Introduction: This article Kaifeng investment founder Wu Xing speech June 23 on the grid on the Fortune Global Forum 2019 in wealth, as ten billion private equity macroeconomic policy
representative Kai-feng Wu, founder of the investment will pay attention to the details of the star study and determine the combination of macro and close to the line cross-validation, choose a theme from the details of the appearance of the complex, the refined law, deduction trend, by the depth of coverage of the whole industry chain, to
macro cycle round and accurate understanding of the major categories of fixed asset judge, seize investment opportunities.
The following is a speech Mr. Wu Xing views on the grid on the Fortune Global Forum:
Hello everyone, first of all outline the case of Kaifeng, so we
we also learned more focused on what terms, what areas we gather more practical wisdom, and more worthy of reference.
Kaifeng is a commodity from the beginning of investment, the current investment to expand the range of debt and equity markets the bulk of the investment firm, the configuration of the secondary market we basically are related to.
You might say I want to talk about stocks, stock and I know; you asked me to talk about bonds, I really understand; talk commodity futures, then I should be very professional.
When the benefits of these three assets together to configure, there is a very large, which is realized through my own conclusions, feeling particularly evident.
the beginning we mentioned a research concept called “details hidden industry passwords, the study found the value of the kernel”, Then we propose a investment philosophy, called “extremely subtle, cause
the majority. ”
We invest the assets covering three categories, doing his discovery of these three assets have a very strong linkage between them.
A lot of people see one asset class, we can go through two types of analysis of other assets, we will find themselves a little more perspective than others to judge.
We speak “very subtle, causing the majority”, you want to field familiar to every little heart, while merging in a few large areas.
This is a practice of our company, we are in the process of practice, there was a more painful experience.
Kaifeng investment philosophy: very subtle, causing the majority of
this in itself is not six words
the problem, once there was a time we follow the “University of Mean” above written, “To the vast and make subtle
“Is the first” the majority “and then” subtle “We did not understand so profound.
After some time, we found that once you start “To the majority”, and it is difficult to be truly “subtle.”
Have you seen the big world, again attention to detail is more difficult.
As I am also on the requirements of researchers might be fine, but I may be difficult to achieve, each figure, each data to the dwelling is very difficult.
Late, we put this investment philosophy changed to “very subtle, causing the majority.”
This is Kaifeng by a price return, investment philosophy is very important, even if it is the order of the text.
Including supply side reforms in China, before and after the order is very important.
In early July every year we have a customer appreciation this year because of the hope that more customers to attend, the time changed to mid-October.
The annual customer appreciation about seven or eight hundred people came to the scene.
Why Kaifeng can do customer appreciation?
We take the whole product is replicating the strategy, known internally as “WYSIWYG” what you see is what you can buy things, the same period net of different product trends are the same.
Road of details
come to talk about how we are to embark on the road just said details of the research.
Sometimes in life to rely on luck, I today, in fact, because the year when the company’s products on the futures tall people have been picked over, the rest of the farm is along this road until you get.
The company that year we recruited 10 people, in front of eighty-nine crude oil, nonferrous metals taken up, because these industries look tall on.
I was the last to be admitted to the boss, he said, “Wu Xing, do you produce it.”
Agricultural inside of hard wheat, was the smallest species.
2004 years, when I wrote an article, highly appreciated by our leaders after the issue, the article says that the “to be in line with human nature.”
There was a different wheat quality are the same, investors will know which positions wheat, we get good commission wheat, wheat is the last remaining of the worst years in the standard warehouse receipt.
Every year the last delivery day, the price of wheat is particularly low.
Whole wheat quality is not bad, but the quality has been picked to go.
After you understand this, you will find details of the research is very important in agricultural products.
By 2008, many of my clients even blind faith, as long as I do the details on the list, the macro does not matter.
Soybean year was 4000, and I’ll tell my clients, soybeans this year is very scarce, may go to 10,000.
2008 from January to April, the soybeans are still rising.
But we all know, the financial crisis in 2008, I was particularly impressed, because a large Bear Stearns incident.
