This year's return is 71%. He Fangzhou: The core logic behind this round of gold price increase is the weakening of the US dollar. The gold bull market will continue, at least rising until next year and the year after

Recently, He Fangzhou from WanJia Fund made judgments on the medium and long-term trends of non-ferrous metals, especially gold, in the live broadcast room of China Securities Journal ETF Point Gold.

The investment representative summarized the key points as follows:

1. From the perspective of long-term narrative logic, liquidity support, and macro background, we believe that the non-ferrous metal market is far from over; it is likely only in the initial stage and has not yet reached the halfway point.

2. The strength of gold can be said to have started this year or even last year, and I believe the major logic for the next two to three years will not change. Interest rate cuts are merely a catalytic factor, not the core; the core remains the weakening of the US dollar's credit, which is the central logic behind this round of gold price increases.

3. The upward cycle of gold has not yet ended, at least until next year or even the year after. The narrative logic of central bank gold purchases and de-dollarization will still be a medium to long-term theme in the future.

4. Copper resources are not significantly overvalued. At this point, I believe that non-ferrous metals, especially industrial non-ferrous metals, are more driven by the narrative of copper. Other metals may gain market attention and allocation due to the increased consumption of copper resources.

He Fangzhou has 9 years of experience in the securities industry and less than 2 years of experience in fund management. He joined WanJia Fund in June 2022 and is currently the fund manager of the quantitative investment department, having previously served as an assistant fund manager in the same department. He has also worked as an operations manager at Huatai-PineBridge Fund and a researcher in the index and futures investment department at Da Cheng Fund Management. The total asset scale of the fund he manages is 7.718 billion yuan.

The WanJia CSI Hong Kong Stock Connect Innovative Drug ETF he manages has performed remarkably well. In the performance ranking of public funds for the first three quarters, this fund ranked 14th with a return rate of 114.01%.

With market fluctuations, the fund's gains have undergone normal adjustments. As of October 21, its year-to-date increase was 92.97%, still making it the top performer among 3,416 similar products.

The following chart shows the performance of the fund at various stages:

It is worth noting the changes in the fund's management. On June 25 of this year, He Fangzhou was appointed as a fund manager, co-managing with Yang Kun; after a short three-month co-management, the fund officially dismissed Yang Kun on September 26, with He Fangzhou taking sole control The three non-ferrous ETF funds managed by him have also performed excellently. As of October 21, within approximately 353 days of He Fangzhou's tenure (starting from November 2, 2024), the three funds have achieved returns of 66%-71% this year, ranking in the top 3 among their peers; their returns over the past year have also remained robust at over 60%.

Recently, the non-ferrous metal sector has collectively strengthened, with gold repeatedly hitting historical highs; however, it experienced a rare sharp decline yesterday. What will the future trend be?

The investment workbook class representative has compiled the highlights shared by He Fangzhou and is sharing them with everyone:

Logic Behind the Strength of Non-Ferrous Metals

Q: The recent increase in the non-ferrous resource sector has been very significant. I would like to ask both guests to discuss the fundamental logic behind the recent strength of these assets. Mr. He, please share your insights first.

He Fangzhou: This year, the primary industry or major thematic index of non-ferrous metals has generally increased by 70% to 90%. In terms of indices, many individual stocks have already doubled.

Since the beginning of this year, ranked by primary industry, the return of the non-ferrous metal thematic index is over 20% higher than that of the second-ranked communication industry index. The performance has been very strong and impressive.

I believe the underlying logic and reasons include the following aspects:

First is the macro liquidity issue, specifically the Federal Reserve entering a rate-cutting phase.

During the rate-cutting process, non-ferrous metals, as globally priced commodities, are influenced by global fundamental recovery expectations and economic cycle changes on one hand, and are closely related to the US dollar index and the global wave of rate cuts on the other.

In the context of loose liquidity and rate cuts, commodities will welcome a favorable window period.

Secondly, we believe there is a supply-demand mismatch issue. On the demand side, whether it is grid upgrades, industrial transformation and upgrading, or the construction of global smart grids, the demand for non-ferrous metals, especially copper, is very high. Against the backdrop of such industrial upgrades and structural changes, our demand for non-ferrous metals continues to rise.

Additionally, I believe the recovery of the manufacturing sector is also a factor.

After the pandemic, the global economy is gradually moving from decline to bottoming out and then to recovery. Whether it is infrastructure construction, or the domestic push for consumption recovery, consumption upgrades, and major infrastructure projects, the demand for metals such as copper, aluminum, and zinc is very high.

