On January 9, 2023, Dong Chengfei, Partner/Chief Research Officer of @瑞少资产管理报告, made a live broadcast about the 2023 annual thinking.
Dong Chengfei mainly shared three issues:
Thinking 1: Energy: Traditional energy prices may enter a period of downturn
1. The new energy revolution has just begun, and its volume has changed from quantitative to qualitative, and it has begun to squeeze the market share of traditional energy;
2. In the case of shrinking demand, it is difficult for the price of traditional energy to maintain a high level for a long time;
3. Europe may become a depression in the energy market of the whole market;
4. The long-term inflationary pressure in the 1970s will not reappear, and the market has overestimated the inflationary pressure.
Thinking 2: Consumption: The iceberg that suppresses consumption is melting, but in the post-epidemic era, the road to Xiangyang’s rebirth will still be full of challenges
The four challenges we face are: the total population, aging, the disappearance of the wealth effect, and internationalization lagging far behind the manufacturing industry.
Thinking 3: Global asset allocation in 2023, the road to rebalancing amidst twists and turns
1. Rebalancing of upstream and downstream profits. If the downstream profit does not improve, it will inevitably drag down the profit on the upper side. We believe that the continuous expansion of the trumpet is unsustainable.
2. Rebalancing of the industrial and financial sectors. It is necessary and predictable that finance will feed back the industry.
3. Rebalancing of Hong Kong stocks and A shares. The improvement of the general environment will bring about the rebalancing of Hong Kong stocks and A shares.
The following is the full text of the roadshow minutes:
Dong Chengfei : Friends of Ruijun Assets in front of the screen, I am very glad that you have participated in such a small live broadcast of Ruijun Assets’ 2023 annual thinking in such a period of time in the afternoon. First of all, I would like to greet everyone. Presumably, everyone should have a smooth “Yangkang” like me. Everyone will have a difficult life in 2022, so I would like to greet everyone first.
This is the first time that Ruisuosi’s annual report has met with you in this form. From the perspective of Ruijun Assets, it can be regarded as a company’s strategic report, but it is not a traditional one. Since this is the first time that Ruisuosi’s annual report will meet with you, I will give you a preview in advance. If all of you here hope to get some traditional investment strategy reports with market outlook, specific industry analysis or industry configuration, I believe you will be disappointed. If you refer to today’s live broadcast with this expectation , I suggest not to waste everyone’s time.
The annual report of Risosos is open-ended, and it mainly records our unconstrained thinking on some interesting issues. This is our positioning of the entire Risoss annual report. Because it is just an idea, this kind of thinking is sometimes incomplete, sometimes it is very abrupt and bold, and sometimes it may just raise a question without some conclusions, so I hope that the annual report of Ruisuosi is an open-ended Yes, it would be a great honor and meaningful thing for us if it can trigger some thinking and even discussion among you.
This is the first time that Rui Susi has met with you, so I will explain to you the problems we mainly solve today.
Let’s move on to the 2023 annual report of today’s Risos.
Today we will mainly discuss three issues with you, and report to you some preliminary thoughts on these three issues. The first is energy issues, the second is consumption, and the third is more pragmatic, thinking about the allocation of relatively short dimensions in 2023.
Some of these three issues may have clear conclusions. We will put forward our own clear views on some issues, but on some issues we just raise them and are still in the process of thinking. There is no clear conclusion yet. Then we will expand step by step, and first discuss the first energy issue with you.
I see that when many people look back on a key word in investment in 2022, in fact, looking back on the key words in the whole society, energy is a very important word, not only in the capital market, but also in the whole society and even the world A hot topic on the streets and alleys. The Russo-Ukrainian war that broke out in early 2022 has led to a surge in global energy prices, especially in Europe. In the PPT, we also showed you the prices of European natural gas, international coal and oil prices. The increase is very large. The foundation of the entire Europe Industry has been relatively negatively affected.
