With the deepening reform of the capital market, the structure of A-share investors is gradually changing to institutionalization, and the shareholding ratio of institutional investors, especially public funds, has steadily increased, reaching the highest level in nearly six years in the first quarter of this year.
A number of fund industry people said that A-share institutionalization is an important feature of Chinas capital market towards maturity, which is of great benefit to the effective pricing of the market, optimization of resource allocation, stability of the financial market, etc. in the future, we can continue to improve institutional investors performance by promoting long-term funds such as pensions, improving the investment and research capacity of asset management institutions, expanding the opening up of the capital market, etc Market discourse power.
Market value of public offering shares in the first quarter: 2.5 trillion yuan
The trend of A-share institutionalization is obvious
According to the data, the market value of shares held by the institution in 2019 reached 30.5 trillion yuan, an increase of 31.2% over the end of 2018. Among them, the public fund is 2.4 trillion yuan, an increase of 64% over the end of 2018; the social security fund and insurance institutions are 378.2 billion yuan and 1.5 trillion yuan, an increase of 95% and 54% over the same period last year. From the end of 2017 to the first quarter of 2020, the proportion of public funds in the market value of A-share circulation has exceeded 2.5 trillion, which has also increased from 3.89% to 5.58%, reaching the highest level since 2014.
In view of the general trend of A-share institutionalization, Chen Wenyu, deputy general manager of Jingshun Great Wall, believes that A-share institutionalization is the only way for the capital market to become effective, and the mature overseas market has gone through a similar process. In his opinion, the function of capital market is to allocate capital reasonably and efficiently. Only through the specific investment of professional investors of all kinds of assets and meeting the investment objectives of all kinds of funds in different periods, can the reasonable and efficient function of capital market be finally embodied.
A senior analyst of Shanghai Securities said that with the increase of institutional shareholding ratio, the pricing of a shares will become more and more effective, and more funds will flow to high-quality stocks to promote the optimal allocation of resources in the whole market.
Investment Promotion Fund also said that capital is the most important direct investment factor in the capital market. Only in the hands of professionals, can capital get the most efficient and optimal application. Institutional investors, especially public funds, can greatly promote the survival of the fittest in the capital market, which is very necessary to establish a healthy and excellent capital ecology.
In addition to improving the effectiveness of market pricing and optimizing the allocation of resources, the analysis of a number of market participants and the promotion of institutional voice are of great benefit to reduce market volatility, cope with financial risks and tap market value.
Pu Yan, managing director of vanguard and head of Chinas investment management department, said that from the perspective of reducing market volatility, institutional investors with a higher proportion of a shares would abide by the investment discipline based on objectives, risk control and long-term investment, which would help to improve investor behavior and maintain the stability of the capital market; on the other hand, institutional investors such as pension, insurance companies and public offering will invest time With a long span, we can study market risk and return from a longer perspective. In the extreme market, they are usually reverse investors and become an important force to stabilize the market.
Wei Fengchun, chief macro strategy analyst of Boshi fund, believes that A-share institutionalization is an inevitable trend. Institutionalization not only can effectively weaken the investment risk of individual investors, but also has important value for the prevention and resolution of the overall financial risk of the country. At the same time of Chinas opening up, the retail market can not meet the external impact, and the institutionalization can reduce the market volatility to a certain extent.
In terms of market value guidance, Su Changjing, head of quantitative investment department of Hongde fund, analyzed the trend of specialization and institutionalization of market participants, which made the concept of value investment popularized, which was conducive to improving the valuation of competitive companies and reducing the cost of equity financing of excellent companies.
Lin Qingyuan, manager of the three power fund of financing transformation, also said that the increase of institutional shareholding ratio plays a positive role in stabilizing the market and improving the ability of mining market value. For example, taking emerging industries such as semiconductors and innovative drugs as examples, the threshold for retail investors to participate in investment is relatively high, while institutional investors will do more in-depth research and comparison on different companies in emerging industries, and will guide funds to focus on excellent leading companies, so as to realize the optimal allocation of market resources.
Taking multiple measures at the same time
Suggestions from asset management organizations to improve the institutionalization of A-share
In recent years, with the influx of foreign capital and the investment of ordinary investors through professional institutions, the institutionalization trend of A-share market is more and more obvious.
According to China Southern Fund, from the developed capital market, it can be found that the proportion of market value held by individual investors in the United States, Japan, Hong Kong, UK and other markets is less than 10%, and the proportion of UK individual investors is even less than 3%, which shows that the mature capital market is more institutional. In contrast, compared with the international mature capital market, A-share is far from institutionalized.
According to the data of Tianfeng Securities Research Institute, by the end of the first quarter of 2020, institutional shareholding accounts for 15.99% of the total a circulation market value, among which financial institutions account for 15.04%, which is still far behind the institutionalization level of mature markets.