The policies introduced domestically to stabilize the real estate market and the property sector will also drive an increase in demand for the non-ferrous metal industry. This improvement in fundamentals, combined with ample macro liquidity, has jointly propelled this round of sustained increases.

Looking at the supply side: first, global copper mine production capacity is relatively slowing. Global copper mine output is expected to be 21 million tons in 2024, with a year-on-year growth of only 1.2%, far below the actual demand growth rate, indicating a significant supply-demand mismatch Secondly, environmental policies are becoming increasingly strict. The difficulty of mining development is increasing, and the environmental regulations in major copper-producing countries such as Peru and Chile are becoming more stringent, leading to longer project approval cycles. The supply side is struggling to keep up with the pace of demand growth, which has also driven up prices.

In addition, recent hot topics, such as international relations issues and friction between major powers, have complicated the geopolitical environment and sparked market expectations for rising non-ferrous metal prices.

Therefore, from the background of liquidity easing and interest rate cuts, to supply-demand mismatches, and the enhanced strategic position of non-ferrous metals, all provide logical support for the strong trend of non-ferrous metals.

The gold upcycle will not change, at least until next year or the year after

Host: What is the logic behind the current strength of gold? How is it different from the logic of strength at the beginning of the year? Or is it a continuation of the main line from the beginning of the year?

He Fangzhou: The strength of gold can be said to have started this year or even last year. I believe the major logic for the next two to three years will not change, mainly due to the weakening of the US dollar.

Why did gold start to rise at the end of August? Essentially, the market is trading on expectations of interest rate cuts by the Federal Reserve. However, interest rate cuts are just a catalytic factor and not the core issue; the core issue remains the weakening of US dollar credit, which is the central logic behind this round of gold price increases.

As for whether the peak of gold is immeasurable, I believe it should be viewed dialectically.

First, a risk warning: there is no asset that only rises and never falls, but this is certainly within a specific time frame. Gold has experienced bear markets, but I believe this round of gold bull market will continue.

What is the underlying logic? It is difficult to accurately determine the peak of gold, but I can judge the timing of the rise.

For example, Shanghai gold started from 200, 300, or 500 and has now surpassed 900, and it may even break 1100 in the future; or COMEX gold prices have risen from 2300 to now surpassing 4000, and these specific points are hard to judge. Because gold itself does not rely much on supply and demand or costs. What does it rely on?

I believe the time window for this round of gold price increase has opened, and the upward space has naturally opened as well. From an annual perspective, this round of gold bull market actually started in 2022 and has been bullish for several years.

Recently, there have been signs of a slowdown in the rise. From this perspective, I believe that the gold upcycle has not yet ended and will last at least until next year or even the year after.

Because the cycle of a weakening US dollar and the downward cycle of US dollar credit will not end for at least the next year. The time and space for gold to rise will also open up accordingly.

The long-term narrative logic of this round of gold and the timing of the rise are difficult to estimate

Question: What is your logic for asset allocation in this regard? How long do you think the market trend can last, Mr. He?

He Fangzhou: I believe the long-term narrative, logic, and timing of the rise for this round of gold are difficult to estimate.

Because essentially, gold trading is not about supply and demand, nor is it purely about interest rates; it reflects more of a sense of confidence.

For a long time, gold has been linked to the US dollar, and even after the end of the Bretton Woods system, it is still dominated by interest rates, the US dollar index, and risk aversion sentiment.

Globally, central banks are continuously purchasing gold, and the share of gold in foreign exchange reserves is growing like a snowball Secondly, geopolitical relations, such as the Russia-Ukraine conflict, trade conflicts, and global political uncertainties, have kept market risk aversion at a high level. Occasional external black swan events can also act as catalysts, causing gold prices to rise in pulses.

Thirdly, there are expectations of a recession in the U.S. economy.

Historically, during the Federal Reserve's interest rate cut cycles, the performance of the U.S. economy has usually been poor.

For example, in 2008, under a backdrop of continuous interest rate cuts, issues within the U.S. economy, social problems, and real estate issues continued to erupt, hoping to achieve economic buffering and a soft landing through such policy measures.

In this round of interest rate cuts, there has been considerable discussion and trading logic regarding the recession and slowdown of the U.S. economy.

Most importantly, there is the issue of U.S. debt. Gold more reflects the cracks in confidence towards international assets, external environments, and the U.S. dollar.

