Xun Yugen's latest speech: This round of market is far from over, looking at "Old Deng assets" in the fourth quarter, continue to embrace equity for the next 20 years

As 2025 approaches its year-end conclusion, investors who have experienced a bull market for a year are once again turning their attention to next year and the next investment phase in A-shares.

What sectors should be focused on at the year-end? Will the bull market continue next year? What types of assets should be invested in next to have a better chance of sharing in the bull stock market?

Recently, Xun Yugen, the director of the research institute and chief economist at Guosen Securities, shared strategies and outlooks for the next phase at the Winter session of the FT Fund's quarterly forum.

Xun Yugen is one of the most senior strategy analysts and macro research analysts in the industry today. He joined Haitong Securities in 2011 and has held positions such as chief strategy analyst, deputy director of the research institute, chief economist, and director of the research institute. He later served as the chief economist of Guotai Junan Securities. From 2016 to 2022, he was ranked first in strategy research by New Fortune Best Analysts seven times and received the title of "New Fortune Platinum Analyst."

Main points:

1. The source of this market rise—the pattern of policy easing remains unchanged and may even become more proactive.

2. The stock market has been relatively hot this year, showing a clear divergence from economic performance. This is because policies have identified the "crux" of current economic issues and have begun to "prescribe the right medicine."

3. A warming stock market can increase residents' property income. Property income accounts for less than 10% of the income structure of Chinese residents, while it accounts for 20% in the income structure of American residents. Therefore, ordinary residents should have more sources of income.

4. Logically deducing, current policies will not tighten but will only ease, and may even ease further. Looking ahead to the next year, China's policy environment is expected to remain loose.

5. Since 1990, there have been a total of 7 bull markets in A-shares. From the perspectives of time and space, the current market phase has not lasted long enough.

6. In my analytical framework, I divide bull markets into three phases, similar to the different solar terms in summer: Lixia, Xiaoshu, and Dashu. The current market is still in the second phase.

7. In the rise of the CSI 300 this year, 5 companies contributed 22%; the top 5 companies in the STAR 50 contributed 60%. Indeed, a small number of leading growth stocks have risen significantly, pushing the index up.

8. The core goal of the 14th Five-Year Plan is to build a modern industrial system. In the next 5 years, the core of the modern industrial system is "scientific content."

9. Recently, we saw the market value of the electronics industry surpass that of banks, which is also a symbolic event. The proportion of technology in the economy may not rise as quickly, but the stock market reflects it faster.

10. Over the past 15 years, the proportion of consumption has been greater than that of technology in each 5-year period. However, from 2021 to 2025, we find that the proportion of technology has begun to exceed that of consumption.

(Using the first person, some content has been omitted)

The Market This Year is Driven by Policies "Prescribing the Right Medicine"

First, let's look at a phenomenon. This chart compares the growth rate of China's GDP with the trend of the stock index. On the left is the GDP growth rate, and on the right is the trend of the SSE Composite Index. We find that the stock market has been hotter than the economy this year, showing a clear divergence Starting from the issues facing the economy, the core problem of the current Chinese economy can be summarized as the growing pains of the transformation period:

After 2000, China mainly developed urbanization and foreign trade, corresponding to the development of industries represented by the real estate sector and the capital-intensive manufacturing sector. After 20 years of development, these industries are beginning to approach their ceilings, with slowing growth and even oversupply starting to emerge. However, our new economy has not yet taken off, leading to a phenomenon of an unsmooth transition between old and new driving forces, with a lack of continuity.

Last year (2024), we saw a series of policies, from the initial measures announced at high-level press conferences to those introduced in central meetings, all consistently aimed at supporting the development of the stock market and the real estate market. The phrase “Stabilize the real estate and stock markets” was included in the official documents of high-level meetings.

Therefore, the policy has actually identified the crux of the problem and is already addressing it, which is to stabilize asset prices; only in this way can the economy ultimately stabilize.

The Recovery of the Capital Market is Beneficial for Domestic Demand

Is the recovery of the capital market helpful for economic stabilization and the recovery of domestic demand?

Yes.

We have conducted historical comparisons. For example, China's consumption currently accounts for less than 40% of GDP. If we look at the United States, Japan, Germany, and other surrounding countries, when their per capita GDP was at our current level, consumption accounted for about 50% to 60%. It is evident that China's consumption rate is relatively low, and its share of the economy is quite low.