In Chens view, institutionalization refers not only to the investment of public funds in the stock and bond market, but also to the investment of social security, annuity and insurance institutions. It should also include more types of investment advisers to help individual investment through asset allocation. From this point of view, there is still much room for the institutionalization of Chinas capital market, and there is an urgent need to actively develop investment advisers and improve the asset allocation function.
In Wei Fengchuns view, the core driving force of the institutionalization process of American stock market is the entry of pension into the market. By allocating mutual funds, pension not only improves the institutionalization and specialization of the stock market, but also indirectly promotes the development of mutual funds, especially the prosperity of instrument allocation funds. With reference to the institutionalization process of American stock market, China should also vigorously enrich asset allocation type public funds and public funds that meet the needs of the elderly. By integrating them into the elderly care system, we can greatly guide the A-share investment concept to be rational and mature.
In addition to the pension market, some institutions focus more on the internal investment and research capacity of institutional investors, and the external capital market continues to expand and open.
South Fund said that to maintain the attractiveness of institutional funds to individual investors, it is necessary to make institutional investment income represented by public offering outperform individual investors and constantly improve its investment and research ability through the construction of its own investment and research team, investment and research cooperation and exchange, and focus on advantageous fields, etc.; on the other hand, international long-term institutional funds prefer value investment and continue to expand The opening level of Chinas financial market and attracting more institutional capital from mature capital market into A-share market are also conducive to improving the level of A-share institutionalization.
In addition, the continuous improvement of A-share market mechanism and investment environment is also a major factor in promoting the proportion of institutionalization.
Nord Fund said that institutional investors should further become the market subject of value discovery and strengthen the main position of market-oriented resource allocation of institutional investors. As for the Listing Rules of A-share market, we should improve the supply of listing targets, steadily promote the reform of registration system, and strictly supervise the information disclosure of listed companies. At the same time, further improve the long-term and innovative nature of institutional investors in product creation, and enhance their attention to the long-term return stability of investment.
The senior analyst of Shanghai Securities also said that the mechanism of registration system, t + 0, no increase or decrease and other mature markets requires higher ability for investors to identify the advantages and disadvantages of enterprises, which is one of the reasons for the high proportion of overseas institutions.
China Merchants Fund also suggests that in order to increase the proportion of medium and long-term institutional investors, first, we should vigorously guide insurance, pension and other funds into the market; second, we should continue to crack down on market manipulation and insider trading, and strictly check the abnormal volatility of stocks; third, we should formulate effective incentive and assessment mechanisms, and strengthen the assessment of long-term yield and volatility; fourth, we should emphasize the implementation of market-oriented assessment, and pay attention to the establishment of training The corporate culture and industry culture of long-term investment and value investment are highly respected.
Focus on the leader and turnover decline
In the past two years, the A-share market has changed significantly, especially in trading concentrated in leading stocks and turnover rate down in stages. These changes are highlighted from both the statistical data and the intuitive feelings of investors. The reporter of China Fund News interviewed many experts in the industry and found that the trend of A-share institutionalization and more rational market is the inevitable result of more professional and stable development of capital market.
Focus on the leader reflects value investment
Since 2018, a significant feeling of each A-share participant is that leading shares have become the focus of the market. The data also shows that in 2018 and 2019, 1% of a shares accounted for 15% and 13% of the total market volume, which is the highest level in recent 10 years; in 2018 and 2019, 30% of a shares accounted for about 6% of the total market volume, which is also the lowest in recent 10 years.
Lin Qingyuan, manager of three power fund of financing transformation, also believes that the whole world is moving towards concentration, and all industries are also moving towards concentration. Excellent leading companies have better talents, better management system and lower cost under the scale effect. The leading companies in the overseas market also have a long-term premium. In addition, there is a market-oriented delisting mechanism in the overseas market, so the small companies are more and more not favored by the market. In addition, from the perspective of historical recovery, growth is scarce. Only less than 3% of small and medium-sized companies can grow into large companies. With the opening of registration system and the improvement of delisting mechanism, the enthusiasm for investment in leading companies will continue.
Investment promotion fund is more straightforward. It is an inevitable phenomenon in the implementation of the value investment concept that the transaction is concentrated to the leader. In essence, it is because, in the market competition environment, the final result of any industry will tend to be strong and concentrated. In the market competition environment, there are a few excellent and long-term good companies. Therefore, the trend of the overall concentration of trading volume is continuously strengthened in a technological innovation cycle, which is also conducive to the development of the capital market. Survival of the fittest is a necessary condition to ensure the health and strength of the ecosystem.