The sharp rise in energy prices, especially in the middle of the year, has brought about a huge increase in profits across the related sectors. So looking back at the A-share capital market, from the perspective of the whole year, the coal sector is the only industry with a large positive return among all industries. The profit growth rate of the entire industry is also among the best among all A-share sectors. So we see that the best-performing public fund managers in 2022 have a heavy position in the coal sector. Energy is a hot topic in society and the capital market in 2022.
Why do you pay so much attention to this issue? Because looking back at history, many reports in 2022 also discussed the comparison between this wave of energy surge and the large super market in the 1970s. Indeed, this round of market has many similarities with the 1970s, such as geopolitical conflicts. It was several wars in the Middle East, this time it was the Russo-Ukraine war. The second is the soaring price of energy, which has brought inflationary pressure. In order to deal with inflation, the US Federal Reserve has been tightening the heartstrings of investors round after round.
Therefore, there are also many opinions, whether we use a super cycle of commodities and energy to look at it, because many investors do hold such views. If this is the case, then simply compare it to the 1970s. Now it may be just the first wave, and there will be more violent rises in the second wave, including the rise in inflation.
If you are familiar with the capital market in the 1970s, you will know that in the 1970s, there were very few reports on rights and interests. The most popular people in the entire capital market should be in commodities and bonds. Bonds and macro hedging, in the 1970s, it was also because of many large fluctuations that led to the origin of hedge funds slowly appearing in the market. Therefore, how the entire energy price will go in the future is unquestionable, not only for 2022, but also for the overall environment in the next few years.
There are various theories in the market. Basically, the most important point of view on bulk or energy prices is that in the past ten years or so, capital has been mainly concentrated in Internet-based investments, and the investment in bulk commodities, traditional The investment in energy is seriously insufficient. The second superposition is that everyone thinks that oil and coal will withdraw from the stage of history sooner or later, so there are sellers’ statistics. Spending hasn’t seen a significant uptick as it has historically.
Therefore, a very important point for bullish people is that the supply is limited, which makes the entire commodity and energy prices continue to be very optimistic. This is also the market’s own view on energy.
We, like everyone else, have been following the Russo-Ukrainian war closely and have been analyzing some data. Later we will give you some of our views on this issue. In terms of supply, everyone limited their attention to investment in the coal industry or the oil industry, which actually underestimated the investment in energy in a broad sense. Everyone knows that in the past two years, the capital market, especially the A-share capital market, has been investing in photovoltaics, wind power, and batteries in full swing. Therefore, as you can see in the previous PPT, the one-year high of oil may be 67 The investment of 100 billion U.S. dollars has now dropped to an investment of 400 to 500 billion U.S. dollars. But summing it up, if we add the 200-300 billion new energy investment in the broad sense, the energy investment in the broad sense is basically at a relatively high position in history.
If we limit the scope of statistics to the scope of traditional energy in a narrow sense, we will naturally draw the conclusion of insufficient investment. But if we broaden our horizons a bit, energy investment is actually in full swing around the world. Here are some of our thoughts on investing.
Later, we will analyze the analysis of supply and demand in detail. One of the traditional energy sources is oil, and the other is coal. To be honest, the analysis of oil is beyond our ability, because its data is more rare, and secondly, it may affect many things, and China’s influence factor is not the most important factor. So we focus on the analysis of coal, especially the analysis of thermal coal. Because coking coal has its own operating logic, we will conduct our analysis on the global thermal coal market below. Why target thermal coal? Because we are in China, China’s data, including China’s influence on the global coal market, has a greater proportion, so the analysis will be more reliable.
If we follow the logic of limited supply and demand in the market, China will increase the demand for 100 million tons of thermal coal every year, and the investment in production capacity is actually insufficient, and it will take time for new production capacity to come out, so the gap between supply and demand will always exist. This is the view of many investors who are bullish on coal prices. So how do we look at this issue? First of all, in terms of demand, everyone subconsciously believes that the demand for annual growth of 100 million tons needs to be questioned. On the contrary, we believe that the demand for thermal coal will shrink in the future.
If you look at it from a short-term perspective, assuming you only look at next year, because the demand for thermal coal is mainly divided into two parts, one is the demand of the power industry, accounting for about 60%, and the other two most important industries are building materials and chemicals. , accounting for 25% of the entire demand. Then let’s first look at the building materials and chemical industries, which account for 25%, which are nothing more than the demand for thermal coal in cement, glass and some coal chemical industries.
