As the Chinese A-share market transitions into the final trading month of 2024, the competition among the stock private equity products, specifically the subjective long positions, has heated up substantiallyRecent monitoring data from third-party institutions reveals that as of December 5, the threshold for entry into the top ten products has reached an impressive 132%. The gap in returns between products occupying different ranks is relatively narrow, indicating a robust performance across the boardParticularly after a notable resurgence in the A-share market starting in September, driven by the growth of technology and other key sectors, the subjective long strategy of stock private placements is poised to undergo a significant performance recovery this yearAs year-end rankings receive heightened attention, leading private equity firms continue to focus on structural opportunities within the market.
Most attributions point towards "high prosperity + technology growth"
According to the latest statistics from Private Placements Network, out of the 1,237 stock strategy subjective long private equity products monitored by the third-party institution as of December 5, a total of 1,010 products achieved positive returns since the beginning of 2024, accounting for 81.65% of the total
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While the majority of subjective long private equity products have been profitable this year, the dispersion in their performance remains significantCurrently, the yield threshold for the top ten performing products stands at 132.25%, while the top twenty have a threshold of 88.13%. The best-performing product in the industry boasts an astounding return of 209.08% for the year.
Some top-performing subjective long private equity products this year
From the perspective of performance attribution, interviews have revealed that, despite the strong performance of high-dividend themes earlier this year, the primary sources of profit for most outstanding private equity products stem from sectors characterized by high growth and prosperityFor example, Tongwei Investment noted that this year, they capitalized on investment opportunities within high-growth industries such as new energy vehicles and semiconductors, identifying high-growth potential targets through comprehensive research.
A director from a mid-sized private equity firm in Shanghai, which achieved over 30% returns this year, remarked that despite volatility in the technology growth theme, the firm maintained a focus on technology investments despite significant reductions to their "high elasticity portfolio" in January
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They made strategic trades primarily within sectors like quantum communication, large models, optoelectronic industries, and semiconductors, all of which contributed significantly to their performance.
The relevant person in charge at Xie Nuo Chen Yang pointed out that the firm's best-performing strategies this year revolved around "anti-fragility" and "high-growth" strategiesThe former focuses on deeply researching and assessing the intrinsic values of companies and capturing "cyclical investment opportunities" in industries with excellent growth prospectsMeanwhile, the high-growth strategy aims to deeply understand the investment value of emerging industries and seize investment opportunities arising from developments in these sectors, particularly focusing on core technology suppliers in AI equipment and domestic suppliers of AI chips in China.
Navigating a Complex Market Environment is Key
Several private equity firms interviewed noted that as the year approaches its end, while the subjective long strategy has shifted positively in terms of profitability and average returns, the challenges within the investment landscape remain significant.
The mid-sized private equity director acknowledged that maintaining a focus within their expertise in high-growth emerging industries was crucial for achieving satisfactory returns this year
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However, from the perspective of market cycles and macroeconomic changes, they pointed out that the duration of capital being concentrated in high-dividend, defensive assets extended beyond expectations in the first half of the year, leading to a cautious market sentimentHowever, as the market environment showed signs of turning in August and September, the ability to promptly adjust perceptions of the fundamental environment, market sentiment, and overall market trends became criticalHe emphasized that following the "blue-chip" stock cycles before 2021 and the strong momentum of high-dividend sectors over the past two years, the era of easy gains for professional investors in the A-share market has come to an endTherefore, equity investments will demand heightened stock-picking abilities from asset management institutions.
The representative from Xie Nuo Chen Yang summarized the difficulties faced by investors in the A-share market this year into three main aspects
- Major Western Stock Markets Strengthen
- Market Recovery: Timing Your Entry
- Global Central Banks Persist in Cutting Interest Rates
- Gold and Oil: A Bullish Outlook
- New Capital Flows into A-shares
First, there is the pressure to adapt investment research models as the old pricing paradigms disintegrate while new ones emergeSecond, the lack of robust recovery data for listed companies adds to the volatility in stock prices driven by sensitive market sentiment and fluctuating expectationsLastly, the uncertainty stemming from external factors, such as the Federal Reserve's monetary policy, creates additional market turbulence.
To respond appropriately to the changing market dynamics and underlying fundamentals, the institution has undertaken significant adjustments this yearSpecifically, they have integrated internal research resources, industrial mapping, and external research resources to enhance their in-depth studies of target companiesThey have also incorporated a digital platform to participate in this process, monitoring the daily trading flows of fund managers through quantitative attribution, while staying attuned to the latest policies and cutting-edge technologies.
Looking Forward to "Structure" at Year-End
Regarding the stock performance rankings battle for 2024, the aforementioned mid-sized private equity director suggested that the managers of currently top-ranked private equity products might assess their chances of securing the top spot in December, although their primary focus will be on whether they can maintain a leading position among peers throughout 2024. From the perspective of ranking competition, this private equity insider mentioned that the overall market is expected to continue its recent phase of oscillation, while structural opportunities and appropriate trading rotations will be the main focus of their strategic responses. Additionally, he stated that equity investments should not only prioritize short-term gains but must also emphasize long-term return capabilities and performance stability.
On another note, as the year comes to a close, most of the leading private equity firms looking ahead to 2024 maintain a cautiously optimistic view regarding the overall market trends, primarily concentrating on structural opportunities in their strategy evaluations.
Lin Bo, the founder of Rolling Snowball Investment, believes that from a long-term perspective, the price-to-earnings ratios for indices, such as the Shanghai Composite Index and the Hang Seng China Enterprises Index, reflecting China's core assets, remain around ten times
