingshi Partner Fund, believes that the volatility of overseas markets will have little direct impact on A-shares in the short term. A-shares are currently more dominated by internal factors, and more attention should be paid to marginal changes in domestic fundamentals and policies. Kou Zhiwei also believes that domestic economic fundamentals and policy expectations are the core variables affecting Chinese stock assets.

Lin Minghao, manager of Jinyu Investment Fund, which mainly invests in Hong Kong stocks, believes that due to the binding mechanism between the Hong Kong dollar and the US dollar, the fluctuations of the US stock market will be reflected in the Hong Kong stock market to a certain extent, making the relatively low valuation of the Hong Kong stock market more attractive. Looking at the world, the current valuation of the mainstream capital market is relatively expensive. Some funds may flow into the Hong Kong stock market or high-quality undervalued targets in Hong Kong stocks due to various factors such as allocation or price, bringing additional liquidity to Hong Kong stocks.

Yuanxing Fund said that in this drastic fluctuation in the global market, the RMB exchange rate has performed very well, breaking the expectation that the RMB will continue to be weak. Once the Fed starts to cut interest rates, the RMB exchange rate is likely to have room for appreciation, which means that the attractiveness of RMB assets will increase. The drastic fluctuations in the global market may be an important baptism for A-shares and Hong Kong stocks, and we can be optimistic about the follow-up.

Zheng Xiaoqiu pointed out that the timing and rhythm of the Fed's interest rate cuts will affect the RMB exchange rate through the trend of the US dollar. At present, it is conducive to the stability or appreciation of the RMB exchange rate and helps to open up domestic monetary policy space. In addition, the uncertainty of the US election is relatively high, which may have different impacts on geopolitical conflicts, trade disputes, and US fiscal policies.

Ningshui Capital believes that with overseas interest rates likely to fall, the interest rate gap between China and the United States is expected to gradually converge, the pressure on the renminbi to depreciate will be reduced, and more room for maneuver for my country's central bank's monetary policy. Under the influence of factors such as the slow momentum of domestic economic recovery, low inflation and an "asset shortage" in the bond market, domestic monetary policy will most likely remain loose.

In response to overseas uncertainties, private equity firms are actively investing in Chinese assets

China Fund News reporter Jiang You

Overseas markets have experienced dramatic fluctuations recently. How should private equity respond and how should macro strategies deploy multiple assets? In an interview with a reporter from China Fund News, several private equity institutions stated that the window for the Federal Reserve to cut interest rates is approaching and the US election also contains uncertainties. They will adjust their allocations according to the situation and actively be bullish on and long Chinese assets.

Private equity actively responds to overseas market turmoil

Many private equity firms have stated that in order to prevent risks, they need to strengthen research, avoid overvalued assets, diversify and balance assets, and seek certainty.

Yuankui Asset Management said that it realized at the end of June that the Fed's interest rate cut window was approaching. It had previously conducted in-depth research on the Fed's interest rate cut cycle and understood that the volatility of major asset classes increased significantly before and after the interest rate cut cycle. In addition, the uncertainty contained in the US election is also increasing, which may further exacerbate market volatility.

Fang Lei, deputy general manager of Xingshi Investment, believes that the current global market expectations and performance are relatively complex, and more energy is needed to track and study various risk events and changes in expectations, and try to avoid assets and sectors that may have systemic risks, such as some sectors that have been subject to high speculation in the early stages and where there is a large divergence between valuations and fundamentals.

In order to cope with possible market fluctuations, Yuankui Asset Management said that it had previously made defensive adjustments, reducing the proportion of equity assets from medium-high to medium-low, mainly to reduce the exposure to foreign demand assets and companies with strong substitutability in the AI ​​industry chain. At the same time, it increased investment in U.S. Treasuries and used short exposure in commodities to hedge downside risks.

Zheng Xiaoqiu, general manager of Mingshi Partners Fund, said that in the context of major changes in the global market, we can adopt the idea of ​​balanced allocation of macro-multi-asset, reasonably deduce possible economic scenarios, diversify the allocation of different assets with low correlation, and consider using derivatives to hedge tail risks.