In my own opinion, these two fields are closely related to real estate. Everyone knows that this year’s houses are not easy to sell, but one of the data we have compiled is the cumulative construction area of China’s real estate, because it has a very large stock under construction. turn negative. Because everyone knows that there will be guaranteed delivery and delivery later this year, so there will be very few real estate sales this year, and real estate companies will basically not acquire much land. Therefore, we believe that the cumulative construction area of China’s real estate may decline in 2023. Going forward, even I think the negative growth will be bigger than 2022.
Because the output of major building materials industries will have negative growth in 2022, looking forward to 2023, I think the negative growth of these industries may be even greater than in 2022. If you think that China’s real estate is not a cyclical factor, but superimposed with trend factors, when the entire real estate industry is facing a very large inflection point, when the consumption of building materials is at its peak, I looked at some historical data from the United States and Japan, basically The above will be cut in half. Therefore, we believe that the decline in the overall production of building materials may be greater in 2023 than in 2022. This will lead to a high probability of negative growth in the demand for thermal coal in these two industries.
If the demand of building materials and chemical industries may be cyclical, then the negative growth of electricity demand for thermal coal will be a trend.
Ruijun Assets built a very simple, even ridiculously simple model, but we believe that real life is very complicated, and sometimes this simple model may be more powerful.
Because the total electricity consumption in China is a visible data, which is more than 8 trillion kilowatt-hours. We assume that China has basically increased its electricity consumption by 4% or 5% in the past few years. If China in 2023 To maintain a 4.5% increase in electricity consumption, China’s demand for new electricity is nearly 380 billion kilowatt-hours. In 2022, we made some assumptions about the installed capacity of hydropower, nuclear power, photovoltaic and wind power. It is now January, and the data for December last year has not yet come out. There may be a slight error. We found that as long as the installed capacity of China’s scenery It can exceed 150 GW. According to the average wind power utilization hours and photovoltaic utilization hours, we can basically conclude that the installed capacity of our newly installed wind power can bring nearly 390 billion kilowatt-hours of electricity.
That is to say, if the annual installed capacity in China exceeds 150 GW, basically China’s new power demand can be met by the installed capacity of new energy. If everyone is more optimistic about this trend, for example, we have seen some photovoltaic chairman predict that China’s photovoltaic installed capacity may reach 150 GW in 2023, so we will be more optimistic.
And once the installation of this new energy starts, it is driven by technological progress, so I believe it will grow in a trend. For example, everyone knows that the price of photovoltaic modules is very high this year, but everyone knows that China has generated nearly 60 GW in the first ten months, because the price of modules is very high, and there are few centralized ones, so basically it can be said that it is endogenous A distributed month is nearly 4 to 5 GW of installed capacity. Considering the recent sharp fall in the price of photovoltaic modules, we are very confident that the annual solar capacity will exceed 150 GW.
We have listed several large energy groups on the right, and their installed capacity plans for the “14th Five-Year Plan” are also very optimistic. In other words, we may have had such a big impact on traditional energy prices in the past because the total installed capacity of new energy was not large. However, 2022 and 2023 may be the beginning. After the total amount of new energy reaches a certain amount, the replacement of the entire traditional energy will change from quantitative to qualitative. That is to say, the expectation of new energy for traditional energy is a trend and a process that has just begun.
Earlier we analyzed China’s new energy alternatives. When we use the same framework to put the perspective on a global scale, we find that this conclusion is basically the same. It’s just that the world may be one to two years later than China’s. The whole process of logical reasoning is basically the same, that is, we assume the growth rate of global energy demand, assuming that the entire world’s wind and solar installations, the annual new electricity may start from 2024 At the beginning, the cumulative new power generation capacity of new energy installed capacity will exceed the global demand for electric energy. That is to say, the replacement of global new energy may be one to two years later than China, but in fact this is an inevitable thing to happen.