From then on, I realized that I have to learn the macro, be sure to understand the operation of the macroeconomy.
Over the years I often feel that he is still half a bucket of water, macro-financial is really a big proposition, it is difficult to fully grasp.
However, I insist that we are going to understand hard to understand, because it can help you prevent the deadly crisis.
Do detail research can help us settle down, under normal market conditions we do detail research certainly not lose money, just like last year’s poor performance for stocks, because outside there was a deadly risk, you did not notice you there will be risk
attention to detail allows us to do beyond the index, so in recent years continue to strengthen macroeconomic policy background research, internal Kaifeng last year reinforces the macro research team.
We recently chief economist Takahama total Chengdu also participate in an exchange on the grid.
We should say that institutions have a strategic overview of the rare teams.
alternative agricultural research details
And there are a lot of industrial details, such as we all know that this year is very powerful African swine fever, African swine fever is not our internal judge
It will lead to rising prices, but the impact in the short term it will be very large, and the future upside will be limited.
The reason Where is it?
We did a survey industry, something like a concept, assuming that the pork price is 40, the price of chicken at 15, most consumers will choose chicken.
If you have knowledge of life, we should be very able to understand this phenomenon.
Including some group meals, they will choose chicken.
As a result, the space will inhibit chicken pork prices rise in the future, while the probability of breeding stock to replace the chicken is very fast, probably a month or two will be able to turn the pig a year and a half, the high frequency chicken restricted the pig
low frequency, pork upside final finally determined by the supply side of the pig.
We are doing internal research time will find a lot of details, but the issue you want to go to racking our brains for granted can be very simple.
If you really do research, such as when demand for protein research must take into account the issue of feed conversion.
Pig feed conversion is 2.6-2.8, and especially chicken white chicken meat ratio of only 1.6 to 1.8, that is, every pound of meat long, use less chicken than pig 1 kg of feed.
This will have a huge impact on the industry.
The relevant data or we may not see the impact, but we do research is very clear who it might be dramatic changes in the coming year.
into the line because I just do these things, so we have been doing detailed research.
futures arbitrage principle there is little to do, especially because many varieties, you can buy a sell a.
Why do we become a macro strategy team?
Before we do the details of nature, is the comparison of the strength of the relationship, find a cheap things to buy, look for a high price to sell something, it is done before the futures principle.
And we are doing the configuration, too, such as making a parity bonds and stocks, you buy good stocks or bonds?
This is a long-term profile.
You are buying a market good or secondary market, which is a long-term profile of the issue.
A lot of people will not do the configuration from the perspective of value, but there is a “herding.”
You get to compare the two markets, two markets the final purchaser who is to figure out, you’ll know what to buy what to sell.
But this process, do you have enough courage of your convictions to not influenced by short-term market behavior, which is also critical.
For example, ten-year bond yields from 4% at the end of 2017 dropped to 3.2% recently, credit bond yields also fell 150BP much, but the yield p2p and other financial products remained stable at 8-9% or even higher
the level of credit spread widening, parity between the apparent distortion.
End income assets continue to reduce debt remained at high end costs, risks inherent self-evident.
There are a number of companies this year, the stock market began to slowly withdraw from the market, in fact, is true.
There is a book called “giant baby country”, countries need to over, maybe we would not be normal.
Fortunately, however, the financial markets have slowly leading to more mature path.
We must analyze their investment behavior.
Study made finer details, such competitors mentioned here, cross-validation between the upstream and downstream, species, the more you will get a new perspective.
Futures Trading implementation details
We did a previous arbitrage.
Perhaps the most significant supply-side reforms in black, black supply side reforms in 2016 from thread to go on, go down from 3700 when the price rose to around 4000 now.
In fact, it gains little spot, but the futures investment may be done sixty-seven times the performance.
If the stock index futures concern people may know, two days before the stock index futures IC from June to September, nearly 5% discount for three months, which means you buy IC9月份合约, get delivery in September, if not CSI 500
fall, three months you earn 5%, which can be seen in mid-June, the market how pessimistic.
