Our Perspectives | A Retrospective of Value Investment in China (1990-2026): Three Decades of Evolution from Speculative Trading to Long-Termism
文章免費5 天前
Abstract
Over more than 30 years of China's capital market, value investment has evolved from an "imported concept" to a "mainstream consensus", going through five stages: emergence, exploration, alienation, establishment, and localization reconstruction. Institutional improvement, increasing institutionalization, opening-up to the outside world, and regulatory guidance have jointly driven the market's transformation from a "policy-driven and theme-driven market" to one "driven by fundamentals and dominated by long-term value". This report systematically sorts out the evolution context, core drivers, practical challenges and future trends of value investment in China, providing a reference for the industry.
I. Origins and Theoretical Foundation: The Fundamental Logic of Value Investment
Value investment was theoretically founded by Benjamin Graham. In 1934, Security Analysis proposed the core framework of "intrinsic value + margin of safety", advocating "buying when the price is below intrinsic value and holding for the long term to wait for value reversion". Warren Buffett and Charlie Munger upgraded it to an integrated system of "high-quality enterprises + long-term holding + economic moat", which has become the global mainstream investment paradigm.
The three core principles of value investment:
Intrinsic Value: The discounted sum of a company's future cash flows, independent of market price;
Margin of Safety: Buying at a price significantly below intrinsic value to resist uncertainty risks;
Long-Termism: Ignoring short-term fluctuations, accompanying high-quality enterprises to grow, and sharing compound interest returns.
II. Five Stages of Value Investment Development in China (1990-2026)
Stage 1: Chaotic Emergence Period (1990-2001) – Speculation Dominated, Value Desert
Market Characteristics: The establishment of the Shanghai and Shenzhen Stock Exchanges, small market size, lack of regulations, retail-dominated trading, rampant market manipulation, and widespread speculation on the "Old Eight" and "Old Five" stocks.
Investment Ecosystem: No fundamental analysis; policy-driven, theme-driven, and shell speculation were the core logics; short-term price difference games dominated, with extremely high turnover rates.
Value Enlightenment: In the late 1990s, the works of Graham and Buffett were introduced. A small number of visionary pioneers tried fundamental analysis, but "value investment" was unrecognized and incompatible with the market.
Key Events: The establishment of the China Securities Regulatory Commission (CSRC) in 1993 marked the start of unified regulation; the "5·19" market rally in 1999 saw frenzied speculation on technology concept stocks, pushing speculation to its peak.
Stage 2: Exploration and Trial Period (2002-2008) – Concept Introduction, Tested by Bull and Bear Markets
Market Characteristics: Implementation of the Securities Law, launch of the split-share structure reform, collapse of manipulated stocks, prolonged market decline, and the first systematic trial of value investment.
Concept Dissemination: Rapid development of public funds after 2001, which advocated value investment; best-selling of Graham and Buffett's works; "margin of safety, low PE, high dividend" became the early consensus among value investors.
Initial Practice: During the 2005-2007 bull market driven by the split-share reform, blue-chip and resource stocks led the gains. Value investment achieved large-scale "effectiveness" for the first time, and "buying good companies and holding for the long term" began to be accepted.
Bull-Bear Baptism: The 2008 global financial crisis caused a sharp plunge in A-shares. Investors who adhered to value investment and held high-quality undervalued assets suffered smaller losses and recovered faster, verifying the "anti-fragility" of value investment.
Core Contradiction: Value investment conflicted with the market's speculative atmosphere. "Value stocks stagnating for long periods while theme stocks soaring continuously" became the norm, and value investors were often ridiculed for "not understanding the market".
Stage 3: Alienation and Reflection Period (2009-2015) – Growth Hype, Value Dormancy
Market Characteristics: Rebound of cyclical stocks after the 4 trillion yuan stimulus package; the 2014-2015 leveraged bull market; "storytelling and expectation speculation" on ChiNext and SME Board stocks, leading to valuation bubbles.
Value Alienation: Value investment was marginalized, and "pseudo-value" prevailed: speculating on themes and concepts in the name of "growth" while ignoring fundamentals; low-valuation strategies failed for a long time, and financial, real estate, and cyclical stocks consistently underperformed the market.
Reflection and Awakening: The 2015 stock market crash, with leverage collapse and bubble burst, caused heavy losses to pure speculators and pseudo-value investors. The market began to reflect that "speculation divorced from fundamentals is unsustainable".
Institutional Differentiation: Public funds faced heavy short-term assessment pressure, leading to herd behavior in high-growth sectors and exacerbating volatility; a few institutions adhering to value investment (such as Freshwater, Oriental Harbor, and Chongyang) survived bull and bear markets and achieved long-term returns.