Therefore, in the draft of the 14th Five-Year Plan, it specifically mentioned the need to expand domestic demand, indicating that in the next five years, we will focus on expanding domestic demand, which needs to be activated.

What role can the stock market play?

On one hand, the stock market can boost confidence and sentiment. In a bull market environment, the growth rate of consumption is higher than that in a bear market, which is something we can all feel. If you have stocks or funds that have risen, it is very likely that you will go out for a nice meal or a trip on the weekend.

Another core point is that the recovery of the stock market can increase residents' property income. The proportion of property income in the income structure of Chinese residents is still relatively low, at less than 10%, while in the income structure of American residents, property income accounts for about 20%. Therefore, we are also calling for ways to design systems in China that allow ordinary residents to have more sources of income.

Current Policies Will Not Tighten, Only Loosen

The 401K and IRA plans implemented in the United States around 1980 are designed to compel individuals to gradually invest their pension account funds into the capital market through trustees.

Because the proportion of equities in American pension funds is about 40% or more, as the stock market rises over the long term, it ultimately benefits them, since pension funds cannot be withdrawn, but the money still belongs to the individual. The long-term stable development of the stock market is beneficial in this regard From a logical perspective, current policies will not tighten, but will only loosen, and may even become more accommodative. Looking ahead to the next year, against the backdrop of overall monetary policy easing overseas, China's policy environment is expected to remain loose.

Moreover, next year marks the beginning of the 15th Five-Year Plan, and we must start well. From this perspective, the source of this market rally remains the unchanged positive pattern of policy easing, and it may even become more proactive.

Historical Patterns Indicate the Market Has Not Ended

Additionally, let's take a look at some simple historical patterns. Since the establishment of the Shanghai Stock Exchange and the Shenzhen Stock Exchange in 1990, there have been a total of 7 bull markets as depicted by the Wind All A-share equity index (see the chart below).

Each bull and bear market has its own time and space for growth, akin to the four seasons of spring, summer, autumn, and winter. We can liken bull markets to summer, bear markets to winter, and sideways markets to spring and autumn. A summer typically lasts around three months, even if it's shorter, it can still be over two months. From a time and space perspective, it seems we haven't quite reached that point this time.

Therefore, according to historical patterns, it appears that this round of market activity since last September is not yet complete.

The Stock Market Has Only Entered the Second Phase

Furthermore, every ten years, there is a "National 9 Articles" policy, and each time it is released, the market tends to experience a wave of activity. This is because the release of the National 9 Articles generally brings about some institutional reforms and policy innovations in the capital market.

From the perspective of the stock market itself, it is also undergoing reform, and the market activity should not be considered complete. However, we can analyze what stage it has reached.

Historically, I have analyzed this progress, and in my analytical framework, I divide bull markets into three phases, similar to the different solar terms within summer: the beginning of summer, minor heat, and major heat.

These three phases are categorized based on driving forces. The first phase is typically driven by simple policy changes and a shift in policy direction. The second phase begins to show gradual improvements in some fundamentals.

Policy can be likened to medicine. When a person is ill, we first seek medication. When we start taking medicine, we begin to feel more confident because the doctor has diagnosed that the illness is manageable and treatable. As long as the doctor says this, we feel that we have already recovered half the way, because confidence is key. This is why the stock market rises quickly in the first phase; the mood improves.

However, the illness has not actually healed. In fact, when we first take the medicine home, we may find that the symptoms have worsened in the past few days. The worsening of symptoms is not due to taking the medicine, but because the symptoms were already developing. If we hadn't taken the medicine, the situation would have been worse, and taking the medicine has actually alleviated the severity of the symptoms a bit.

This is how the first phase unfolds (interpretation), explaining why the market suddenly rises and then retracts The second stage of the illness has really started to improve. After eating for another week or a period of time, the body's pain begins to lessen, and the symptoms gradually fade away. This is the second stage.

In the third stage, the mood becomes very optimistic, and there is a sense that the market transformation effect has begun, with continuous capital inflow.

If we make such a comparison, the stock market has now entered the second stage. The second stage (characterized by) is that the data begins to gradually improve, but this improvement is a process that starts from a point and slowly spreads.

Old Deng is about to rise

Since April 7, 2025, we have seen a group of companies represented by innovative drugs and computing power with significant stock price increases, which people usually characterize or jokingly refer to as "Little Deng assets," which have risen a lot.