This is related to the ecological environment of the whole market. In the past, the trading volume of many bad stocks and small stocks was very active because of the high degree of speculation in the market. In overseas mature markets, the liquidity of small stocks is relatively poor, while that of large companies is relatively good. Su Changjing, head of Hongde fund quantitative investment department, said.
Market trading volume is influenced by many factors, including short-term liquidity demand, risk appetite and investment opportunities. The increase of institutional investors makes it reasonable for leading companies to be concerned to some extent, and there are great differences in pricing and trading volume between leading and non leading companies in overseas mature markets. Chen Wenyu, vice general manager of Jingshun Great Wall, also believes that the relative increase of trading volume is the process of market seeking reasonable pricing, the result of changes in investors opinions on the companys shares, and the embodiment of deepening differences.
In the long run, it is conducive to A-share market going out of slow bull market based on economic development trend. At the same time, for institutions, due to the unbalanced distribution of investment and research resources, the advantageous resources will also incline to the head institutions, and both the market and institutions will develop in a more professional and effective direction. The Fund said.
Institutional boost turnover down
With the advancement of market institutionalization, the turnover rate of the market presents a downward trend. The data shows that the average turnover rate of the whole market in 2018 is at a low level since 2014, while from 2019 to 2020, with the increase of market activity, the turnover rate slightly increased, but the turnover center in 2019 is significantly lower than that in 2016 or even 2017.
Why has the turnover rate declined in the past two years? Wei Fengchun, chief macro strategy analyst of Boshi fund, said with data, from the perspective of the distribution of stock market value, the proportion of natural persons stock ownership has been declining since 2008, and the proportion of professional institutions stock market value is about 16%. In terms of the proportion of turnover, the upward trend of the proportion of turnover does not change. Compared with retail investors, institutional investors investment decisions are more rational and prudent, and there are strict risk control and compliance restrictions in the trading procedures. Therefore, the turnover rate of institutional investors will be significantly lower than that of retail investors. In the case that the proportion of fund turnover continues to rise, and now accounts for 10% of the turnover, the decline of A-share turnover rate is an inevitable result.
Regarding the investors participating in A-share as a whole, the downward turnover rate means that the overall risk preference of the fund is declining, and the pursuit of high-risk and high volatility investment strategy is constantly cooling down. Under the current situation of global economic slowdown and Chinas economic slowdown, the era of pursuing high-yield and high volatility has passed. It is a rational trend to reduce the expectation of return on investment and increase the ratio of risk to return on investment. Wei Fengchun said.
Southern Fund also said that the continuous decline in turnover rate means that the market trading frequency has declined, and the market as a whole is in a relatively rational state, without overheating. With the deepening of the institutionalization of A-share market, the proportion of retail investors may begin to decline, while institutional funds are mainly medium and long-term funds, and the frequency of transactions is declining, which also leads to the decline of the overall turnover center of the market in 2019.
Pu Yanze, managing director of vanguard and head of Chinas investment management department, said that about 80% of the funds return comes from good asset allocation and securities selection. Therefore, fund managers pay more attention to asset allocation and securities selection than frequent trading. Higher turnover will mean higher transaction costs and lower fund returns. If the transaction cost is taken as an important consideration in the transaction decision-making, the criteria for choosing the right securities to trade will be higher, that is, the turnover rate will be reduced.
Zhang Yingjun, general manager of the investment department of podao public funds, also believes that compared with individual investors, institutions generally tend to be more rational in their investment, which is based on the basic logic to price stocks and make investment decisions and transactions. On the other hand, when the proportion of institutions in the market reaches a certain stage, the so-called leek cutting behavior in the past will be more and more reduced, which will lead to the decline of turnover rate in the market.
When it comes to the impact of periodic decline in turnover rate, many fund companies interviewed said frankly that the periodic decline in turnover rate reflects a decline in market speculation, a more rational market, a sign that the market is gradually maturing, and a way for institutional investors to make profits.
Lin Qingyuan, manager of the three power fund of financing transformation, said that the decline in turnover rate means that the A-share market is moving towards a mature era for institutional investors. To buy stocks is to buy a company and benefit from the growth of the company, which is the way for institutional investors to make profits. Frequent buying and selling is definitely not in line with the value of investment.
Historical experience shows that with the improvement of market institutionalization, the turnover rate will continue to fluctuate until it fluctuates within a relatively stable range, which is mainly related to the investment concept and trading behavior of institutional investors. With the increase of the proportion of institutions, generally speaking, the turnover rate of the market will show a downward trend. China Merchants Fund said that the decline in turnover rate is the inevitable result of more professional and stable development of the capital market, which is a benign decline.