Since the beginning of this year, the amount of outstanding public debt in the U.S. has approached $40 trillion. At high interest rate levels, debt expansion remains at a high level, and the dollar is naturally in a passive state.

Against this backdrop, most countries will rationally choose to reduce their dollar positions in foreign exchange reserves and instead purchase assets that can withstand the impact of U.S. dollar credit risk, with gold being one of the top choices.

Therefore, the recent surge in gold prices also reflects this risk aversion sentiment and confidence issue. We believe that the narrative logic of central bank gold purchases and de-dollarization will remain a medium to long-term theme in the future.

Copper is not significantly overvalued, industrial non-ferrous metals are more driven by the copper narrative

Host: We just mentioned fields including AI and new energy, which are seen as the long-term storylines driving demand for certain metals.

Which specific metals are genuinely driven by demand in these emerging fields? Which non-ferrous metal segments might currently be overvalued? Mr. He, please provide your insights.

He Fangzhou: I believe that the demand for electricity in fields such as AI and new energy is very real. Ultimately, in practical applications and production, electricity is the core proposition of these emerging fields.

New energy vehicles require electricity, computing graphics cards require electricity, and future AI models and even physical robots will also be centered around electricity. Wherever electricity is needed, power transmission is required.

We can see that the demand for raw materials such as copper cables and wires is very strong. Therefore, this demand pull for copper is very tangible.

Secondly, the rapid popularization of domestic new energy vehicles, along with significant increases in replacement rates and market share, has driven the demand for charging piles, charging stations, and home charging piles.

In addition, photovoltaic power stations also consume a large amount of copper for optical cables.

Building a one-megawatt photovoltaic power station consumes about 5 tons of copper for optical cables. Goldman Sachs predicts that by 2030, global power grids and power infrastructure will contribute over 60% of the growth in copper demand.

Therefore, for copper, the "king of commodities" and the most important metal among non-ferrous metals, it is akin to the "industrial blood" of the new era. We believe that copper resources are not significantly overvalued.

On the contrary, to some extent, due to the tendency of the industrial non-ferrous sector for certain metals to drive up the prices of other metals, for example, when gold rises, silver and platinum may also rise; an increase in copper prices may drive up resources such as aluminum, nickel, and cobalt Under this logic, I personally have a relatively firm view on copper. As for aluminum, its production capacity is restricted by policy red lines. As long as real estate prices stabilize and re-enter a positive cycle, such assets may also rise at this point due to the influence of copper prices. However, in the long term, it will trend towards the process of social and economic recovery.

Therefore, at this point, I believe that non-ferrous metals, especially industrial non-ferrous metals, are more driven by the narrative of copper. Other metals may gain market attention and allocation due to the increased consumption of copper resources.

In particular, the market's emphasis on copper resources can be seen from stock indices, commodity futures, to global copper demand and price changes, all reflecting this demand or story driven by copper.

Other metals may need to wait for later economic data changes, as well as the application of new productive forces, new energy, artificial intelligence, and other fields to a certain stage before their prices can match the current valuations and positions.

Short-term volatility is large, accumulate positions in batches for the non-ferrous sector

Q: Mr. He, what do you think? How should investors assess in the short and medium to long term? Should they get on board?

He Fangzhou: Okay, from the recent short-term volatility, the non-ferrous sector has experienced significant fluctuations after the National Day holiday. Even for industry theme indices, the non-ferrous metal sector index may fluctuate more than 5% in a single day. Individual stocks fluctuate even more.

As market investors, as we just mentioned, we want to buy but worry about buying at a high point, and if we don’t buy, we see the trend moving relatively firmly.

How do we view this? First, short-term volatility is definitely amplified.

For investors with a lower risk appetite, it may be wise to be more cautious and at least adopt a batch accumulation approach to allocate these assets.

Because first, this sector has performed strongly since April this year, accumulating a high increase and profit. External event disturbances, internal regulatory issues, or market cooling statements may affect market sentiment.

From the perspective of industry cycle logic, issues such as the opening of the interest rate cut channel, the weakening of dollar credit, and market supply-demand relationships cannot be quickly resolved in the short term.

Under the influence of multiple factors, the fundamentals supporting long-term upward trends, as well as the profit improvement brought about by companies' efforts to avoid internal competition, are all medium to long-term positives for the sector and industry.

In the short term, geopolitical factors such as tense international relations and issues between major powers may cause price fluctuations.

Therefore, from the perspective of medium to long-term or short-term event catalysts, these assets are still worth investors' attention.