In terms of stock prices, their increases are indeed astonishing, but logically it may be correct because the fundamentals always improve first in a small number of industries, known as "the spring river water warms, the duck knows first," and "the wind rises at the edge of the green duckweed."

In this year's rise of the CSI 300, five companies contributed 22%; if we include the fifth to fifteenth companies, the top 15 companies contributed 42%. The situation is even more exaggerated in the Sci-Tech Innovation Board, where the top five companies in the Sci-Tech 50 contributed 60%. Indeed, it is a small number of companies, and the leading growth stocks with larger market capitalization have risen a lot, pushing the index up, but these increases are due to their fundamentals improving first.

We also observed this phenomenon during the market cycle from 2019 to 2021, where the fundamentals in certain areas improved first before spreading to other areas.

Therefore, we need to view the rise in stock prices of certain companies since April 7 dialectically. The magnitude of the stock price increase is relatively large, but the underlying logic is that the fundamentals improved first.

This is the classic relationship of "the dog and its owner" (the market and fundamentals). The dog (the market) runs too fast, and the stock price has run ahead of the fundamentals, but it is not running wildly; it is indeed because the owner is walking the dog. However, in China, we might be accustomed to having the leash a bit longer, and there is also smog. When the dog runs far ahead, you only see the dog and not the owner, thinking it is running wildly, but in fact, someone is walking the dog. There are fundamentals behind it.

Thus, the market logic is correct, but the volatility of stock prices may be a bit larger.

The logic behind the rise of tech stocks is the technology cycle

If we look a bit further into the future, we judge that the rise of technology companies in this round is also benefited from the evolution of the technology cycle.

We have made some historical comparisons. For example, the technology revolution in 2010 was driven by the popularization of 3G and 4G networks and smartphones, which triggered the wave of mobile internet. This time, we are experiencing the AI revolution, which is also a gradual process. It started with the establishment of 3G and 4G communication networks, followed by the emergence of smartphones, and then the gradual decrease in service fees When I first used an Apple phone with a contract in 2011, at that time, China Unicom collaborated with Apple on contract phones, where you didn't have to pay for the phone but had to pay for the call fees, signing for two years. During these two years, the monthly fee was either 286 or 386, with different packages corresponding to different data allowances. We were usually busy with work, so we generally chose the 386 plan, spending that much on monthly fees. Now, more than ten years have passed, and I only pay 99 a month, which I can't even use up; the rates have dropped significantly. More than a decade ago, 386 (monthly fee) had a higher currency value, and in terms of purchasing power, 386 from back then might be worth at least 500 yuan or more now. But now it's only 99, which is because call fees and rates have been decreasing, leading to the widespread adoption of mobile internet.

Our current round of the AI revolution is similar; the starting point of innovation was the emergence of ChatGPT in 2022, and by this year, costs have significantly decreased. As costs have started to drop sharply, it has led to the expansion of applications, and the industry chain is gradually entering the application phase.

So looking forward to 2026, we estimate that technology is still a direction that deserves significant attention.

Investment Opportunities in the Context of the 14th Five-Year Plan

The macro background for 2026 is the first year of the 14th Five-Year Plan, and the core goal of the 14th Five-Year Plan is to build a modern industrial system.

The next five years are crucial because they serve as a bridge. In the past five years, we have experienced external instability and uncertainty, and we have managed to get through it. Looking ahead, after the 14th Five-Year Plan, we will reach 2035, so to achieve the final goal by 2035, we need to engage in a tough battle in the next five years. During these five years, we must build the modern industrial system to a considerable extent so that by 2035, we can say we have achieved our goals.

The core of the modern industrial system is "scientific content," which refers to the contribution of technological innovation to the industry.

Let's briefly review that in the past 15 years, the proportion of consumption has been greater than that of technology every five years. The first instance was after 2011, during the 12th Five-Year Plan, when it was proposed that structural transformation and expanding domestic demand were necessary, leading to an increase in the proportion of consumption. From 2011 to 2020, consumption continued to rise, and technology also increased, but the proportion of consumption was greater than that of technology. However, in the recent five years, from 2021 to 2025, we have found that the proportion of technology has begun to exceed that of consumption.

