On the afternoon of January 30th, Dang Chengfei, a partner and chief research officer at Ruijun Asset Management, exchanged his latest views on real estate, the market, high-dividend strategies, and other aspects at the "Rui Suosi" annual thought sharing meeting. Dang Chengfei entered Xingquan Fund after graduating in 2003, and officially resigned from public fund management in January 2022. He has been a fund manager since 2007, managing public funds for nearly 15 years. He is one of the top investors in the A-share market with outstanding long-term performance. His private equity products issued under the name "Chengfei" at Ruijun Asset have been operating for a year and a half. As of the latest net value disclosure date, his earliest batch of products are still yielding positive returns. Source: Private Equity Ranking Network, as of January 2024 This is particularly remarkable in the recent market environment, especially in the continuous decline since the beginning of the year. During this exchange, Dang Chengfei mainly discussed his views on three issues. The first topic involves his views on the real estate market, with Dang Chengfei maintaining a relatively optimistic attitude towards it. He believes that in 2024, we may see a stabilization in the sales of new real estate, but due to the lag in investment, the drag of real estate on the upstream and downstream sectors still exists. The second topic, Dang Chengfei made predictions on the future market style and compared the characteristics of market style changes in two stages of the U.S. stock market, suggesting that the market may see a resurgence in the popularity of small-cap stocks. However, he also mentioned that this is just speculation and may cause controversy or differences of opinion. The third topic focused on the views and judgments regarding dividend strategies. Dang Chengfei believes that in an environment of declining risk-free interest rates, the dividend sector still remains attractive for investors with a preference for low-risk investments. The investment report (liulishidian) summarized and refined Dang Chengfei's key points and highlights from the exchange: Stabilization of new real estate sales may occur in 2024 Today, we want to share and discuss three topics with you. The first topic is about real estate, which we are relatively optimistic about. Our conclusion is that in 2024, we may see stabilization in the sales of new real estate. However, what we are uncertain about is the magnitude of the bottoming out and stabilization. New home sales are always a leading and forward-looking indicator. In terms of the overall economy, in 2024, real estate may still pose a serious drag on the entire economy. Because new home sales are a leading indicator and investment is a lagging indicator. However, for the capital market, forward-looking indicators are more important for everyone's judgment. With the passage of time, when this major negative factor of real estate, which dragged down the economy, comes to an end, macroscopically, at least the stabilization can be expected in the future. I emph...One stage is the period in the early 1970s when the Dow Jones Industrial Average rose to 50.The second phase is the market trend of the Chinese A-share market from 2005 to 2007. By comparing these two periods, both ultimately reached the same conclusion, so I present this to you. The first comparison is with the Beautiful 50. From 2017 to 2023, this may be a complete cycle, where China's core assets go from the beginning to the bubble and then slowly decline, leading to a somewhat surprising situation. It can be compared to the United States in the 1970s, between 1970 and 1975. The market in the United States sought after the top 50 highest quality companies, known as the Beautiful 50, and went through a phase from bubble to collapse. If we consider the upward phase as the first half and the downward phase as the second half, I believe that whether in the first half or the second half, it is very similar to the US market during those years. So looking at what happened after the first and second halves, after Beautiful 50 ended, the market began to chase new economic forces. Then, after the market stabilized, the US market entered its largest rally of small stocks, lasting close to a decade. While large-cap stocks and the Beautiful 50 may be rising, the excess performance comes mainly from small-cap listed companies. Why did this happen? In 1975, the US experienced its first high point of inflation, a generally tough time for the market. At that time, what was the state of the now well-known companies? Microsoft, at that time, had not yet been established. Apple, what was its situation? Apple was like a four or five-year-old child, just four or five years after being founded. Intel, though established for a bit longer, was still in its early stages and was not as developed as it is today. So in the 1970s, the entire Silicon Valley was starting to emerge. And then the story of semiconductors began, followed by computers, the internet, smartphones, and mobile internet, progressing step by