The above is my analysis of the supply and demand of traditional coal for you, and put forward our views. We believe that even taking into account the cyclical factors of the economy, the replacement demand for traditional steam coal brought about by technological progress is taking place. Some people may say, isn’t the country adding thermal power installed capacity now? In fact, the installed capacity of thermal power is mainly to increase the thermal power capacity during the peak period to ensure the supply of the entire power during peak hours. The increase in thermal power installed capacity does not represent an increase in the demand for thermal coal. A big variable here is the utilization hours of thermal power. At present, many thermal power units may be used for peak regulation, and there may be a difference in transmission.
I would like to add a word here. Maybe our point of view is a bit abrupt. Everyone knows that the Russia-Ukraine conflict will bring about a surge in global energy prices in 2022, causing the whole of Europe, especially the media on our side, especially the self-media. The various tragedies reported in Europe, especially how miserable the European winter will be in summer, have done a lot of deduction. But here we put forward a bold assumption, we believe that Europe may become a depression in global energy prices.
We will not expand too much on the reasoning process behind it, but just raise this question here to attract everyone’s attention. On December 3, 2022, Europe passed a price limit for Russian oil, and everyone seemed to be indifferent to it, because the oil price was still at 70 or 80 dollars, but it turned out to be limited to 60 dollars, and now they are still cutting off Energy trade with Russia, but actually I think looking back at this agreement will have its effect.
And I asked my colleagues to summarize and study some key provisions. It will basically review the price every two months in the future. No matter what the price of oil is in the future, Russian oil will do business with Europe. , basically there will be a 5% discount, so we don’t think that the whole of Europe will be hit hard, and the industry will be affected. On the contrary, we believe that Europe may later become a depression in global energy prices, and the whole of Europe will be more confident. Of course, this is just our wild idea, and we will pay close attention to it in the future.
So on the first topic of energy, we have our own clear conclusions. We believe that the entire new energy revolution has just begun. We have always joked that revolution requires bloodshed. It turns out that traditional energy and new energy are not related to each other. The two are on different tracks and are evolving according to their own different supply and demand relationships. But new energy has reached the volume it is today, if the scenery adds up to more than 150 GW in China, (the video freezes for 3 seconds). Therefore, we believe that the market traditionally believes that due to limited supply, we will increase demand by 100 million tons per year. This assumption is not valid. To be honest, I have never seen a product. When the demand keeps shrinking every year, the entire industrial chain will maintain a very profitable state, and the price will remain very high for a long time. This is a very small probabilistic event . The third conclusion may be a bit abrupt. We believe that Europe may become a depression in the global energy market .
The fourth conclusion will naturally be derived from the first three conclusions, which is everyone’s views on inflation and the super cycle. We believe that the long-term inflation in the 1970s will not be repeated. The market overestimated the pressure of inflation. From this point of view, it may be very good news for those of us in the equity market.
Earlier, we shared our judgment on energy prices. We have our own very clear views on the price of energy.
The second question is thinking about consumption , maybe we are not so confident. We just put forward some rough ideas of ours and throw them to you, hoping to discuss them with you. Of course, if we have a clearer idea on this issue later, we will present our views to you in a timely manner.
It has been more than ten years since consumption has won the market. I entered the industry in 2003. In my impression, from 2003 to 2011, cycle researchers were better than consumption researchers, because China’s rapid economic development in 2003 brought Bulk very super bull market. The turning point took place in 2011, because the boom of the cycle must decline. In 2009, 70% to 80% of the newly added GDP was contributed by investment. We said at the time that this proportion was already too large. is not sustainable.
Looking back, in 2015, everyone was saying that cycle researchers were about to lose their jobs. It was only in 2015 and 2016 that the sudden supply-side reform brought a new spring to the cycle. At that time, many large institutions were There are no more Cycle Fellows. Over the past ten years, from 2011 to the present, consumption researchers have lived a very prosperous life.
The best in the whole consumption is the liquor industry. Since 2011, the liquor industry has been a very traditional industry in China. Whether it is in terms of governance structure or corporate operating capabilities, if we compare the industry horizontally, there may be many industries that have It is better than these companies, but it is because it is born well. I joked that it is a bit like the oil-producing countries in the Middle East after World War II. It is not because he is hardworking, not because he is smart enough, but because he was born in this place, so these countries Lie down and win the world.