This means that 15 years ago, we talked about boosting domestic demand, and consumption gradually increased, with technology following suit, but consumption was still the main character. In the past five years, the main character has begun to change, with technology slowly becoming the protagonist.

Recently, we saw the market value of the electronics industry surpass that of banks, which is also a symbolic event. The increase in the proportion of technology in the economy may not be so fast, but the stock market reflects it a bit quicker because the stock market is a leading indicator of fundamentals Starting from 2026, that will be the 15th Five-Year Plan, where not only the proportion of technology will be high, but we will also emphasize self-reliance and self-improvement.

From the perspective of the evolution of the technology cycle, we have studied the technology wave from 2010 to 2015, which involved a diffusion process from hardware to software content and application scenarios. This time is also a diffusion process. From the large model of ChatGPT at the end of 2022 to the computing power this year, and moving forward, it is highly likely to gradually move towards application. In fact, applications have already begun to emerge, such as AR glasses, although their cost-performance ratio may not be very good yet, and the products are not that mature, but the technological iteration is a gradual process.

Year-End Focus on "Old Deng Assets"

Therefore, we need to pay attention to the application end of the technology chain, but the market cannot remain unchanged. Just like every household eats dumplings during the New Year, we cannot keep setting off fireworks in a particular field. Especially at the end of the year and the beginning of the year, we need to pay attention to some areas that have not performed well in terms of stock prices compared to before, and where the industry is relatively cold, which we often jokingly refer to as "Old Deng assets."

The "Small Deng Era" has already been established, but "Old Deng" also has seasonal performance.

Historically, in the fourth quarter, at the end of the year and the beginning of the year, it is easy for value-type "Old Deng assets" to outperform or show relative gains.

Another pattern is that in the middle stage of a bull market, rotation is also likely to occur. Typically, growth stocks rise first, and after a period of time, value stocks will catch up and rotate.

For example, during the bull market from 2012 to 2015, in the second half of 2014, especially in the fourth quarter of 2014, there was a rebound in value stocks. From 2019 to 2021, also in the middle stage of a bull market, in 2020, especially in the second half of 2020, there was also a rebound in value stocks.

So at this stage this year, we may need to pay attention to some "Old Deng assets" that have not been favored in the past period and are relatively low in heat. For example, the liquor and real estate industries, because they have been declining for too long. If we don't count this year's real estate industry, which has fallen for 5 years, liquor has fallen for 4 years. Of course, real estate has slightly risen this year, and liquor has actually not risen much, so if an industry has been declining for several years, it at least indicates that negative information about this industry has been reflected more in the stock market.

We often use the term "price in," which means that the stock price has already reflected changes in the fundamentals in advance. For example, when the third-quarter reports were disclosed at the end of October, it was indeed found that some liquor companies had poor fundamental data, but the stock price did not fall at the end of October because it had already fallen too much before. Stock prices always lead fundamentals; they imply people's expectations for the future and respond to information in advance.

So in terms of fundamentals, whether it is liquor or real estate, there is indeed no data indicating a rebound at present. However, real estate stocks have not fallen since September, so these all indirectly confirm that the previous stock prices have already implied many pessimistic expectations. Since pessimistic expectations have been implied, as long as there is a slight positive change in factors later, it should reflect positively, especially since the dividend yield of liquor stocks is already above 4% The PB of real estate has already dropped from historical peaks to around 70-80%.

For example, "Old Deng Assets" still includes the brokerage industry, which actually has good fundamental data, but its performance is average. This is because there is always some skepticism about the sustainability of the overall market and its breadth, with a belief that it is a structural market and that the profits of brokerages are not sustainable. However, if we find that this market can continue and that brokerage profits can still be realized quarter by quarter, these aspects belong to the previously lagging stock price performance and are worth paying attention to (in part).

Industrial Structure Upgrading is the Micro Foundation for a Long-term Bull Market

From a longer-term perspective, the future direction of the Chinese economy ultimately lies in promoting transformation.

Both the report of the 20th National Congress and the Fourth Plenary Session of the 20th Central Committee mentioned that by 2035, China's per capita GDP should reach the level of moderately developed countries.

We have two interpretations. One is that moderately developed countries are selected from developed countries, and the moderate level among developed countries is $30,000. The other is that when all countries are considered together, a moderate level of development also requires $20,000. Regardless, we are currently at $13,000, which is still below the minimum standard of $20,000, and the gap is even larger when compared to the $30,000 standard. How can we achieve the transition from $10,000 to $20,000 to $30,000? The key is to upgrade the industrial structure, as per capita GDP is roughly aligned with per capita income.