step. Therefore, in 1975, it was an emerging industry, and at the beginning, its representative companies were definitely small. So in 1975, the Beautiful 50 at that time consisted of traditional big market cap companies. So I also feel that when we predict the future in the capital market, while we need to anticipate future trends, predicting the long-term future is unpredictable. Could you have foreseen companies like Apple, Microsoft, Amazon, or Tesla back in 1975? It is impossible to have that foresight. So, we must approach future predictions with caution. What will happen to these star stocks in the Beautiful 50? These companies are indeed excellent, with performance continuously growing. It's just that after 1975, for a long time, they were not the market stars, yet their stock prices were still rising. Take Coca-Cola's stock price, which was barely less than two dollars at its peak in 1972. It took nearly ten years to return to the Beautiful 50's high point in 1981 or 1982. And looking at its performance, apart from a few years of decline, it mostly kept growing. It took so long to return to the previous high point because its valuation multiples were continually decreasing. Not just Coca-Cola, some representative companies like McDonald's and Johnson & Johnson were in a similar situation. In summary, when compared with the Beautiful 50, whether in the first half or the second half, the market's style has undergone significant changes. The market began chasing new economic forces, with small-cap stocks as the main representatives. After the market stabilized, there could be a change in style. Next, we will carry out a second comparison, with the market situation from 2005 to 2007. From 2005 to 2007, there is a certain degree of similarity with the core asset market trend in this period, but this similarity may have decreased. Of course, there are similarities, such as both focusing on good companies, But at that time, these good companies benefited from China's rapid economic growth, Companies like China Merchants Bank, Vanke, and China Ping An were more closely related to the macroeconomy. Another similarity is the very similar fund flow that drove the market's rise. That was the first stage of the large-scale development of public funds. During that period, the public funds' market share increased from less than 5% to almost 40%, and we haven't returned to that high point. It has increased this time, almost doubled, but it has not returned to such a high share, so this aspect is also very similar. There are also some similarities in the second half. After the 2008 financial crisis, the Chinese market experienced a significant increase in 2009. If we exclude 2009, from 2010 to 2014, our risk premium has remained high. During that time, when I managed public funds, it was a very long period of low returns in my career. In fact, this is similar to the current situation. After the decline of optimism, the macroeconomic situation faces challenges, maintaining a high risk premium for an extended period. If the period from 2005 to 2007 was dominated by large-cap stocks, then essentially in the following period of 2013 to 2015, it was the second trend, This was the period represented by the ChiNext board and small-cap stocks.Small-cap companies have become the stars of the market.and then it will be found that actually it is divided into two sections, during the market downturn, these small-cap stocks actually underperform the market. If you pay attention, you will see that the market trend of small-cap stocks in the 1970s in the United States was also like this. During market downturns, small-cap stocks experienced larger decreases, but once the market stabilized and a trend emerged, the style would switch to small-cap stocks. Both of these paragraphs actually draw the same conclusion, that market styles will undergo some changes in the foreseeable future. Just like the Nifty Fifty, the market's star stocks also digest valuations through performance. For example, China Merchants Bank reached its peak in 2007, and it did not reach that peak again until 2017. In 2007, China Merchants Bank only made a profit of 15 billion, but by 2017, it had made over 70 billion in profits. So, in reality, excellent companies also digest valuations through performance. The next content deviates a bit from the main topic, but I still feel that the market trend in 2023 is very strange. I used some representative indices here, such as the Maotai Index, the CSI 100, 300, 800, 500, 1000, 2000, etc. You will see, from the perspective of market capitalization, this represents a range from large-cap to small-cap. From the perspective of company quality, it goes from good companies to bad companies. From the perspective of ROE, the ROE of the Maotai Index is the highest, the ROE of the CSI 2000 index is undoubtedly the lowest, smaller stocks basically have no ROE, they don't make much profit. But looking at the market performance in 2023, the larger and better quality companies have relatively poor performance. The Wande Small-Cap Index is a bit strange, tracking this index