In the financial markets, our relationship is based on price to judge the risk, the risk premium.
Like 10-year bonds just mentioned, interest rates are now almost 2.6-2.8, that the United States may be cheaper.
We do professional investment, we have to be very concerned about the relationship between the spread, the spread between January and spreads, which has a lot of knowledge.
Assuming you have done business purchases, compared to ABC three suppliers, assuming that quality is no problem, you are sure to compare prices and choose the cheapest one.
For we do invest, too, we’re tempted to compare ABC.
In fact, most investment transactions real core of the theory is the price relations, but we can only understand that everyone familiar with the parity relationship we have contacted or said.
Just as there are many uncles and aunties bus to the approved farmers market to buy vegetables three to five days in Shenzhen every day six or seven points, as the supermarket price of vegetables is much higher than the approved farmers market.
everyone in their fields of expertise will price relationship is well aware, the entire world financial system Ye Hao, is composed of numerous small but complete parity between formation.
when all of a sudden we enter a previously unfamiliar market, we think that this thing is not important, in fact, is the real core of this market.
Therefore, we emphasize the interior, an investment must slowly understand all of the parity relationship, find the reasons behind it.
Sometimes some special reasons why the price relationship between a dramatic change, but it will eventually return to a normal state.
Examples of price relations between classical swine fever Like I just said, pigs and chickens produce change, due to a sharp reduction in the number of pigs.
But later there will be a complement to chicken, pigs and finally the price to come down.
In this detailed study, comparative study of ideas, we have not done more successful in the commodity markets.
Then how do we do stock?
We propose internal system between the company and the company should be compared, For example, a researcher at the liquor industry research, we asked him to figure out what might liquor market performance will be better under normal circumstances, under which special circumstances
What changes will occur.
A comparative study in the course of regular activity is also very important.
Not only must we choose a good company, but also to elect a good price, so as to continue.
2017 to the present, the Shanghai Composite rose 50 or 50 pretty far better than the CSI 1000, or 2000 back stock.
Because of his previous parity is very unreasonable.
Why is unreasonable?
Because We believe that the financial markets will continue to develop, the economy will continue to grow, giving a particularly high valuation.
When the decline in economic growth, the rate of small stocks came down, the entire market will be to change.
We sometimes difficult to understand some of the price changes, even though the company may be very good, such as some spices leader.
From the original estimate of 25 times, 35 times to 50 times, we could not do it.
Not to say that this company does not work, there are growing every year, but you say forty-five times to buy this company, I might as well buy a 5 billion or 10 billion company, it may also have an annual growth rate of 20%, probably later than five years
the growth of two or three ten billion.
If everyone to pay attention to this year’s A-share market, you will find a thing.
From March this year, there are more than a billion to buy Hong Kong stocks every day.
Because Hong Kong is much higher than the A shares, and a large stock of liquidity is also very good, your side is the A shares, Hong Kong stocks is cheap.
That includes many professionals we are constantly buying some of the core assets of Hong Kong stocks.
clear research subject
a lot of things you do not study did not find the time, a study found that it would be open to a listed company’s share price in fact two
blocks, one is fundamental research, done this to us, a mapping function is one of the most emotional core with the cost of capital, give this to the public.
Especially if you are willing to buy shares, then you are also willing to fund expensive; if you do not want to buy, you do not want to buy cheaper funds.
For example, Xiamen real estate yields only 1.2%, Shenzhen may be only 1.5%, but the stock market’s core assets, including a branch energy stocks while ago dividend, annualized rate of return of 6%, many of us could buy a house, but not necessarily in Ordos
China Shenhua buy, because the house may feel greater gains in the long run this is there is a huge risk.
for emotional and mapping, we do business people need to be very concerned about; and fundamental research is that we need to focus on the researcher, this is the value of our underlying configuration.
market sentiment may require us to “follow suit”, and the wind is blowing we’ll follow them, the wind did not blow us no problem.
research approach – research
tell a very classic case, only represent my personal thoughts.