Stage 4: Establishment and Golden Age (2016-2020) – Institutional Dominance, Core Assets
Institutional Inflection Point: Supply-side structural reform eliminated excess capacity, increased industry concentration, and improved the profitability of leading enterprises; the inclusion of A-shares in MSCI and the launch of the Shanghai-Hong Kong Stock Connect brought large-scale foreign capital inflows, which preferred core assets with high ROE, stable cash flow, and low valuation.
Style Shift: The market shifted from "theme speculation" to fundamental-driven trading. Value investment became the mainstream consensus, and "core assets" (such as Moutai, Gree, and Hengrui) continued to strengthen, ushering in the golden age of value investment.
Accelerated Institutionalization: Long-term funds such as social security funds, pension funds, and insurance funds entered the market; the scale of public funds exploded; the proportion of institutional investors increased; market turnover and volatility decreased.
Upgraded Value Connotation: Evolved from Graham-style value focusing on "low price-to-earnings ratio (PE) and low price-to-book ratio (PB)" to Buffett-style value focusing on "high-quality enterprises, deep moats, and long-term growth", integrating growth and value.
Accumulated Contradictions: Valuation bubbles in consumer and technology stocks in 2020; failure of traditional value indicators (PE, PB); intensified market differentiation; and severe herd behavior in "core assets".
Stage 5: Localization and Reconstruction Period (2021-Present) – Diversified Integration, Deep Long-Term Cultivation
Market Characteristics: Full implementation of the registration-based IPO system, inclusive listing thresholds, increased supply of high-quality companies, and significantly weakened valuation logic of shell resources; the "dual carbon" goal, AI revolution, and digital economy are reconstructing the value system.
Value Reconstruction:
ESG Value: Under the dual carbon goal, new energy and green industries have become new value benchmarks, and long-term growth + social responsibility have been incorporated into value assessment;
Technology Value: Hard technologies such as AI, computing power, and humanoid robots, although unprofitable in the short term, have technical barriers and global market share as core valuation logics;
Deep Value: Valuation repair in traditional low-valuation sectors (finance, real estate, cyclical), high-dividend strategies are favored, and "cigarette butt" value investment returns.
Ecosystem Improvement:
Regulatory Guidance: The CSRC advocates long-term, value, and rational investment, cracks down on financial fraud and insider trading, and improves the delisting system and investor protection mechanisms;
Mature Investors: Declining proportion of individual investors, increasing institutionalization and professionalization, continuous inflow of long-term funds, and continuous optimization of the value investment ecosystem;
Local Adaptation: Chinese value investment is no longer "copying the West", but integrating China's economic structure, policy orientation, and industrial characteristics to form a localized system of "long-termism + fundamentals + industrial trends + policy compliance".
Practical Challenges:
Short-Term Assessment Pressure: Quarterly/annual assessments of public funds still lead to short-term behaviors, exacerbating volatility;
Information Asymmetry: Financial fraud and non-standard information disclosure make it difficult to identify high-quality enterprises;
Policy Uncertainty: Adjustments in industry regulatory policies affect long-term corporate expectations and increase the difficulty of value assessment;
Long Value Reversion Cycle: The still high proportion of retail investors and emotional trading lead to a much longer value reversion cycle for A-shares than US stocks.
III. Core Drivers: The Underlying Logic of the Rise of Value Investment in China
1. Institutional Dividends: Legalization and Marketization Reform of the Capital Market
Registration-Based IPO Reform: Broke the "shell resource" myth, increased the supply of high-quality companies, and shifted the market from "speculating on small, new, and poor-performing stocks" to "selecting good companies and holding for the long term";
Stricter Regulation: Cracked down on financial fraud, insider trading, and market manipulation, improved information disclosure quality and investor protection mechanisms, providing institutional guarantees for value investment;
Normalized Delisting: Increased delisting rate, improved the phenomenon of bad money driving out good money, and allowed high-quality enterprises to obtain valuation premiums.
2. Evolution of Investor Structure: Institutionalization, Long-Termization, and Internationalization
Rise of Institutional Investors: The scale of public funds, private funds, social security funds, pension funds, and insurance funds continues to expand, and institutional trading accounts for more than retail trading, shifting the market from "emotion-driven" to "fundamental-driven";
Foreign Capital Inflow: The Shanghai-Hong Kong Stock Connect and MSCI inclusion of A-shares have brought global long-term capital inflows, introduced mature value investment concepts, preferred high-quality enterprises with high ROE and stable cash flow, and reshaped the market valuation system;
Mature Individual Investors: Popularization of investor education, deep-rooted concepts of long-term and rational investment, and retail investors shifting from "chasing gains and cutting losses" to "fundamental analysis and long-term holding".
