June 3rd, Hong Hao, Chief Economist of Think Tank Group, gave a forecast for the economy and the market in 2024 at the Wind Summer Strategy Conference. Hong Hao stated that although the economic cycle has its ups and downs, the regularity of a 3-4 year short economic cycle is still valid. The trend of capital outflow is beginning to converge, the exchange rate of the RMB is stabilizing, domestic demand seems to be recovering, and although the real estate market appears sluggish, policy turning points have emerged. Some marginal pricing factors in the stock market are slowly improving, so there is no need to be too pessimistic. Hong Hao pointed out that a better and more direct expression of the improving Chinese market is the rise in prices of precious metals and commodities. The recovery of the cycle has led to a strong market trend for these assets which are very sensitive to cyclical and liquidity factors. Hong Hao believes that various signs indicate that market investments are returning to fundamentals. Since mid-April, A shares and Hong Kong stocks have been leading global markets. Before April, they were lagging behind most major markets globally, so this is a significant change. Prior to the Chinese New Year, the sharp decline in the market was mainly due to structural reasons, with no significant changes in fundamentals. In the upcoming presentation, one will see that the fundamentals actually began to improve in the first quarter of this year. Recently, a series of macroeconomic data has started to reflect changes in fundamentals. For example, the Caixin PMI, particularly offshore markets like Hong Kong, the exchange rate of the RMB, and the trends in metals, all indicate that the market is gradually returning to a fundamental-based analysis system. On June 3rd, the performance of Hong Kong stocks was strong, with a rebound of over 2%, and risk assets also experienced varying degrees of rebound. Last week, the official PMI data once again fell into a contraction zone, below 50. This resulted in weak performances in industrial metals like copper and Hong Kong stocks. These signs indicate a willingness in the market to return to fundamental analysis, rather than pure speculation based on emotions and funds, for investment purposes. Therefore, I feel that this is a healthier market environment, where investors are starting to focus on fundamentals when making investment decisions. Hong Hao believes that there is an inflection point in real estate policy. The recent warm breeze in a series of real estate policies indicates that policies have begun to focus on the most challenging area of the Chinese economy, which is the real estate market. The current cycle of recovery in the real estate market has been quite challenging. After reaching its peak in 2021, the market has experienced a downward trend for three years, with a 27% drop in existing home sales, almost reaching 30%. Additionally, data shows that real estate sales in first-tier cities have reached the second lowest level in history, only slightly higher than during the epidemic period, which is significant. In this inflection point, with policy support or the perception that real estate policy has reached an inflection point. Whether real estate sales and the real estate industry itself have entered an inflection point remains to be seen, but at least real estate policy has entered a turning point. Since 2016, the policy of "houses are for living, not for speculation" has now started to see modifications. Hong Hao points out that domestic demand in China seems to be recovering. Several proxy indicators can be used to assess the current state of domestic demand in China. After the first quarter, indicators such as Chinese imports, as a proxy for domestic demand, have been showing signs of recovery, and there are clear signs of recovery in the entire service industry. The recovery of imports and the service industry in China are consistent in terms of data. Secondly, looking at land sales revenue, which hit a low point in 2022, and after hitting a second low point in the second half of 2023, has also started to recover as the downward trend in land sales revenue is converging. The recovery of imports as a proxy for domestic demand and the convergence of the downward trend in land sales revenue are positive signs. The most straightforward indicator is the yield on the ten-year government bond, which continues to hit new lows, indicating that investors are buying up these bonds. This shows that when the outlook is uncertain, investors feel uncertain about synchronous indicators, even though leading indicators have shown some level of improvement. Hence, they buy government bonds as a safe investment. Hong Hao states that foreign capital is not as lacking in confidence as commonly believed. Capital flows have been interesting. By the fourth quarter of 2023 and the first quarter of 2024, after hitting a low point during the Chinese New Year, capital flows have begun to stabilize, coinciding with a rebound in the Hang Seng Index. Therefore, it is interesting to note that although it is commonly believed that foreign investors lack confidence in China and capital flows out, on the margin, it can be seen that the trend of capital outflows is slowing down and converging. Foreign investors may not lack confidence as much as commonly thought. So why aren't they buying yet? If real estate policies are reaching an inflection point, and the Chinese stock market is very cheap, with the Hong Kong market at a P/E ratio of 8-9 times and the A-share market at historical lows in terms of P/E ratio. In addition, the stabilization of the RMB exchange rate has also been noted. So where are the opportunities this year? Hong Hao believes that the opportunities in China may not be in strong stock performance, but rather in assets related to China. These discussions have emphasized fundamentals, such as exchange rates, interest rates, exports, economic cycles, real estate policies, etc. One point that must be emphasized is that improvements are being made at the margin, which is the primary reason for this recent market trend. It is the actual improvement of fundamentals that is driving this market movement, rather than emotional speculation or liquidity factors. Given that all these factors are in place, why aren't Chinese stocks rising? This is the most frustrating question for many. Funding is not lacking, with 30 trillion RMB in deposits, markets are very cheap with P/E ratios of only nine times, and market sentiment reached an extreme low following the quantitative matrix before the Chinese New Year, followed by a recovery. So, with everything in place, why aren't Chinese stocks rising? The main reason for this isBenefits are in commodities and bitcoin. The most significant representation in commodities is in precious metals such as gold and silver, as well as industrial metals like copper, aluminum, nickel, and iron, all of which have seen significant double-digit price increases.The characteristics of these asset classes, such as industrial metals, are the main inputs for the repair of the fundamentals of China's manufacturing industry. So whether it is for producing new energy vehicles, carrying out infrastructure construction, or real estate development, a large amount of copper, aluminum, and nickel are needed. In the past real estate cycles, if such a cycle stumbled, copper would have been out of the picture long ago, there would be no need to consider it. Since the beginning of this year, copper has been one of the best performing industrial metals, while precious metals like gold and silver have shown varying degrees of performance. Chinese people have 30 trillion yuan in savings in banks, and they need to find a place to invest. If you don't want to buy property and are not interested in buying stocks, you may buy a lot of bonds. But you can't just buy bonds. Out of a need for hedging, some people buy gold and silver. Of course, silver has some industrial properties, such as being needed for new energy vehicles. However, simply tying the performance of silver to how well China's new energy vehicles are doing is not justifiable. Therefore, the opportunity in China may not necessarily lie in the strength of stocks, but rather in the strength of asset classes related to China.