Buffett why then has changed, we bought the company would rather not willing to buy enough cheap valuations poor company.
Because from the financial analysis, you will not have long-term performance analysis of future expected business.
You may see a short-term risk-benefit ratio, but will affect big strategic long-term valuation, but these things do not we seen from the financial statements.
So Buffett’s teacher Graham often brought before a concept called “picking up cigarette butts trading,” it is that you can currently worse 30% or 40% come through the financial analysis, but you absolutely can not see how this company in the future is likely to grow 5 times
So after Buffett and Munger cooperation, we first find good companies to find a good price to buy.
Previously, as long as there is a good price Buffett these older generation of investors might do it.
Therefore, we often say that internal, financial analysis is a necessary but not sufficient part of a study.
To do well, we must understand the whole company’s long-term strategy, just recently came out and said a lot of Ren Zhengfei, before we do not know enough about (Huawei), now awareness will be further deepened.
Many companies need to build long-term core competitiveness, will have long-term value.
American professional managers and more particularly, his pursuit of equity, returns on stock options, will inhibit long-term value to meet the short-term value.
This gives a lot of opportunities in China, in fact, because the United States of professional managers culture.
His pursuit of short-term returns rather than long-term development, we had a lot less profitable business to China or other countries.
Sometimes the things that has two sides.
details the ultimate goal of studies: fusion
When we do invest executed, adopted a defensive tactics.
2014 We think the stock market short-term opportunities, but because of the economic downturn, we see little long-term opportunities.
In 2015 we chose not to send stock funds, not expansion.
To the last stock market crash in August 2015, we began issuing the new products.
Of course, sometimes we assess the possible risks and we understand there will be dislocation, this is no way, so we have to understand each other, to listen to what the other person really expressed.
Many times we may have to focus ourselves, and the world did not care about feedback.
So our whole research system from the industry to the plate, and then cross-sector, cross-asset, cross-market, hoping to make the layers of alpha.
Like to build a house, start from the foundation, brick also done well, stones played well, well cement, beams played good, so the house will be very good shock resistance, it may be made out of good design
So we Kaifeng study what to do, step by step is to start from the bottom and slowly build a solid platform.
so we could achieve long-term, stable and sustainable performance.
At present, private equity may indeed like us to do this is actually relatively small, our human and material resources is very large, we are currently one of the investment research team of the country’s largest companies.
For the internal organizational structure envisaged, We are an option, quantify, research lines, macro, technology integration in the research department of investment, liquidity in the market.
For the internal evaluation system of Kaifeng make a brief introduction, we mainly examine the researchers can not go beyond their own sub-sectors, the chief can not go beyond their own industry, investment managers can not go beyond their own
sector, investment director can not go beyond the configuration of the entire market.
Kaifeng from performance in 2013 so far, far better balanced allocation according to earnings data obtained, indicating that those of us in the configuration level is beyond the Alpha market, that might explain my work as Chief Investment Officer should be done fairly
Fellow grow about 15 years later, you can try to do more of the categories of assets (except for stock and bond futures derivatives), because we have yet to enter the overseas market, but now
This path is in accordance with my own experience to plan, I was in front 1-3 years to do the agricultural researcher, then 3-5 years to do the whole agricultural sector studies, then back to the transactional level to cover all agricultural products, 2008
later also began to study the macroscopic, investment manager and then manager from behind the plate, the researcher growth path is actually referring to my personal growth experience to design.
global macroeconomic terms, interest rates in many countries open channel.
We know that interest rate cuts in the channel, the economic situation may not be ideal.
By terms of the field you are familiar with, the domestic real economy that you can feel what?
A: Our internal October 2017 there is a report, noting that the country has been “along the way” We need special attention.
March 29 I talked about a view that “the scenery here is fine.”
Why the entire rate cut cycle will form?
I think it is a structural problem, in fact, along the way there are a lot of developing countries, including China and India, with a total population of over 4.4 billion, the proportion of global GDP growth of over 60%.
In fact, these countries are guaranteed a yearly growth rate of around 5% in Europe and the United States?