High income is due to engaging in industries with high profit margins, where bosses earn money and distribute more to us. Bosses make money based on the high added value of the industry, producing higher-end or high-quality products, and only branded products can sell at good prices.

Therefore, upgrading the industrial structure is the most core micro foundation for ultimately achieving a leap in per capita GDP, which is also the micro foundation for China to move towards a so-called long-term bull market from a longer-term perspective.

Ultimately, the rise in stock prices in our stock market comes from the returns of enterprises and listed companies, which is ROE.

Looking at data from the past 100 or even 200 years, valuation does not earn money; as a shareholder, buying stocks means buying the company. Ultimately, to make money, the company itself must be able to create profits. How can a company create profits? The company must upgrade. This upgrade cannot be achieved overnight; it requires the accumulation of time.

Referring to historical transformations, the switching of old and new driving forces represents the successful transformation of the Chinese economy. There is still a gap between the new and old economies, which requires some time and a gradual process to achieve. Once this process is realized, our future will be brighter.

Technology Itself Can Create Demand

Next, when AI applications enter intelligent manufacturing, China's explosive power and competitiveness may be even greater.

For example, everyone says that the Chinese economy seems unable to turn without real estate. Indeed, the real estate-related industrial chain occupies too large a share of the Chinese economy, but that does not mean we cannot replace it; it can be completely replaced. Human desires are endless, and 30 years ago, we never imagined that everyone would have a mobile phone In the late 1980s and early 1990s, in a small mountain village in Anhui, if a person got married or married off a daughter, bicycles, watches, and sewing machines were basically essential items in the dowry. Having these was considered at least decent for a marriage. If one wanted a better wedding, having a television in the dowry would be quite good. Who would have thought of mobile phones? Now that we have mobile phones, we can't live without them; they have become an external organ of our bodies.

Technology itself can create demand through supply. For example, we currently do not have robots at home, but humanoid robots in the future could completely take on tasks like cleaning, helping children with homework, and chatting with the elderly. There could be several robots with different functions, which will reflect new demands and give rise to new industries.

The functions of cars may also be redefined. Is a car just a means of transportation? Perhaps not. If intelligence redefines cars, can we replace our fuel vehicles? If we can replace them, that would be remarkable.

Therefore, the transformation and upgrading of industrial structures are often driven by technological innovation that brings about new demands, leading to revolutions. It was not traditional mobile phones that disrupted Nokia, but smartphones; it was not traditional cameras that disrupted Kodak, but digital cameras. Thus, technology changes the industry ecosystem, and we now have this hope. Of course, it requires time to gradually verify data and support structural adjustments, so strategically we are optimistic, but tactically we will look at the data step by step. From a longer-term perspective, we can hold more optimistic expectations for the equity market.

Focus More on Chinese Equities in the Next 20 Years

Here I present data from the past 200 years in the United States. We can find that in the long term, the return rate of the equity market is definitely the highest because stocks or equities represent the future. However, their high volatility and large fluctuations mean that not everyone can make money in this market.

So how can one make money here?

We need to ensure that our assets and investment products are matched in terms of duration. If we have money that we won't need for a long time, we should consider the returns from equities and allocate to the equity market.

If someone is currently 40 years old and plans to retire at 60 or 63, the money for retirement in over 20 years can be considered for long-term allocation.

If we look at the entire period, for example, taking the stock fund index as a reference, since 2005, the annualized return of the stock fund index has been 13%, which is very high. Of course, the returns of WanDe Quan A and CSI 300 are slightly lower, indicating that Chinese fund managers are generally quite capable, as they can outperform the index.

Once the industrial structure upgrade is completed, we will no longer be in the low-end industries of the past. If we upgrade to high-end industries, assuming that in the next 20 years, China achieves technological self-reliance and strength, the return rate in the next 20 years will likely be higher than in the past 20 years.

From this perspective, we should embrace equities more actively. In the next 20 years, in terms of long-term personal family wealth allocation, we may need to pay more attention to equities. This is about understanding the long-term return rates of the stock market, where they come from, and how they may evolve in the future, which is still related to the industry Risk Warning and Disclaimer

The market has risks, and investment should be cautious. 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 one's own risk