is difficult and not very meaningful. From this perspective, I have always said that everyone should invest in lower quality companies, it seems that the risk preference of the stock market funds is increasing. So, I don't know if this is also a kind of implication. I am speaking from a subjective long position perspective, from our perspective, we focus on the quality of companies. If you ask me to invest in a junk company, I still have some doubts in my mind. But in reality, since 2007, the market power of public funds has gradually decreased, while the risk preference of social funds has increased. As long as the market stabilizes, the most dazzling star stocks may change. After experiencing the twists and turns of this investment cycle, we may all be a bit hurt. Therefore, I think in the visible future, we may see some degree of deinstitutionalization, where funds may flow into quantitative strategies or social funds. In fact, their requirements for quality may not be that high, does this imply a change in future market styles? Perhaps this is just a preview. These are immature thoughts of mine, which may deviate from the main theme. The market has been declining for two years in a row, the capitalization rate, or the total market value to GDP ratio, should this ratio have dropped to a very low level by now? However, after I finished the statistics, I came to a conclusion that even surprised myself: Although the capitalization rate has indeed decreased, the magnitude of the decrease is not symmetric with the feelings of investors during the stock price decline. Therefore, it is a bit hasty to expect the bull market to arrive in the near future for a long time. Now, to summarize the second topic. If the old momentum stops here, and the macroeconomy stabilizes, social and economic progress can only be hoped for from new economic growth points. So, are there emerging industries rising? Can small companies grow into large companies? This is crucial for the capital market and the entire economy. Therefore, market styles may change in the foreseeable future, this is just a speculation. As long as the market stabilizes, the most dazzling star stocks may change. This is just a speculation, welcome everyone to discuss and provide feedback. For low-risk preference investors, the dividend sector still remains attractive. Now, moving on to the third topic, about high dividend strategies. High dividend strategies are currently the most popular in the market, especially since the beginning of this year, this strategy has performed well, while other strategies have not. Especially, you will clearly feel that due to the decrease in risk preference, what goes into your pocket is the money. So the overall China Securities Dividend Index has performed very well. So, how to view it? First, from the perspective of relative valuation, the valuation of the dividend index is still the lowest. Whether compared to the Shanghai and Shenzhen 300 Index, the CSI 500 Index, or the Growth Enterprise Market Index, it is significantly lower than other indices. Secondly, so far, the implied dividend yield of this index is still very attractive. Currently, the dividend yield of the CSI Dividend Index is close to 6%. In the context of declining risk-free rates, this dividend yield is quite substantial. From a risk perspective, the only risk is, the weighted industries in the CSI Dividend Index - finance and energy - are quite cyclical. These two industries together account for nearly forty percent, because the dividend yield of these two industries is relatively high, thus driving the overall index's dividend yield. Everyone knows that the financial industry is high-leverage, and the energy industry is closely related to product prices, so everyone should also understand - the only risk is the cyclicality of these weighted industries. If we not only look at the CSI Dividend Index, but also select a group of stocks with the highest dividend data in the entire Shanghai and Shenzhen 300, we will find that their dividend yields are still attractive. You will find that the dividend yield of the Shanghai and Shenzhen 300 currently exceeds 3%, meaning that with the current risk-free rate of just over 2%, the dividend yield of the Shanghai and Shenzhen 300 still has a certain attraction. This also confirms that in the context of various shocks in the capital market, investors are more pessimistic, and the risk premium is higher, the overall valuation of the market is indeed lower. Therefore, the third topic, the market's funds are stratified, for large institutionsIn terms of funding, they have a preference for low risk, and their expected returns are also relatively low.If it is a low-risk preference investor, the dividend sector still has attraction. From this perspective, we believe that dividend strategies have performed well in the past two years and are worth looking forward to in the future. The good performance since the beginning of this year also has its rationality. This article is reprinted from the WeChat public account "Liuli Investment Report", GMTEight editor: Xu Wenqiang.