In a recent newsletter, prominent private equity fund manager Dong Chengfei articulated a cautionary stance regarding the current market dynamicsHe emphasized that if market gains are primarily driven by substantial trading volume leading to a short-term wealth effect, subsequent volatility is inevitableAs the market experiences a second stage characterized by broad-based gains followed by "style differentiation," many investors find themselves struggling to navigate this turbulenceWhile a few lucky ones might successfully predict the prevailing style, the challenge remains for investors to secure steady and reliable returns amid these fluctuations.

The recent increase in market volatility has raised concerns among investment managersA quantitative private equity fund manager acknowledged that in such a market environment, a balanced asset allocation strategy is more crucial than ever

Li Chengtao, a partner at Qianxiang Asset Management, noted in an interview with a Chinese financial publication that in a volatile market, they plan to incorporate index-linked products into their asset allocationAdditionally, they intend to integrate various assets, including CTA strategies and government bond futures, aiming to smooth out the net asset value fluctuations through a well-balanced allocation.

Dong Chengfei urged investors to exercise cautionHe remarked that the market is not solely binary, existing only in bullish or bearish statesThe real assessment of whether we are in a bull market can only be determined retrospectivelyMaintaining a respectful attitude toward the market is essential, warning against the dangers of prematurely assuming a bullish trend and acting recklessly, which could lead to significant losses down the line.

As investment decisions become trickier, especially in the A-share market, where numerous companies are not particularly cheap, selecting the right style emerges as critical

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An investment manager from Ningyongfu Fund mentioned that their current allocation leans more heavily towards Hong Kong stocks than A-shares, expressing a preference for putting greater resources into cheaper assetsCitic Securities recently indicated that since September 24, liquidity in the Hong Kong market has significantly increased alongside a resurgence of market risk appetite, citing that current risk premiums and dynamic price-to-earnings ratios are either at reasonable levels or historical lows.

Renqiao Asset noted that since late September, the market has seen substantial gainsWhile enthusiasm for long positions has been effectively stimulated, this has also rendered the previous "explosive growth" difficult to sustainThe firm has begun implementing tactical adjustments, prioritizing the control of short-term volatility over merely seeking profits by altering the structure of their portfolio to reduce exposure to risks.

Attention to economic fundamentals is increasingly essential

Zhu Jigang, Executive Director and Investment Director at Xitai Investment, pointed out the currently lively funding environmentThis convergence of active capital alongside persistent uncertainty in the fundamental backdrop is leading to an influx of investments into themes centered around mergers, acquisitions, and technological advancementsDespite the ample amount of small-cap opportunities available in the A-share market, caution is warranted; historical experiences illustrate that small-cap stocks tend to experience extreme volatility, making reliance solely on market sentiment potentially problematic.

Zhu further emphasized the importance of monitoring the effectiveness of recently implemented policies and real economic improvementsThe pathway to the next phase of a bull market likely hinges on continued improvement in economic fundamentals aligned with the prevailing market optimism

Investors who focus heavily on fundamental factors would need to exhibit patience, as thematic investments driven by market emotion could linger for a while, albeit with an increasingly rapid turnover rate among sectors.

Focusing on short-term investment strategies rooted in fundamental performance may yield more favorable outcomesRuiseng Asset recommends a balanced asset allocation strategy, concentrating on industries backed by solid performanceSpecifically, it suggests keeping an eye on companies with robust operational barriers in the consumer and new economy sectors, such as leading internet firms and prominent consumer niche leadersThe logic behind this approach is clear: as the economy rebounds, an improvement in domestic demand is anticipated to lift the earnings of leading internet companiesEven if there are short-term inconsistencies in fundamentals, these leading companies' operational resilience can better withstand volatility risks