Investing in stocks requires insight from expert analysts' reports, which are authoritative, professional, timely, and comprehensive, assisting you in uncovering potential thematic opportunities! Li Xunlei is the Chief Economist at Zhongtai International and Vice Chairman of the Chinese Chief Economists Forum.

The Shanghai Composite Index is eyeing the 4000 point mark, while the stock market has reached a ten-year high; international gold prices have soared, breaking through the $4300 per ounce threshold. What drives this wave of market activity, and can it be sustained? What is the "ceiling" for gold? In the face of a complex and dynamic market environment, how should ordinary people allocate their assets?

In light of these issues, Observer Network's new video podcast “MindStream” has invited Li Xunlei, the Chief Economist at Zhongtai International, for a dialogue. With over 30 years of research in the securities market, Li has witnessed the development of China's capital market following the reform and opening up. In this episode, he provides an in-depth analysis of the driving logic behind the stock and gold markets, along with some advice for ordinary investors.

Wang Hui: Hello, Xunlei! We see you have many awards in your office; you must be one of the most seasoned researchers in China's securities industry. When people discuss the securities market, they often use descriptors like "volatile" and "dramatic." Many investors' emotions rise and fall with market fluctuations. Have you studied the impact of techniques and psychology on investment success or failure? Are the experts merely psychologically superior?

Li Xunlei: Yes, I have over 30 years of research experience. I believe people face two major weaknesses that most investors find hard to overcome: greed and fear. If you can conquer these two vices, I believe your investments will succeed.

However, knowing is easy, acting is hard, as this is determined by human nature. To achieve this requires considerable mental discipline, which indeed is difficult.

Buffett has also said that investing is an anti-human game. Human nature exhibits herd behavior, with everyone chasing opportunities and fleeing crises. This herd mentality is hard to change, and those who can overcome it not only tend to excel in investing but also likely succeed in other areas.

Wang Hui: Ultimately, one competes on mental aptitude. Given the market's complexity, what psychological preparations do you think new and seasoned investors should make before entering the market?

Li Xunlei: The capital market's ups and downs resemble a condensed version of life. Over time, one may become calmer. However, most people cannot help but chase highs and sell on dips. Before investing, you should seriously consider a strategy: buy low and sell high. Once caught up, a herd mentality may take over. If you see a surge, you get excited; if prices drop, you panic, worrying about further declines. How to manage this? Focus on the fundamentals of the listed companies. If investing in stocks, assess their fundamental performance: Is there sustainable growth? In terms of China's economy, we need to consider which phase we currently find ourselves in.

During the Boao Asia Forum in 2017, I debated with a scholar about the potential peak of the real estate market, predicting around 2020. He thought it impossible. I also can’t be sure when the peak will hit, but I am confident of one thing: no asset will only rise or only fall indefinitely.

There must be a fundamental principle: when valuations are too high, assets will definitely correct; when valuations are too low, they will definitely recover. Therefore, it is crucial to make an initial judgment on what valuation stage an asset is at, and avoid jumping in at inflated levels.

I have always advised investors: it’s okay to miss an opportunity. If you don't want to miss it and chase after a surge, while it might continue to rise, the extent of that increase may be limited. This might mean you'll miss the next opportunity to buy in at lower prices.

Actually, knowing when to forgo is also an art. Years ago, I enjoyed playing Go, which emphasizes a broad perspective. Sometimes you must abandon pieces, avoiding unnecessary entanglements. You shouldn’t feel compelled to chase every opportunity; this often results in more losses than gains.

Wang Hui: Indeed, investing in A-shares tests one's mentality significantly; there's an old phrase, "Bull runs are short, bears are long, and retail investors are busy." Why is this the case?

Li Xunlei: This is primarily due to the speculativeness of our market. I pay close attention to turnover rates; the turnover in A-shares is the highest among major global economies, indicating frequent trading.

Such a dynamic elevates valuations. Our market isn't characterized by long periods of undervaluation; stocks remain fairly valued or overvalued most of the time. When valuations are high, making profits becomes difficult, leading to the "bulls being short and bears being long."

Two decades ago, I wrote an article titled "Why A-share Investors Love Listening to Stories but Disregard Valuations." Investors show keen interest in stories—discussions about projects and unprecedented opportunities. Take the internet bubble era, when discussions focused more on growth potential than P/E ratios. Our investors are largely captivated by stories, often fantasizing about underdogs becoming winners.

The current A-share market reflects a similar trend. For example, companies with a market cap of under 30 billion yuan have high trading volumes, accounting for nearly 70% of total trades, while companies valued over 100 billion yuan have far lower volumes, representing around 17% (compared to over 80% in the US markets). However, smaller companies account for about 10% of total market profits, while larger firms are stable industry leaders with predictable earnings and no compelling narratives to share.

Wang Hui: Recently, many have been discussing the concept of a "slow bull." Historically, it seems A-shares have never experienced a "slow bull," only "crazy bulls" or "long bears." Is that correct?

Li Xunlei: Having worked in the field for many years and experienced A-shares over its 35-year history, I consider the overall trajectory to be one of progress. The capital market is maturing continuously. In the past, speculation was rampant; in the 1990s, A-share turnover hit extraordinary levels, trading more than twenty times a year. Since then, with increased participation from institutional investors, turnover has decreased, and valuation levels have lowered.

In the US, individual investors account for about 20% of trades today. They transitioned from being over 80% of the trading volume, taking over 70 years to transform from a retail to an institutional-led market.