Ningshui Capital also stated that in order to guard against possible risks in a single market or a single asset, diversified investment and multi-asset and multi-market layout are effective means.

Cao Xiongfei, CEO of Chengze Asset, said that in terms of risk management, one is to set a stop-loss point to limit the maximum loss amount of a single transaction or investment; the second is to flexibly adjust the investment portfolio according to market conditions and the portfolio's risk tolerance; the third is to pay attention to macroeconomic indicators and policy trends; the fourth is to take advantage of market fluctuations to buy low and sell high; and the fifth is to increase cash reserves to prepare for potential investment opportunities.

Lin Minghao, manager of Jinyu Investment Fund, also believes that from the perspective of risk prevention, the cash ratio can be increased and the allocation of risky assets can be reduced. This is what Buffett did.

A-shares and Hong Kong stocks are undervalued

Private equity firms are actively bullish on Chinese assets

Regarding the allocation of major asset classes, Yuankui Asset Management believes that each round of interest rate cuts is a time when investment opportunities for major asset classes emerge in an endless stream, and generally follows the process of bonds and gold rising, stocks and commodities falling, stocks resuming their rise, and commodities resuming their rise. In terms of global macro strategies, it is possible to harvest both the upward returns of assets and the downward fluctuations of assets.

Ningshui Capital said that the company's overall macro strategy has maintained a relatively dispersed allocation recently. Through multi-asset, multi-market, long-short two-way layout, the correlation of underlying major asset classes is further reduced to cope with the occurrence of potential extreme financial systemic risks. In the medium and long term, continued interest rate cuts are a high probability event. Among the major asset classes, domestic government bonds still have the highest winning rate, maintaining a neutral to high position level; A-share valuations have returned to the historical bottom area, and there is limited room for further significant downward movement. It has medium- and long-term allocation value, but it is still difficult to say that there is a bull market in the medium and short term. Therefore, maintain a neutral position and layout on dips; commodities continue to diverge, and long-short two-way allocation may be the best choice.

Yuanxing Fund believes that fixed income assets and some oversold artificial intelligence stocks in the Hong Kong market have shown good investment opportunities. Through appropriate combinations, major asset strategies have the ability to continuously create excess returns and absolute returns, and RMB assets may have good opportunities in the future.

Zheng Xiaoqiu said that he is currently optimistic about trading opportunities in China-related equity assets, adjusted Chinese bond assets, gold and other assets; against the backdrop of increasing volatility in the global market, U.S. Treasuries, gold, commodities, Chinese bond assets and other assets are worth investing in.

Regarding investment in equity assets, Zheng Xiaoqiu said that the company's current position is more than 60%, and the overall position has increased recently, mainly considering that the valuation level of A-shares is at a low level and has medium-term allocation value. In the short term, with the expectation of increased internal policy efforts and the approaching external interest rate cuts, certain market conditions are expected to emerge. Currently, we are mainly optimistic about the pro-cyclical real estate, consumption and high-end manufacturing related sectors.

Lin Minghao said that the company's product positions have always been relatively full and have not been adjusted due to the global market fluctuations this time, because the company has always been engaged in pure value investing and is very confident in its existing holdings, with the allocation mainly in Internet companies.

Fang Lei said that the company is currently focusing on investment opportunities based on policy guidance and economic structural changes. First, value growth stocks mainly in the consumer and Internet sectors. The competitive landscape of these industries has been significantly optimized; second, technology growth stocks driven by technological breakthroughs, such as the electronics and pharmaceutical sectors.

Cao Xiongfei said that he was generally cautious about risky assets, and appropriately increased his investment in Hong Kong stocks, but had not invested in U.S. and Japanese stocks. Recently, both the U.S. and Japanese stock markets have experienced varying degrees of volatility, and investors are advised to respond with caution.

Editor: Xiaomo

Audit: Wooden Fish

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