A-shares commenced post-holiday trading on a positive note, buoyed by consecutive rallies in U.S. stocks during the break. Overnight, U.S. markets closed higher across the board, with the three major indices all posting gains; the Nasdaq and S&P 500 indices reached new record closing highs. Concurrently, while the Middle East situation remains complex, the potential gradual reopening of the Strait of Hormuz suggests a possible easing of tensions, significantly boosting investor confidence. The post-holiday rise in A-shares, particularly the sharp gains in the STAR and ChiNext indices, has markedly improved market profitability. Sectors like memory chips led the advance, driving a broad market recovery. The strong start for A-shares in May is an encouraging signal, reflecting a gradual restoration of investor confidence.
During the Labor Day holiday, I attended the Berkshire Hathaway Annual Shareholders Meeting in the U.S. for the eighth time. Although Warren Buffett did not deliver a formal speech this year, which was slightly regrettable, he offered crucial insights during his opening remarks and an interview with the moderator. My repeated attendance at this event aims to reinforce for investors that value investing is the cornerstone of long-term investment success, hoping these principles take root and flourish in the A-share market. Encouragingly, a growing number of investors are beginning to focus on value investing.
In his comments, Buffett emphasized several key points. Regarding succession, he stated that the decision announced at last year's meeting to retire at year-end and appoint Greg Abel as the new CEO has been entirely successful. Abel has not only managed all his responsibilities but has often exceeded expectations. Buffett expressed gratitude to Tim Cook for attending, noting that Cook's succession of Steve Jobs as CEO of Apple over a decade ago has generated over $150 billion in profits for Berkshire Hathaway—a humorous remark acknowledging that Cook has arguably made more money for Berkshire shareholders than Buffett himself, which drew warm applause from the audience. On the investment environment, Buffett cautioned that the current climate is not ideal for deployment due to high U.S. stock valuations and a lack of attractively priced opportunities. With Berkshire holding nearly $400 billion in cash, he waits for significant market declines to invest, avoiding chasing highs—a consistent strategy that has helped him navigate past market crashes. The recent surge in U.S. stocks and the expanding AI tech bubble have made Buffett more cautious; he likened the current market to a casino operating next to a church, where speculative fervor is high and many exhibit a gambling mentality. While some value investors might be tempted to speculate, Buffett believes value investing will ultimately be vindicated. On inflation, he admitted that large-scale, uncontrolled inflation is challenging to counter fully. He remains vigilant about moderate current inflation but not panicked, stressing the importance of selecting quality businesses and maintaining cash buffers to handle uncertainty. He also underscored that the primary principle for shareholders and partners should be to "treat others as you would like to be treated," the well-known golden rule.
Greg Abel addressed numerous investor queries but approached them more from a fund manager's perspective, focusing on company roadshow details rather than the philosophical elevation characteristic of Buffett. Abel stated that Berkshire would not pursue AI for its own sake; AI must add tangible value to operations. Several business units within the company are already applying AI technology and are engaged in large-scale hiring of engineers and technical staff. The meeting even featured an AI-generated video of Buffett posing a question to Abel, intended to highlight the cybersecurity risks driven by AI that Berkshire faces. In terms of investment management, Berkshire's key holdings remain traditional blue chips like American Express, Apple, Bank of America, Moody's, and Coca-Cola, with significant stakes in Japanese trading houses forming a crucial pillar of the portfolio. These conservative holdings reflect Buffett's characteristic prudence. Although Buffett has stepped down as CEO, he remains Chairman and continues to work daily, providing strategic guidance to Abel. However, the "Buffett premium" has gradually diminished since his departure. From my observation last May that Buffett's announcement of his CEO retirement marked Berkshire's peak—potentially leading to significant underperformance against the S&P 500—the stock has since trailed the index by approximately 40 percentage points, and by over 10 percentage points year-to-date. This perhaps indicates investors' strong attachment to the legendary investor.
After the Berkshire Hathaway meeting, I traveled to New York to engage with Wall Street financial institutions, exchanging views with international firms like Bloomberg and Morgan Stanley on foreign capital's perspective towards the Chinese market. Overall, foreign investors hold a positive outlook on Chinese assets, particularly noting that A-share and Hong Kong stock valuations are among the lowest in global capital markets, presenting a significant valuation advantage compared to U.S. stocks. Previously, many hedge funds had low allocations to Chinese assets. With Morgan Stanley recommending an overweight stance, increasing allocations to renminbi-denominated assets has become a key strategy for numerous foreign investors. Regarding the valuation bubble in U.S. stocks, opinions among foreign investors are divided: some believe the AI tech bubble could continue expanding with no signs of imminent bursting, while others fear an accelerated inflation of the bubble that could pop at any time. Buffett once humorously compared a major bull market to a party where everyone enjoys fine drinks, good food, and dancing, knowing that after midnight, everything turns into mice and pumpkins, but with no clock in the room to indicate the time. In discussions with Morgan Stanley representatives, they wryly noted that since the timing is uncertain, it's best to dance near the exit. This reflects varied approaches among institutions: preparing to significantly reduce positions to guard against a bubble burst while fearing missing out on further rallies and underperforming the Nasdaq. This conflicting psychology captures the sentiment of many investors. Increasing allocations to emerging markets like China is a relatively clear strategy, offering some protection against the risk of a bubble burst. Of course, if U.S. stock bubbles pop, A-shares and Hong Kong stocks could face short-term pressure; investors observing a major U.S. market decline might adjust positions for safety. However, given the low positioning of A-shares and Hong Kong stocks, coupled with policy support and the ongoing shift of household savings into equities, the potential for a sustained bull market remains. After short-term adjustments, these markets may chart an independent course. The market is gradually stabilizing above the 4100-point mark, with an upward trend forming. Investors should maintain confidence and patience to capitalize on the current market opportunities.
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