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Investment, Nothing to do with Macroeconomics: the Stock Market has Predicted Nine of the Last Five American Recessions I

2016.02.04 Zhang Wei Views:


People disagree with each other on the future economic growth in China.

Because of an M&A case, we contacted an entrepreneur in the private sector last month. In his eyes, China’s economy was sluggish. Factories shut down; real estate was in chaos; some business owners tried to move their capital out of China, but failed. He was hesitant about investing in this case.

I’m of course a layman in macroeconomics, but I know how to invest. The target company in this M&A is a top 3 car portal website in China. It has been listed in the US as other professional portal websites and internet companies. The post-car market where the website is in has reached 1 trillion RMB where e-commerce has already secured a huge amount of capital for their unrealistic future. In contrast, our target company is already large and mature to obtain revenue and profits. So, the company is not over-valued. Besides, the evaluation is more than viable when you consider the huge post-car market and our capable co-investors who have offline resources.

The entrepreneur was convinced to invest and forgot about the macro-economy.

Some entrepreneurs may care about the macro-economy, but clearly, it is not what they want. Financial institutes predict the next year’s macro-economic performance annually and adjust their figures half a year. Even if the prediction is mathematically meaningful, it is meaningless to investment. 6.8% of growth or 6.9% has nothing to do with our investment strategy. In Samuelson’s words, “the stock market has predicted nine of the past five recessions”. Economists and the stock market tend to over-interpret the economy and make pessimistic judgments. But more often, they are failed by unpredicted incidents.

The above is the first part of a speech titled “Investment, Nothing to do with Macroeconomics” by Zhang Wei in the 2016 CoStone Annual Meeting. Zhang holds that PEVC investment has nothing to do with the macro-economy, but everything about companies. Attention to macroeconomics will not lead to sensible investment. Sensible decisions are the results of a comprehensive judgment of a company’s potential growth and whether the company is overvalued or not.


For the whole speech, please visit:

Rewritten by Chen Cong, Edited by Li Yunzhen, Du Zhixin

The year 2019 marks the fortieth anniversary of China’s Reform &Opening-Up, once again, we meet at the turning point of history. What’s the next step for the game, is there any clear guidance? The answer is affirmative.

Our country is enjoying a good momentum of development, which does not come from the Washington Consensus nor the Beijing Consensus. China’s experience has proved that both the visible hand and the invisible hand are crucial: the visible hand, stands for the government-led reform, and would yield benefits for reform and opening up; the invisible hand, stands for the Marginal Power represented by the private sector, and would improve economic efficiency and tax collection, create jobs and employment opportunities.

Provided that we want to protect and expand the benefits form reform, three simple but mandatory agreements are to be made and followed: No.1 Private ownership must be recognized, protected and treated equally with public ownership constitutionally, both ownerships are scared and inviolable;No.2 Make further clarification of the principal position of market economy, “deepen economic system reform by centering on the decisive role of the market in allocating resources”, as President Xi addressed in the third Plenary Session of the 18th CPC Central Committee;No.3 Implement the guiding principles of “comprehensively promoting law-based governance” of the fourth plenum. The rule of law is essential for economic growth, irreplaceable to protect private ownership, and necessary to encourage innovation and entrepreneurship.

Above are three rules for us to avoid falling into the Middle-income Trap. Assuming that we are breaking systematic barriers to private enterprises’ participation in market economy, and boosting innovation and entrepreneurship of our society, then we are heading towards a promoting direction. We are marching in the path of light, regardless of the ups and downs of Sino-US relationship, the drop in GDP growth rate, or the monetary policy.

These principals also apply on knowing how better to run a business: don’t be hedged by rules and regulations at the beginning, pay more attention to your survival, and you’ll learn more when you start your second business.

For many years, Huawei has been the only Chinese company on the list of the Top 50 R&D Spenders. Regardless of the economy and its income, what Huawei has been doing is investing in its future, dedicated to R&D, continuously and resolutely. This provisional work underscores Huawei’s accomplishments, making Huawei anindustry leader.

So, there are standard answers on how to run a company,which could be summarized as concentration and professional dedication, continuous investment on innovation and trying harder in R&D. Entrepreneurship is also important, every single company needs entrepreneurs to push aside all obstacles and difficulties, to implement strategies and ideas. We, as investors, are destined to look for such outstanding entrepreneurs and their companies, invest in them and partner with them.

At this key point of history, a country, a company, or asingle individual, will all need to find the right path. Four decades after the Reform and Opening-up, it’s time to learn from our experience and stop “wadding across


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