Private equity circles in the past two years are most familiar with names like Yang Dong and Dong Chengfei.
However, there is another name around them that spans both the public and private equity sectors - that is Wang Xiaoming.
Wang Xiaoming is the second-generation investment core of Xingquan, serving as the deputy general manager in charge of equity investments. After he went private, the baton of Xingquan's equity core was passed to Dong Chengfei, and then to Xie Zhiyu.
On October 28th, Wang Xiaoming, as the core founder of Ruijun Asset, appeared at an online exchange meeting to share his thoughts on the market and investments during this period.
What are the considerations of Wang Xiaoming, who has been quietly investing, regarding recent market changes?
We summarize the key points of this exchange for readers (in the first person).
<h2>Judging Rebound or Reversal is Not Important</h2>
Recent market changes, does it mean a rebound or a reversal in the stock market?
In my opinion, the key is that an important turning point signal has appeared in our market, and it is quite difficult to judge whether this is a rebound or a reversal.
In fact, whether it is a rebound or a reversal is not important.
Since 2022, our stock market has experienced structural trends every year.
Therefore, when the market shows a turning signal and is developing in a positive direction, investors should focus on finding structural investment opportunities.
<h2>High Cost-Effectiveness of Core Stock Assets</h2>
As the risk-free interest rate continues to decline, it means that investors' holding costs are also decreasing.
At this point in time, increasing the allocation of core stock assets is a very cost-effective choice.
In different years, we should focus on which type of assets or which industry's assets to prioritize (this is what we should think about).
In today's macro background and investment environment, the value of core assets, especially those with clear competitive advantages, can be expected.
These predictable core stocks will become anchors recognized by more and more investors.
<h2>We are in the Middle Stage of Debt Cycle Adjustment</h2>
Since September 24th, when multiple departments jointly announced a series of measures, I believe China has started the debt reduction action. The macro cycle we are currently in is the middle stage of debt cycle adjustment.
Debt issues are a core element of China's macroeconomy. Especially the balance sheets of local government departments, this is a key point that investors should pay attention to.
Therefore, stabilizing debt and resolving debt in the short term are important measures in macro policies. Investors need to have a longer-term expectation for the resolution of the debt cycle, possibly over a period of two to three years or even longer.
In the future, a major direction is to promote China's transition from an investment-led society to a consumption-led society. This shift will ultimately open up long-term growth prospects for the Chinese economy.
<h2>Mid-term Focus on Social and Economic Structural Transformation</h2>
In the short term, increasing leverage is almost the only way for us to solve the current debt dilemma
In the medium term, our tax and industrial policies will guide the transformation of the social and economic structure. Our economy needs to promote income and allocate more to the labor sector. This may be a more long-term measure.
Furthermore, we need to further enhance the level of scientific and technological capabilities to explore opportunities in the entire global value chain and industry chain.
<h2>Second-hand housing transactions are crucial for stabilizing house prices</h2>
The real estate sector involves a relatively long industrial chain (with profound impacts).
Recently, second-hand housing transactions have been relatively active, which is crucial for stabilizing house prices.
Rental levels in Beijing, Shanghai, Guangzhou, Shenzhen, and some second-tier cities still have relatively low rental yields, which determines the rebound expectations for the entire property prices.
In Hong Kong, China, over the past one or two years, house prices have been continuously declining, but rental yields have been slowly rising, playing a very important supportive role in the overall property prices.
For investment properties, if the stable rental yield can remain above 1.5% (which is acceptable).
<h2>Fundamental changes in the real estate market</h2>
Today, China's risk-free interest rates continue to decline, which fundamentally determines that there will be a certain degree of change in the supply-demand relationship in the entire real estate market.
In the past, a considerable number of people were accustomed to using real estate as an asset for wealth allocation. In the future, they will not be eager to sell their houses through the secondary market, which is also crucial for the stability of real estate market prices.
Once the real estate market stabilizes, many logics in the stock market will become consistent. The consensus logic for the market rebound or reversal will continue to increase.
<h2>Where are the long-term opportunities?</h2>
Where is the long-term hope for China's economy?
First is manufacturing. Manufacturing is the most advantageous sector that China has accumulated over the past 40 years.
In the past three years, China has fully demonstrated the integrity and resilience of its manufacturing supply chain to the world.
In the future, this sector still has huge development space, such as in high-end smartphones, high-end home appliances, high-end machine tools, and other segmented industries.
In addition, China's accumulation in new energy, photovoltaics, and other fields has formed a unique competitive advantage globally.
Second is improving productivity through science and technology. We need to further enhance the value of China's manufacturing industry in the global industrial chain through the advancement of science and technology.
I have a more practical view that technological concepts should focus more on applied technologies. Focus on technologies that can help enhance the competitiveness and value of China's manufacturing industry.
Technological innovation cannot be separated from manufacturing or practical applications.
Third, further integrate into the globalization 2.0 phase. Chinese companies going global will bring many investment opportunities.
As China transitions from an investment-driven society to a consumption-driven society, it needs to further expand domestic demand and internal circulation, which is a key point for China's long-term economic growth
<h2>Response Strategies for Portfolio Holdings</h2>
Currently, what is our response strategy?
We always maintain a relatively high position.
In the bond cycle, it is almost inevitable for interest rates to decline, so our holding cost will inevitably decrease. Therefore, there is no need for us to reduce our position, but rather focus on stock selection and asset allocation.
First, use OTC derivatives and bulk arbitrage.
We aim to improve the risk-return characteristics of the portfolio, reduce or lock in the downward volatility of the entire holding, and strive to achieve absolute returns as much as possible.
This is also the key reason why we have become more determined to maintain a high position in the past two to three years.
Second, in the past two to three years, we have focused on allocating low-volatility dividend assets to effectively achieve stable growth in portfolio net asset value.
Within our investment team, we do not refer to these assets as low-volatility dividend or high dividend assets, but rather as defensive assets.
From stocks with low to moderate growth, we select those with high growth quality and a willingness to distribute relatively high dividends. These assets still have room for exploration as they are weakly correlated with the overall macroeconomy.
Third, when selecting cyclical growth stocks, we must consider the macro debt cycle, inventory cycle, and industry business cycle we are facing today.
We tend to choose cost-effective cyclical growth stocks across dimensions such as crossing the debt cycle, crossing the inventory cycle, and crossing the business cycle.
Therefore, based on the analysis and judgment of valuation levels in the medium to long term, we need to select assets such as new energy photovoltaics, etc. If the business cycle is delayed, it means that the potential upside of related assets is limited

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"Second-generation core" of Xingquan, Wang Xiaoming, rarely speaks out: Whether it is a rebound or a reversal is not important now