Investor confidence was boosted by the sharp rebound of A-share stocks in early 2023. Once shrouded by sticky pessimism, growth stocks now rally and actively respond to domestic policy support.
"Concerns over the pandemic and overseas markets are subsiding. Pricing is returning to fundamental-based, less dragged by negative market sentiment. Valuations of consumer stocks and Hong Kong technology stocks fluctuate near historical averages. And industry leaders are significantly undervalued. In the medium-to-long term, we see more opportunities than risks.” Commented by Wu Yuanyi, portfolio manager in the Growth Investment Department of GF Fund. In his eyes, solar PVs, energy storage, and electric vehicles are three promising sectors that deserve the market’s attention.
Q: Before joining GF Fund, you worked in securities firms, QFII investment companies, insurers, and fund houses. How have these experiences shaped your investment philosophy?
Wu Yuanyi: I started as an equity research analyst covering consumer staple stocks. After joining a foreign-funded institution, I gradually developed a cross-market and international research vision. During these 11 years of working in the industry, I expanded my competence and formed a bottom-up stock-picking style.
For the bottom-up tactic, I first try to understand the industry leaders, then explore the entire industry through the financial gauges of its players. Then we make decisions on our positions based on our findings and the macro environment.
Our strategies tend to start from micro observations and often have a low reliance on macro events and market timing. For instance, we refrain from predicting the developments of the pandemic, the Ukraine crisis, and U.S. inflation to make our decisions. We observe, we interpret, but we do not predict.
Q: What types of stocks will you consider buying?
Wu Yuanyi: For our portfolio, I hope we can include companies that lead the changes and have rapid growth. These companies often make a non-linearly growth in profits. For example, it often takes two or three years for a company to go from 0 to 1, but it only takes one or two years for it to go from 1 to n. I invest in the stage from 1 to n. For example, electric vehicles are subsidized, 0 to 1. But now people buy more EVs as they are cheaper, more liable, and have higher qualities, 1 to n.
In recent years, the cycle of industrial transformations in explosive consumer fields are shorter, including EVs, the Internet, and live streaming. And the profit and business cycles are also more violent. The non-linear growth is more obvious than before. After years of R&D, investment, and precipitation, fields such as semiconductors and innovative medicines also have very good perspectives.
As seen in the numbers, I buy two types of companies: growth stocks and cyclical stocks. For growth stocks, they are mainly companies that have a substantial breakthrough as industry penetration grows from 3% to 30%. For cyclical stocks, we favor companies that try to capture the changes in supply and demand.
Q: An example of finding the non-linear growth opportunity in the consumer sector?
Wu Yuanyi: Every year we observe new changes in the consumer segments. Most innovations are transmitted from high-tier to low-tier cities. From first-tier cities to second and third-tier cities, the trend gradually expands and then lasts for a long period. After spotting these trends, you search for companies that have businesses in these areas and then assess their quality and growth rates. For example, I spotted a company that produces outdoor equipment like camping tents, as I noticed more people around me are traveling around with tents.
Q: In 2023, how do you see investment opportunities in the growth sector, after its lackluster performance in the past year?
Wu Yuanyi: 2022 was a difficult year for growth investors. The market stopped betting on industry growth, but priced assets more on policy expectations. Only energy storage has achieved positive returns in the past year and is expected to continue its performance in 2023.
Pricing is returning to fundamental-based, less dragged by market sentiment. Valuations of consumer stocks and Hong Kong technology stocks fluctuate near historical averages. But industry leaders are undervalued. In the medium-to-long term, we see opportunities more than risks. It is time to embrace industry changes and walk with great companies.
Q: From a longer horizon, where will you invest in?
Wu Yuanyi: Energy revolution. The world is transforming from fossil energy to sustainable energy. Chinese manufacturers are in the right position to seize the opportunity. Over the years, they are moving up on the value chain and now lead technological advances, especially in solar PVs, batteries, and automobiles. 
The government’s support of corporate R&D, as well as its protection over intellectual property rights, have created a friendly environment for innovations. We will see technological upgrades continue, improving efficiency and driving down costs.
Q: Which industries are you optimistic about in the future?
Wu Yuanyi: Three main focuses:
1. Solar PVs. Starting from the end of 2022, the price of silicon materials has reached an inflection point, marking the official arrival of the era of photovoltaic parity in China. 2023 will be a big year for domestic installations, and the construction of large bases is expected to usher in rapid development in 2023.
2. Energy storage and power grid. With the continuous deepening of the transition from traditional energy to new energy, energy storage, and power grid construction are indispensable links. As PV now costs less, new demands will arise in energy storage. Now the penetration of energy storage in China is still low, leaving a lot of room for improvement in the future.
3. The auto industry. The auto industry is going through a transition from mechanical to electronic products. China has a solid foundation in the auto industry and its auto manufacturing has advanced from a follower to a leader, with disruptive brands and products emerging. Soon we expect domestic automobile brands to go global.

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