2018.11.19 Wu Shun Views:
At the 2018 China Equity Investment Summit Forum & the Second Golden Bull Award for Equity Investment in China’s Ceremony held on November 17th, CoStone Capital Zhang Wei delivered a keynote speech titled The Spring of Institutional Investors Is Here. In his speech, he said 5% listed companies have met the criteria of value investment for which he came up with 7 measurements.
CoStone Capital Zhang Wei: The Spring of Institutional Investors Is Here
At the 2018 China Equity Investment Summit Forum & the Second Golden Bull Award for Equity Investment in China’s Ceremony held on November 17th, CoStone Capital Zhang Wei delivered a keynote speech titled The Spring of Institutional Investors Is Here. In his speech, he said 5% listed companies have met the criteria of value investment for which he came up with 7 measurements.
For investors who are still dwelling on macroeconomy, Zhang Wei responded, “what kills an investment isn’t macroeconomy, but trend-chasing bias.”
CoStone Capital Zhang Wei
The secondary market has experienced substantial volatility since the beginning of this year, and many listed companies have seen their share prices plummet. But Zhang Wei thought only a few listed companies are worth investing in. He analyzed the value of current public firms from the perspective of a venture capitalist, and he concluded that there were 5% of them having met the criteria of value investment.
He made the conclusion based on 7 evaluative criteria he had come up with when selecting what stocks to invest in: there is little correlation between the industry and the macro economy; market value is over ¥2Bn; the current P/E is lower than the historical average P/E by more than 20%; the ratio of goodwill to net assets is less than 20%; the net profit compound growth rate in the past three years is greater than 15%; the liabilities to assets (L/A) ratio is less than 70%; and the 2018 forecast ROE is greater than 15%
Zhang Wei said that based on the investment experience of CoStone Capital for many years, only those companies that stick to their main business and focus on solving their own core problems, rather than those that blindly chasing new technologies and new business models, are truly valuable. At present, Chinese listed companies have low levels of commitment to R&D overall, and they are not good at original research.
Zhang Wei said, “Make continuous investment in main businesses and promising fields. Keep calm and carry on. Just like what Huawei and Hengrui Medicine (600276) do. This may be the only way to get listed and also the right way to do investment.”
“Investment has nothing to do with macroeconomy which we don’t care much about. The speed of economic growth doesn’t affect our decisions,” said Zhang Wei. After the 2008 financial crisis, the U.S. economy has entered a moderate growth rate of 2%-3%, but outstanding companies, especially technology companies, are still growing rapidly. Since the Japanese economy peaked at the end of 1992, the GDP growth rate has been hovering around 0%. The overall economic growth stalled, but many companies have gone through their lifecycle and achieved rapid development.
“If you ask us which industries we are interested in, that must be consumer services, healthcare, and information technology. You ask any investment company in China, and the answer will be the same because this is the direction Chinese economy is taking in the years to come regardless of the macroeconomy. Many institutional investors have abandoned industries that are positively related to the macro economy because it can’t give any answer to investment. The real solution is your understanding of the industry, of specific companies. What we invest in is not cold macro numbers, but enterprise with their characteristics,” said Zhang Wei.
In Zhang Wei’s mind, there are only two things that need to be worked out: the growth potential and the valuation.
Above are excerpts from the report CoStone Capital Zhang Wei: Part of Listed firms Have Met the Criteria of Value Investment from China Securities Times & China Securities Journal. Access to the full text: http://www.cs.com.cn/tzjj/jjdt/201811/t20181119_5894120.html
Rewritten by Lu Ying, Edited by Du Zhixin, Li Yunzhen
Over the past year, the bull market returned, with technology leading the way.
As I said back in October 2024, the rally that began on September 24 was not merely a rebound, but a reversal. Since then, China's capital markets have undergone a broad revaluation, moving from undervaluation toward fair value.
The Shanghai Composite Index reached its highest level in a decade. The "Yi-Zhong-Tian" trio—Eoptolink, Zhongji Innolight and TFC Communication, three prominent Chinese optical communications stocks—saw their share prices multiply severalfold in a single year. Cambricon's market capitalization briefly exceeded RMB 600 billion. Elsewhere in the technology sector, triple-digit price-to-earnings ratios and valuations exceeding RMB 10 billion became commonplace.
Some investors were greedy; others, fearful. Still others asked me: Are technology stocks in a valuation bubble?
My answer is that what we are witnessing is the hunger and anxiety of an era, reflected in the capital markets. Once you understand this, the current fervor for technology investing is no longer difficult to explain.
Investment has nothing to do with macroeconomics, but everything to do with geopolitics.
China-US relations will shape the investment landscape for decades to come. Geopolitics has played a major role in shaping the hunger and anxiety of our times, fundamentally reshaping the way we invest.
What, then, lies at the heart of China's hunger and anxiety?
The Fourth Industrial Revolution is already underway, yet China has not fully overcome the technological shortcomings left by the Third. There is no time to lose.
This is why some people wonder: Why do Chinese computing chip companies command such high valuations when their technologies still lag so far behind NVIDIA's? Why does NVIDIA trade at just 50 times earnings, while a company hailed as "China's answer to NVIDIA" commands a multiple of 300?
To me, this gets the logic exactly backward.
It is precisely because these companies cannot catch up with NVIDIA in the near term that they command a higher strategic premium. The wider the technological gap, the greater the strategic value.
The further something lies beyond our reach, the stronger our hunger. The harder it is to catch up, the deeper our anxiety. If China were to achieve a complete breakthrough in computing chips one day, valuations might actually come down.
Where can one find China's most spectacular natural landscapes?
Much of the answer, I believe, lies in and around the Hengduan Mountains: the Meili Snow Mountains, Jade Dragon Snow Mountain, Mount Gongga, Mount Siguniang, Jiuzhaigou, and many others. Vast differences in elevation and deep fault lines have given rise to landscapes of extraordinary grandeur.
Hard-tech investing follows a similar logic.
Technological gaps, discontinuities in capabilities, and missing links in industrial systems: a leap in difficulty brings a leap in valuation, and a successful breakthrough can, in turn, bring a leap in returns.
This logic extends well beyond computing chips. It is equally evident in memory semiconductors, commercial spaceflight, and other sectors where China still faces substantial technological gaps with other countries.
It was precisely this conviction that led CoStone Capital, starting in 2016, to decisively focus its investments on three areas: hard tech, emerging industries, and life sciences and healthcare. In this context, "hard tech" refers specifically to important industries in which China faces a technological gap with the United States.
Thanks to this forward-looking strategy, CoStone Capital established an early presence across the full value chains of key sectors, including semiconductors, artificial intelligence, and robotics.
Looking ahead, the frontiers of technological progress and industrial upgrading are boundless. Nor can the gaps in hard technology be closed overnight. The twin windows of opportunity presented by technological innovation and the development of homegrown alternatives to foreign technologies have only just begun to open.
The road ahead is long, but the future holds immense promise.
As an investment firm, CoStone Capital will continue to invest where the hunger and anxiety of each era run deepest, move forward with the tensions that shape our times, and extend our reach toward the most challenging—and most important—frontiers.
Spring 2026