While the market chases current hot topics, Zhang Kun is contemplating and betting on the nation's future trajectory.
On January 22, 2025, Zhang Kun's fourth-quarter report was released on schedule, as consistent and precise as his unwavering investment philosophy.
This quarter's commentary, however, contains notably more fresh insights.
First, this marks the first time in nearly a decade that products managed by Zhang Kun have released commentary with the Shanghai Composite Index above 4100 points. Given the 1000-point rally and highly divergent market performance over the past two years, his views and strategies are drawing significant attention.
Second, this appears to be the first instance where Zhang Kun has publicly addressed AI and theories of an AI bubble. He not only candidly shared his perspective but also applied value investment logic to analyze the performance of certain Chinese enterprises within the AI wave.
Third, it is also rare for Zhang Kun to analyze the future trajectory of key domestic economic elements—such as the overall economy, consumption, and real estate—from the dual perspectives of incremental growth and existing stock. Many of his judgments and discussions are quite novel.
In short, this season's report from Zhang Kun is not to be missed.
Mid-term economic growth will not be low.
Following the market's recovery, institutional sentiment has clearly warmed in early 2025, a view Zhang Kun has consistently maintained, believed in, and reiterated over recent quarters.
His perspective, however, is even longer-term. In this report, Zhang Kun outlines his "macro-level trend forecast" for China's future growth rate and potential.
He stated that according to the national "16th Five-Year Plan," China aims to achieve a per capita GDP level of a medium-developed country by 2035. Even using Latvia—the country with the lowest per capita GDP among developed nations as classified by the IMF in 2024—as a benchmark, the figure is $23,400. Disregarding potential increases in the developed country threshold due to global growth, China's per capita GDP in 2024 was $13,300. To reach this target, the required compound annual growth rate for per capita GDP would be 5.27%, a pace that would evidently exceed the overall global GDP growth rate in the coming years.
Furthermore, Zhang Kun believes that even after achieving this (medium-developed country) goal, it may merely represent one milestone in development. After all, within East Asia, Japan, South Korea, and the Taiwan region of China—societies possessing similar levels of diligence and ingenuity as mainland China—all had per capita GDP figures exceeding $30,000 in 2024.
In other words, he argues that from an incremental perspective, economic growth rates in the coming years will not be low, and the resulting boost to domestic demand and consumption deserves a more optimistic view than the current market consensus.
Price declines in major cities expected to approach an end.
From the perspective of existing stock, Zhang Kun also believes some economic factors may be underestimated.
He mentioned that although domestic consumption has remained weak in recent years, as indicated by metrics like retail sales, consumer confidence indices, and CPI. Among listed companies, those focused primarily on domestic demand have generally faced greater operational pressure compared to those primarily engaged in exports (i.e., catering to consumption or investment in other countries). However, he firmly believes this does not represent a permanent state for the economy.
He posits that the significant downturn in property prices over the past five years has impacted household wealth and balance sheets, leading to increased precautionary savings and accelerated mortgage repayments, which in turn have dampened domestic consumption demand. Nevertheless, he believes that considering the current low risk-free interest rate level, potential policy support, and the decline in new construction starts, the downward trend in property prices within major cities is expected to approach its end.
Consequently, the situation observed in recent years—where incremental wealth created by the public was offset by the decline in existing wealth, reducing consumption willingness—is expected to improve in the future.
Living standards and social security will continue to rise.
Based on the aforementioned factors from both incremental and existing stock perspectives, Zhang Kun believes that over the next decade, there will be a significant improvement in both the actual living standards of the public and the level of social security, with the gap in living standards compared to developed nations narrowing markedly.
Moreover, he firmly believes that the central government will continue to vigorously stimulate consumption, enhance investment efficiency, comprehensively expand domestic demand, implement special campaigns to boost consumption, intensify and broaden the "Two New" policies, and provide stronger support for "Two Major" projects in 2026. Consumption stimulation will be placed in a crucial position within governance.
He also quoted John Maynard Keynes from "The General Theory of Employment, Interest, and Money": Consumption is the sole end and object of all economic activity. Zhang Kun contends that the ultimate purpose of economic activity is to enable the public to lead better lives, with higher-quality consumption being a key manifestation of this.
China has opportunities in AI.
Zhang Kun also unusually shared his views on the AI industry.
He believes that, observed through the current AI wave, a strong domestic market is also a significant catalyst for technological innovation within a country. Powerful demand and profitability can attract global resources, talent, and capital to serve innovation.
Using leading overseas models like GPT and Gemini as examples, he notes these have become essential daily tools for many investors conducting research, with their C-end subscription fees of around $200 per year constituting a significant current revenue stream for these companies.
He confidently addressed the "AI bubble theory," suggesting that in today's environment where the "AI bubble theory" is debated, these tangible subscription revenues play a vital role in bolstering the confidence of model companies in financing and sustaining investment.
By comparison, he mentioned a domestic company he invests in, which also possesses leading foundational model capabilities within China. He suggested that with a stronger consumer environment, subscription revenue and investment in model capabilities could achieve a more positive feedback loop, aiding in closing the gap with globally leading model standards in the future.
The moat remains, and so does the castle.
In the report, Zhang Kun reiterated his strong confidence in the business models, competitive barriers, and cash flow generation capabilities of the companies in his portfolio.
He addressed the growing concern among investors regarding whether "the moat remains, but is the castle still there?" for the stocks they hold. He believes that for his major holdings, the "castle" remains firmly in place.
Zhang Kun also expressed that, given China's endowments, its progression towards becoming a developed country is not unexpected. Difficulties are merely temporary, and an increasing number of citizens will enjoy better lives. The market's current pricing has made some high-quality companies appear very attractive even from a privatization standpoint, presenting excellent opportunities for long-term investors.
Increased allocation to baijiu, emphasis on high-quality tech stocks.
Perhaps due to his confidence in core holdings, Zhang Kun maintained an "ultra-stable" portfolio and major holding structure during the fourth quarter of last year.
The major holdings in his purely domestic-focused E Fund Blue Chip and E Fund Quality Life Three-Year funds remained unchanged—a rare occurrence.
Specifically (using E Fund Blue Chip as an example), the quarter saw increased allocations to Tencent, Kweichow Moutai, Wuliangye, Fenjiu, Yum China, and CNOOC. Allocations were reduced in Alibaba, Luzhou Laojiao, JD Health, and Focus Media (see chart below).
In his managed QDII funds, similar trends were unmistakably evident this quarter: increased positions in baijiu and maintained positions in domestic AI stocks.
The market carries risks, and investment requires caution. This article does not constitute personal investment advice, nor does it consider the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Investments made based on this information are at the investor's own risk.
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