The same goes for Moutai in baijiu. This is also a very interesting thing. From the perspective of corporate governance, everyone knows that the management of the company in history was not good, but Moutai has gradually established itself in the past ten years. God-like status in the market now. Therefore, since 2011, the entire consumption has basically been an industry re-allocated by mainstream public funds and institutional investors, and these re-allocated investors have basically won the entire market in the past ten years or so.
Looking at the front with the rearview mirror, what will the future look like, or will it continue to lie down and win? I don’t think that possibility can be ruled out. Of course, it may also be like a cycle. Like in 2009, it is hard to imagine that many large institutions will not have cycle researchers in 2015. It needs history to continue to evolve.
Here we just put forward some challenges faced by the current consumption, we have no conclusions. For the first challenge, we just say that there are some variables, because it is some slow variables that determine consumption, and some macro slow variables. We have observed that these macro-slow variables are changing quietly, but because it is a slow change, how long will it take for this change to change from quantitative to qualitative? Is it next year, or when will it change in the future? What will happen? Effect, to be honest we have no definite conclusions.
The first challenge is the challenge of population , with more people, more mouths and more consumption. Everyone knows that in 2021, the total population of China will only increase by 480,000. This is the national statistics. The actual total of 480,000 is zero growth in my opinion. If we summarize it again, I will use a few representative industries of food, clothing, housing and transportation here. If we look at the overall volume growth, we will find that basically the growth rate in these years has been all the way down. We use dairy products, liquor, passenger cars, and housing to represent food, clothing, housing, and transportation.
2021 may be a little bit upward, because there is a base effect in the first quarter of 2020. If the base is removed, the total growth rate will basically be 0 to 5. So we can say that if the population does not grow, the total amount of food, clothing, housing and transportation in China will basically be saturated.
The second challenge is aging. I won’t go into details on the trend of aging. I’m just borrowing a report from a seller. People over 60 years old, you can see that the main consumer is between 50 and 60 years old. At the age of 60, the total amount of consumption will go to a new level, and after the age of 70, the consumption power will go down to a new level. Therefore, the willingness to consume will decline as the population ages.
As mentioned above, the increase in volume may be due to population factors, and due to population age factors, there may be some negative effects. People say that liquor is taken as an example. In fact, the total amount of liquor has already dropped, but what everyone is talking about is the impact of price increases. There will also be some changes in the impact of price increases, which we may not have encountered in history. We all know that the stock market has the greatest impact on American residents, because 70% of their assets are allocated in the capital market, so the sharp drop in stocks in 2008 had a great impact on their entire consumer market in 2009 and 2010.
60% of the residents’ assets in China are mostly allocated in real estate. China’s real estate has been in a state of loss in the past 20 to 30 years. So in the past we were used to Chinese people buying and buying all over the world, the more expensive things may be consumed in China, the better. Liquor benefits from this wealth effect. It seems that a bottle of wine costs two to three thousand yuan, and everyone feels no pressure to consume it. Will this trend continue in the future? It may continue, but we also see some signs in 2022. Due to the impact of the epidemic, everyone’s income effect, and confusion about the general environment, we have seen for the first time that consumers are starting to tighten their wallets .
We have also seen that the wealth effect brought by real estate to the residents of the whole society may undergo a relatively large turning point. For example, real estate prices in Shanghai have been loosening since last year. If the volume growth loses momentum, if there are some adverse effects on the price, there may be some negative impacts on both volume and price.
The last challenge, I think it is the challenge of our companies , why is the consumer goods industry so popular with everyone? It is because companies with large market capitalization have come out in international comparison. We often benchmark these large-cap companies in the US market. There are two development stages. First, it develops rapidly in the local market. When the local market matures, it develops in the international market. So basically foreign companies with large market capitalization are all global companies.