After the United States in 2008 to stimulate, in August after the high point, so PMI is also declining, overall economic growth until now also is in decline.
Nature of the problem is there are too many US Treasury bonds, in fact, the economy is good or bad is not the most important indicator, but rather let him not stand the pressure of national debt, so he needs to cut interest rates.
And China in the process of deleveraging, the level of funding if we come down, we will enjoy the perfect level of funding fell to the Chinese economy help.
So I think this is representative of the economic downturn in developed countries, so they cut interest rates.
When they cut interest rates, because they are very abundant financial markets adjust very quickly, it will impact emerging markets.
This round of rate cuts could bring great benefit will give emerging markets.
From the US dollar index, capital inflows from recent data, I was two level, strictly speaking, a rate cut is essentially the economic downturn in developed countries, while developing countries have a greater benefit.
Q: Recently we can see Shanghai perish through the opening, plus a few years ago through the opening of the Hong Kong and Shanghai, Shenzhen and Hong Kong through China’s capital market can
He said that in recent years, opening up faster and faster, more and more open windows.
In this regard I would like to ask Mr. Wu this one open China’s capital market is what kind of view?
A: I think even if there is no open there is a demand, but was later open will certainly accelerate, because the feelings will be more intense.
China’s stock market is good or pretty good 50 will actually speed up overseas funds continue to buy, I speak a little case of it.
This year we have received Bridgewater invited to exchange Chinese market, said foreign funds increasing emphasis on the Chinese market, as China’s economy, the scale of the stock market have reached a high degree.
The stock market, so long as some of our own internal mechanisms distinguish clearly, drainage is very easy, because people are in need.
First they must have demands, fair, high cost, long-term investment, then very good.
Two days ago and people chatted, you say that which you buy Maotai and Coca-Cola?
Certainly buy Maotai, there are more than ten percent annual growth, but not Coca-Cola.
So this core asset buying overseas is a big demand, But the biggest obstacle is that some systems.
So once the financial market reform and opening up to promote the steady and stable overseas expectations, overseas funds to buy Chinese stocks share is likely even higher than it is now big ten times.
This part of the Indian market have accounted for more than 20%, but the Chinese market very little.
I think the Chinese to buy foreign assets will be a continuing trend, institutional change will accelerate this trend.
Q: Kaifeng is also nearly a decade since the establishment of a business, the past few years the net curve also go very good.
Macro-hedging strategy itself be able to wash away some of the risk, but we also know that the stock asset volatility of macro policy is still relatively large, consider whether Kaifeng will be more investors to invest in the actual experience of investing in?
Or would Kaifeng fluctuations have their own standards?
In the future there will be any policy or sophisticated upgrade it?
A: I just mentioned is actually more optimistic at the time share, so the I think the stock market from the current valuation point of view is still in a relatively low
from 2017 we began to clear the stock configuration, because just talking about “precepts, and wisdom,” then I think we have entered a phase of “fixed”, the more experience behind the sense of getting better
Although this process out some things, such as last year’s Sino-US trade war conflict.
The actual impact of the event itself is not large, more it is due to the uncertainties of market confidence.
Because you’re not sure how to market this year, so all upstream and downstream enterprises to leverage down the first time, after falling leveraged resulting in poor economic data, poor data will allow investor confidence is very poor.
But in fact this process, like Maotai as the problems encountered, like just when it comes to consumption of more than 8% growth rate, and China has great possibilities in depth, in fact, a great room for national regulation.
From this perspective, more undervalued formed under the impact event, the more a good buying opportunity.
Last year, our in-house or minus 19 October Jiancang stocks, the stock market fell after this round number 7 May we began to jiacang stock.
The impact of events encountered when, in turn, may be the best point in time to buy stocks, high cost in the long run.
In mid-April, when we are actually down a lever, so our view of the stock is more optimistic.
In addition, on risk control, We will be more strictly controlled than the fund retracement of the contract agreement, in 2013 so far, the largest retracement occurred in the last year, about 16%,
in the rest of the year and this figure is about 6-7%.