This is a sponsored article from Noah Holdings.

On 1 March 2024, Noah’s CIO Office released a report analysing trends in China and international financial markets: “Seizing Small Certainties, Invest in Big Trend: 2024 Noah CIO Report”.

Based on the report, Noah’s CIO office has identified the following key observations and proposed solutions concerning trends within China and the global financial markets.

China market observation

Chinese AI applications expand the imagination

Amid global technological transformations, Chinese AI has demonstrated significant potential and innovation, highlighting the critical importance of keeping pace with technological trends for national development. Japan’s journey – from technological heights to the decline of its semiconductor industry and missing the internet wave – underscores the necessity of strategic adaptability.

Dubbed the ‘Year of AI’ in 2023, China’s AI industry has seen rapid growth, with projections estimating the market size to exceed RMB 1.1 trillion by 2030, indicating significant opportunities for AI commercialisation and To-C applications. This reflects the crucial role of technological innovation in driving economic growth and industrial upgrading.

Manufacturing goes global, building competitive power

Japan’s manufacturing sector’s global success, particularly in semiconductors and automobiles, showcased early market diversification and innovation. Despite setbacks in the semiconductor industry and missing the digital revolution, Japan’s auto industry thrived globally through advanced manufacturing and lean production.

In contrast, Chinese manufacturing has rapidly expanded overseas, leveraging product innovation and smart technology across various sectors, from consumer electronics to new energy vehicles. This shift from low-cost to high-quality exports has positioned China as a leader in global manufacturing innovation.

Affordable consumption: Pursuing cost-effectiveness and rational experiences

Japan’s transition to value-driven consumption in the 1990s, characterised by a preference for affordable, no-brand, and minimalist products, reflects a shift toward prudent spending. This trend is evident in industries like apparel, where brands such as Uniqlo succeeded by focusing on cost performance and expanding affordable dining options.

Similarly, China’s market has embraced a ‘9.9’ culture, promoting high-value rational consumption, with platforms such as Pinduoduo leading the charge by offering quality goods at lower prices, underscoring the global trend towards optimising consumer satisfaction without sacrificing quality.

High-dividend industries: Stable and high-performing

Following the economic downturn in the 1990s, Japan’s uncertain economic outlook led to a preference for investments in high dividend-yielding sectors, known for resilience and minimal macroeconomic impact. These sectors became attractive as safer investments compared to low-risk interest rates.

In 2023, China’s dividend index showed positive and significant excess returns, underlining its defensive nature and investment appeal due to stable earnings and high dividend yields. Amid economic fluctuations and geopolitical tensions, high dividend strategies offered rare certainty in volatile markets, with significant dividends paid by listed companies, highlighting the ongoing profitability and traditional sectors’ dominance in this investment approach.

Global market observation

Expanding Chinese enterprises globally

Chinese enterprises are transitioning towards global production, operations and sales, significantly evolving from the initial ‘Made in China’ approach. This strategy not only mirrors the successful international expansion model of Japanese firms, focusing on competitive pricing and innovation, but also adapts to the challenges of consumer downgrading faced by Chinese companies.

These enterprises are extending their reach into North America, Western Europe, Southeast Asia, and emerging markets, emphasising the need for continuous innovation and high-cost-performance products amid evolving consumer expectations.

The global success of Chinese firms, mirroring Japanese companies, depends on technological prowess and strategic industry shifts, notably in sectors such as new energy vehicles, where China is gaining a competitive edge worldwide.

AI breakthroughs and wealth creation

Since its launch in November 2022, ChatGPT rapidly hit 100 million users, underscoring its AIGC impact. Gartner predicts AI will revolutionise key sectors, forecasting global AI revenue to reach US$900 billion by 2026 and add US$15.7 trillion to the economy by 2030. This growth underscores the vast investment potential tied to the strategic AI investments of US tech giants poised to introduce new tech leaders over the following decades.

Pricing anchor and strategic assets

Analysing key investment indicators, the US Dollar Index and US ten-year Treasury bond yields, is pivotal. With the US dollar trending upwards and global central bank rate hikes slowing, the trend is likely to shift towards lower interest rates and risk asset reallocation. In 2024, expect significant volatility in the US dollar, around 100 points, and stable US ten-year Treasury bond yields near 4%.

Market conditions favour traditional assets such as stocks and bonds, along with hedge funds and alternative investments, including private credit and infrastructure, due to their potential for favourable returns.

Chinese asset allocation solutions

In 2024, Noah’s CIO Office emphasised the crucial role of a correctable feedback loop in strategic asset allocation, focusing on safety, liquidity, foundation, and growth – the recommendations for major asset allocations in China are as follows:

• Corporate Funds Management (Smile Treasury): Emphasises the importance of enhancing the efficiency of corporate fund management, recommending professional services like ‘Smile Treasury’ for fund management to achieve global allocation, ensuring both safety and competitive returns on funds.
• Wealth Foundation and Growth Allocation: Advises on investing in QD funds to capture global beta returns and strategises investments in technological innovation, globalisation of enterprises, consumption upgrade, and high-dividend sectors to seize growth opportunities.
• Guaranteeing Inheritance and Bottom-Line Thinking: In response to the need for wealth inheritance and protection, increasing insurance allocation for risk management and wealth inheritance is recommended, especially for cross-border scenarios and high-net-worth clients.

Global asset allocation solutions

Noah’s CIO report re-emphasised the CATS asset allocation strategies aimed at high-net-worth individuals:

CATS strategies: A comprehensive solution from multiple perspectives, including cash management, alternative investments, primary and secondary investment objectives, global insurance, etc.

• C: Recommends adjusting cash asset types and proportions to optimise returns in a lower interest rate environment.
• A: Advises increasing allocations to hedge funds to capitalise on market volatility and potential Alpha opportunities.
• T: Suggests investing in private equity with a focus on technological innovation and assets resistant to economic cycles and inflation.
• S: Proposes a multi-regional insurance strategy to safeguard wealth and ensure successful intergenerational transfer amid growing uncertainties.

This is a sponsored article from Noah Holdings.