Data shows that by the end of last year, in terms of allocation style, institutional investors were mainly value-based and value growth oriented, of which, fund companies accounted for about 60% of the allocation of value-based and value growth oriented stocks; national social security investment value-based and value growth oriented stocks accounted for 70-80%; insurance institutions gradually changed from value-based and growth value-based to value-based and value-based Long term investment, accounting for nearly 90% in total.
At the beginning of this century, the speculative atmosphere of the stock market gradually declined, and the institutional strength began to rise.
In fact, regardless of growth or value, institutional investors are more willing to define value investment from the perspective of corporate performance return. According to Su Changjing, head of quantitative investment department of Hongde fund, under the concept of value investment, there is no distinction between value stocks and growth stocks. Value and growth are not contradictory. In terms of enterprise value, they are the discount of future cash flow at present. The so-called value share, in fact, takes the current low valuation as the standard, but from the perspective of absolute valuation, it just means that the current profit and discounted cash flow of value share account for a large proportion, with a high degree of certainty; while the growth share, with a large proportion of discounted cash flow in the future, implies a higher value in the future. But in its view, there is no difference between value and growth. Its just a question of whether there is investment value from the perspective of absolute valuation.
Value biased investors usually pay more attention to the present value and short-term certainty, while growth style investors pay more attention to the discount of future cash flow, said Su. Institutions do this more by considering the value at the portfolio level, while institutional investors in the conventional sense of listing places understand that they are more value oriented, more growth oriented, or depending on which aspect fund companies and fund managers are better at in investment. Some fund managers are better at grasping the forward value of some industries or stocks, so they are actually good at growing stocks. If they have no ability to judge the future uncertainty, they can only invest some short-term certainty from the perspective of reducing portfolio investment risk, which is partial value from the perspective of portfolio style. I think this is more a comparison of risk and return s problem.
According to Chen Wenyu, vice general manager of Jingshun Great Wall, from the perspective of investment style, in the development stage of Chinas capital market, both active investment and passive investment have great development space. In the field of active investment, there is also a period of blooming and contending. As long as all kinds of investment styles can analyze and find out the pricing errors of the market on the basis of fundamentals, and make reasonable investment decisions on risks and returns, they can get good excess returns in the market, and do not need to stick to the division of value growth. Similarly, if too many assets flow into a certain type of asset, making its price deviate from the reasonable pricing of fundamentals and risks, it will create good investment opportunities for smart investors in the next stage.
Most of the time, public funds are from the perspective of relative income, while insurance and social security are more from the perspective of absolute income. But in the long run, growth and value are unified from the perspective of creating profits for shareholders by excellent companies. Lin Qingyuan, manager of the three power fund for financing transformation, also expressed similar views.
According to Zhang Yingjun, general manager of the investment department of podao public funds, the market investment style cannot be completely determined by the preference of the institution. The market style mainly depends on two factors: one is the current economic development stage of the market; the other is the industry cycle and enterprise development stage of the A-share high-quality company itself, which determines the investment opportunities. When this kind of investment opportunity ratio If it is bigger, it will attract more investors and form a market style.
At present, Chinas economic growth rate is around 6%, which is still the highest among the worlds major economies. Secondly, Chinas economy is undergoing structural upgrading, especially in some emerging industries, with a high growth space. Therefore, in the future, such industries and companies will provide greater investment opportunities. Zhang Yingjun said.
More attention paid to the leading companies in subdivisions
Leading companies often represent a clear business model, leading competitive position, healthy financial situation, excellent management team, and standardized information disclosure. All of these characteristics will be more easily favored by institutional funds. Nord fund further analysis.
The nature of institutions preference for large cap positions is still their preference for industry leaders. Wei Fengchun, chief macro strategy analyst of Boshi fund, believes that leading companies in the industry will be better than other companies in the same industry in terms of fundamentals and have comparative advantages in terms of profit stability and dividend distribution, which will inevitably become the preference of long-term investors. Especially for the insurance fund, its long-term investment attribute is the most obvious. The preference of insurance fund for the leading companies with low value and high dividend is not its long-term allocation preference, not the situation that emerged in recent two years.
Southern Fund also agreed that in the process of economic downturn, the strengthening of Matthew effect in the industry is expected to further attract funds and resources to the leading individual stocks. Big cap stocks have a bigger advantage in defending against risk, according to China Southern Fund. Therefore, in the future, the trend of maintaining or slightly increasing the proportion of individual stocks with large and medium market value is expected to continue.
For A-share, the increase of institutional capital shareholding ratio has gradually changed the trading style of the market. Before that, the A-share dominated by retail investors preferred small cap stocks with larger flexibility, which led to greater market volatility. As institutional capital continues to increase the shareholding ratio of individual stocks in large and medium-sized market, the market volatility is expected to gradually decline, and the trend of A-share market is expected to be relatively more stable.
Source: responsible editor of China Fund News: Ren Hui, nbj9607