However, the non-ferrous metal sector is ultimately a sector with strong cyclicality.

For resource products, on one hand, it is necessary to pay attention to the macroeconomic cycle and changes in economic data to reasonably adjust positions; on the other hand, it is essential to closely track the improvement of corporate fundamentals, including corporate profits, capital expenditures, etc., to maintain confidence in asset allocation.

Non-ferrous valuations are relatively reasonable

Host: Many times we focus on pricing and valuation issues. Currently, many non-ferrous stocks have already risen, and valuations are not as cheap as at the beginning of the year.

How to measure the current valuation level of the sector? Should we focus more on traditional PE, PB, or should we value it based on resource reserve value? Is the current price expensive or worth it? He Fangzhou: Indeed, as mentioned earlier, the non-ferrous metal sector has seen significant gains since this year, especially since April. On one hand, it is driven by macro narratives, and on the other hand, it is supported by ample market liquidity.

Taking the non-ferrous metal thematic index as an example, the first-level industry and sub-theme indices have generally increased by around 70% to 90%. However, if we look at static indicators, such as the industrial non-ferrous index I track, the current static PE is about 22 times, PB is about 3.4 times, and the price-to-cash-flow ratio is about 12.9 times. Overall, the valuation percentile is below 50% compared to the past ten years.

Therefore, from the perspective of static valuation indicators like PE and PB, the valuation is relatively reasonable.

Secondly, from a macro perspective, the recovery-driven PPI rebound, along with the market's hope to end the narrative and initiate a recovery cycle to drive up non-ferrous metal prices, indicates that the endogenous momentum for PPI increases is relatively strong.

Thirdly, against the backdrop of external interest rate cut expectations, the current weak dollar credit and the decline of the dollar index under the dollar pricing system have also contributed to the price increase of financial attribute physical assets, which is an important reason for the appreciation of companies with mineral resources.

Finally, regarding whether to focus more on traditional PE, PB valuations or resource reserve value valuations, I believe that PE and PB valuations are more traditional and provide investors with a mental benchmark; whereas resource reserve value valuations have certain rationality from a long-term trend logic perspective, as they reflect the intrinsic value of companies that own mineral resources. However, reserve value can also be affected by external factors, policies, mining restrictions, and changes in mineral product prices.

Therefore, the valuation of companies or stock prices is ultimately a dynamic process. If we want to assess whether something is expensive or worth the value, I believe that as investors trading stocks or commodity futures in the secondary market, we should use a multi-dimensional approach to comprehensive valuation rather than a single method.

We hope to buy great companies or the most valuable resources and companies at reasonable prices.

The non-ferrous market is far from over; it is only in the initial stage

Host: Just now, Mr. He mentioned the WanJia CSI Industrial Non-Ferrous Metal Theme ETF and the non-ferrous metal categories it invests in. We would like to ask Mr. He, is this index a good buying point right now?

He Fangzhou: Well, from the current point of view, this index has increased by over 70% this year, so it is definitely not a relatively cheap variety.

However, as mentioned at the beginning, it is a variety with relatively reasonable valuation. For such investment varieties, we recommend smoothing out the investment time and adopting a systematic investment approach.

Because from the perspective of long-term narrative logic, liquidity support, and the macro backdrop, we believe that the non-ferrous market is far from over; it may only be in the initial stage and has not yet reached halfway.

However, it is true that from the beginning of the year to now, the cumulative increase and profits are high, and short-term fluctuations will definitely be much larger than those in sectors that have not risen.

Therefore, for index-type products, the best approach is to extend the investment and allocation time frame.

First, diversify risks through index-based investments; second, conduct systematic investments, controlling each funding amount at a reasonable and risk-controllable level to maintain a better investment mindset.

For example, if we invest 70%-80% or even all assets into one sector, a short-term fluctuation of a few percentage points at a certain time can have a significant impact on the investor's mindset, and long-term holding requires daily struggles with human nature However, if you reduce the amount invested each time and use dollar-cost averaging to diversify your investments, you can control the buying cost within a reasonable and stable range. For example, if you had been dollar-cost averaging from last year to early this year, the index might have already gained 60%-70%. This way, the holding mentality and experience will be much better.

At the same time, if there is a long-term upward trend in the future, through diversified investments, extending the time, and smoothing costs, the determination and mindset for long-term holding will also improve.

Source: Investment Workbook Pro Author: Wang Li

For more insights from industry leaders, please follow ↓↓↓

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at your own risk