In contrast, our corresponding consumer goods companies, whether compared with these large foreign consumer goods companies or with Chinese manufacturing companies, have not yet started their internationalization path. For example, Moutai, I think the 5.0% of the overseas market share is most likely to be exported to domestic sales. Therefore, if these large consumer goods companies are saturated in the domestic market, will they have a second growth curve like these large overseas consumer goods companies? I think there must be challenges in the middle.
Therefore, our views on consumption may be completely opposite to our views on energy. We have our own clear views on the price of energy. Of course, this view may be slapped in the face, but we will review it with you later. If We will admit when we are wrong. But we only raise our own questions about consumption. To be honest, we have no clear conclusions on this issue, and we are still in the process of observation and research.
The third thought may be relatively more down-to-earth. Maybe you think that what I said earlier is empty and empty. The third question is our thoughts on the configuration of 2023. You may also think that It’s a bit empty, because we didn’t give a specific industry, but just said that in terms of style, we think rebalancing may be a key word.
We have summarized three rebalancing, the first keyword we think is the rebalancing of upstream and downstream profits. Here we also borrow a picture from the seller. The blue line is the ROE of the entire upstream company, the yellow line is the ROE of the midstream company, and the gray line is the ROE of the downstream company. It can be seen from the figure that from 2005 to the present, basically these three lines have moved in the same direction in history. However, starting from 2021, these three lines will show a situation in which the bell mouth will widen in 2022, that is, the ROE of the upstream is still soaring, but the middle and lower reaches have declined due to the impact of the external environment and the epidemic.
We think that if there is no skin, there must be no place for the hair to attach, so the situation of the trumpet mouth is very difficult to continue. The return of upstream to downstream profits will be a high probability event in 2023.
The second rebalancing is about the rebalancing of financial and real profits, real and virtual rebalancing. There are also two pictures here. It can be seen that the entire industry has been affected by the epidemic far more than the financial industry in recent years. I use the bank to represent the virtual financial industry. The industry can choose information. The profit of the entire entity is growing negatively, but the bank may Still maintain a relatively steady growth. In this way, the entire finance accounted for a very high proportion of the profits of the entire listed company.
From the perspective of return on net assets, the return on net assets of the entire financial industry is consistently higher than that of the industry, and it is more stable. It is also because of the same logic that the profits of financial companies come from entities. If our entities continue to be in this situation, the subsequent introduction of policies that require finance to feed back industries can also be expected. Some people may ask, is Ruijun also interested in banking and real estate for these undervalued products? We will have relatively few configurations for these.
The last rebalancing is happening recently. In the past few years, people complained a lot about Hong Kong stocks last year. Investors in A shares had a much better experience than investors in Hong Kong stocks. The Hang Seng Index of Hong Kong stocks fell to 1997 when it was the lowest. year price. Looking forward to 2023, we believe that Hong Kong stocks should not lose to A shares, and may even be more optimistic than A shares. Because some negative factors restricting the Hong Kong market are changing, and they are all positive changes.
From another reverse thinking point of view, the two markets have basically been connected. If the Hong Kong stock market was at such a valuation level in September last year, if the Hong Kong stock market is not good, it will definitely drag down the A shares. . Of course, the rebound in Hong Kong stocks during this period is also very large, and this has already happened. Therefore, we believe that there should also be a rebalancing of the experience that Hong Kong stocks and A shares will bring to investors in the future.
The above is that I spent a little time to put forward some opinions on some issues that we think are interesting, or just put forward some of our thoughts. We have a clear view on the energy issue. Regarding the consumption issue, we just say that some macro variables seem to be changing, but there is indeed uncertainty about how long the change of macro variables will be implemented in the entire micro and industry. .
Ruisuosi is an open thinking, so first we admit that we will make mistakes, and we will definitely review them for everyone after we make mistakes. Second, we hope that everyone can participate in this kind of discussion, and even criticize our views, we will humbly accept them.
I will report to you here today, thank you all. Today is the first time that Ruisuosi met with you. In addition to the annual viewpoints of the follow-up Ruisuosi, if at the end of the year, or when we have our own clear views on certain issues, we will also use Ruisuosi like this One way is to present our views to the market through our official account, thank you for your time.
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