3. Economic Transformation and Industrial Upgrading: Highlighting the Value of High-Quality Enterprises
High-Quality Economic Development: Shift from high-speed growth to high-quality development, increased industry concentration, and leading enterprises' continuous enhancement of profitability through technological, brand, and channel advantages, becoming core targets of value investment;
Industrial Upgrading: The rise of emerging industries such as new energy, AI, digital economy, and high-end manufacturing, and market recognition of high-quality growth enterprises, expanding value investment from "traditional low valuation" to "high-quality growth + reasonable valuation";
State-Owned Enterprise Reform: Improved corporate governance and increased dividend rates of state-owned enterprises, making low-valuation, high-dividend, and stable-growth state-owned enterprises an important allocation direction for value investment.
4. Regulatory Guidance and Cultural Reshaping: Long-Termism Becoming a Consensus
Policy Advocacy: The CSRC has repeatedly emphasized "advocating long-term, value, and rational investment", promoted the entry of long-term funds, improved institutional assessment mechanisms, and guided institutions to invest for the long term;
Industry Culture Building: The Asset Management Association of China promotes a compliant, honest, professional, and prudent industry culture, opposes short-term and speculative behaviors, and value investment has become the mainstream industry culture.
IV. Practical Challenges: The Localization Dilemma of Value Investment in China
1. Market Environment Constraints: Short-Termism and Emotional Trading Still Exist
Still High Retail Proportion: Individual investors account for more than 40% of trading volume, and emotional trading and chasing gains/cutting losses lead to large market volatility and long value reversion cycles;
Short-Term Assessment Pressure: Quarterly/annual assessments of public funds still lead to herd behavior in high-growth sectors and short-term games, exacerbating market volatility;
High Turnover Rate: A-share turnover rate is much higher than that of mature markets, short-term price difference games still have a market, and long-termism faces challenges.
2. Uneven Quality of Listed Companies: Scarcity of "Good Companies"
Divergent Profitability: The average ROE of A-share listed companies is lower than that of US stocks, and high-quality enterprises with long-term high growth and deep moats are scarce;
Low Dividend Rate: The average dividend rate of A-shares is less than 2%, weak shareholder return awareness, and limited long-term holding returns;
Non-Standard Information Disclosure: Financial fraud, delayed/false information disclosure, and serious information asymmetry increase the difficulty of value assessment.
3. Distorted Valuation System: Imbalance Between Value and Growth
Overvaluation of High-Quality Enterprises: Excessively high valuation premiums for core assets and high-quality growth stocks, insufficient margin of safety;
Value Traps: Some low-valuation enterprises have deteriorating fundamentals and declining profitability, seeming cheap but actually destroying value;
Significant Policy Disturbance: Adjustments in industry regulatory policies lead to short-term reconstruction of the valuation system, affecting the long-term logic of value investment.
V. Future Trends: Local Deep Cultivation and Global Integration of Value Investment
1. Concept Integration: Long-Termism + Fundamentals + Industrial Trends + ESG
Deep Integration of Value and Growth: No longer separating "value" and "growth", focusing on high-quality enterprises, reasonable valuation, and long-term growth, balancing margin of safety and growth space;
ESG Incorporated into Core Framework: Environment, social responsibility, and corporate governance have become important dimensions of value assessment, and green industries and responsible enterprises obtain valuation premiums;
Strengthened Local Characteristics: Integrating China's economic cycles, industrial policies, and market structure to form a value investment system with Chinese characteristics.
2. Ecosystem Improvement: Coordinated Efforts of Institutions, Investors, and Regulations
Continuous Institutional Optimization: Further improvement of the registration-based system, delisting system, and investor protection mechanisms, enhanced information disclosure quality, providing a more solid guarantee for value investment;
Continuous Inflow of Long-Term Funds: The scale of social security funds, pension funds, insurance funds, and foreign capital will continue to expand, and the trend of institutionalization and long-termization is irreversible;
Deepened Investor Education: Popularization of long-term and value investment concepts, improved professional level of individual investors, and continuous improvement of market rationality.
3. Global Integration: Connecting Global Capital and Empowering Chinese Enterprises
Deepened Two-Way Opening-Up: Continuous expansion of cross-border investment channels such as the Shanghai-Hong Kong Stock Connect, Bond Connect, and mutual fund recognition, and deep integration of China's capital market with the global market;
Localization of Global Value Concepts: Absorbing global mature value investment experience and combining it with China's market characteristics to form a value investment paradigm with both international vision and local insight;
Global Allocation of Chinese Value Assets: High-quality Chinese enterprises are recognized by global capital and become an important allocation direction in global value investment portfolios.