A-shares, having only existed for 35 years, will eventually evolve into a much more rational market that emphasizes value investment, but it will require time. Along this journey, we will periodically witness dramatic market fluctuations. Many are optimistic about the influx of capital, anticipating the state team's intervention and stabilization funds, yet investor attention is still predominantly focused on monetary policies rather than governance issues. The nature of the market often reflects the type of investors involved—what kind of companies appeal to those investors?

However, I believe that as the market increasingly becomes more regulated and matured, investors will also mature, value investment will be revered, and corporate governance will improve over time, albeit requiring patience.

Wang Hui: Recently, optimism abounds, with the market performing quite well, with the Shanghai Composite Index aiming for 4000 points. Some claim that A-shares have entered a "slow bull" trend. Is there any definitive definition or condition that qualifies as a "slow bull"?

Li Xunlei: Whether we are in a "slow bull" market can only be affirmed in hindsight. We can’t declare it a "slow bull" now, as since last year's "9-24" until now, the upward momentum has only lasted a little over a year. One year of rising cannot be proclaimed a "slow bull." If this endures for three to five years, then we might say it qualifies.

Wang Hui: Do you believe we need three to five years of consistent, moderate growth to label it a "slow bull"?

Li Xunlei: Yes, asserting it's a "slow bull" at this stage is premature. We should assess what has driven this recent uptick in market momentum—are improvements in company fundamentals responsible, or is it due to falling interest rates, monetary easing, or policy stimulus? Understanding the underlying causes driving market growth, along with recognizing potential risk areas, is crucial.

Wang Hui: You mentioned last year's "9-24" could be considered the start of this market's rally. The "924 event" saw a 1000 point surge in just a few days, attracting many young investors from the 80s, 90s, and even 00s. What kind of "bull" does this represent? Is it healthy?

Li Xunlei: This could be characterized as a "fast bull" or "crazy bull." Indeed, it indicated a policy shift; the hallmark of "9-24" was this pivot in our fiscal and monetary policies, which ramped up expectations. The market surged but then corrected. I believe it marks the beginning of a bull market rather than a short-term spike. We can't regard spikes as sustainable trends since minor fluctuations shouldn't deceive us; rather, they are merely catalysts for broader movements.

It's essential to view this in a holistic sense, interpreting bursts of growth and subsequent drops as part of a larger narrative, rather than concluding it's over after one rise and fall; this marks merely the start.

Wang Hui: Now, after more than a year, what stage is the market in?

Li Xunlei: Currently, I view our valuation levels as moderate—not overly expensive or cheap. While certain segments like the tech-focused STAR Market have relatively high valuations, there's reasoning that it could achieve significant growth. Yet, the average P/E ratio there likely far exceeds that of the US Nasdaq. Meanwhile, the valuation for the CSI 300 is relatively moderate, lacking conspicuous bubbles but not being at a low either, given the notable rise from 2700 to nearly 4000 points. Technically, this indicates a bullish phase.

Some specific sectors have shown significant price increases—what accounts for this? On one hand, we are indeed entering the AI era, arguably managing the Fourth Industrial Revolution, during which some companies will undoubtedly rise. Thus, the upward trends for these firms may be logically enduring.

Conversely, corporations face lifecycle limitations, leading to a 20/80 scenario: 20% of firms may thrive, while 80% remain mediocre. Identifying poor performers often only comes to light during downturns. While predicting when such retractions might occur is uncertain, I firmly believe that 80% of today’s high-flying tech stocks could later appear subpar and unworthy of long-term ownership.

Wang Hui: Let’s examine the market pace. Is it consistent with governmental expectations and market norms?

Li Xunlei: First, with the market nearing 4000 points, we have likely achieved the outlined objectives aimed at stabilizing stock prices, preventing extreme fluctuations, thus meeting policy expectations.

Secondly, from a market trend perspective, the A-share market has been flat since peaking in 2021. The rebound observed this year feels entirely reasonable. For instance, Japan's market experienced three significant rebounds after the 1991 real estate bubble burst. The first was from 1995 to 1996, showing a 55% increase over one year; the second from 2005 to 2007 saw gains of over 50%. Even a market under duress, as Japan faced post-bubble, experienced noteworthy recoveries. Notably, A-shares enjoy considerable policy backing from various channels, especially from state intervention through securities investment funds and additional avenues.

Wang Hui: Recently, Trump's threats of imposing tariffs on China have impacted global markets. How do you interpret the A-shares' response? To what extent do you believe this external factor affects the A-shares' stable upwards trajectory?

Li Xunlei: I perceive the influence as limited. Recall that in April, Trump abruptly proposed comprehensive tariffs globally, threatening to raise rates on China to 135%. In response, our high-level meetings swiftly adjust priorities, placing "stabilizing the stock market" above real estate policy, highlighting the current administration's focus on market sentiment amid trade wars.

Akin to this logic, should renewed trade battles arise, I anticipate further policy support. Moreover, an array of policy tools remains available; thus, there's no cause for excessive pessimism.

Clearly, market corrections are normal, akin to tides ebbing and flowing. Given the current market appreciation, mid-term adjustments are to be expected; however, these corrections aren't necessarily tied to trade tensions or tariffs proposed by Trump. Hence, confidence in the long-term outlook remains valid, though short-term projections are uncertain.

Wang Hui: To maintain a stable upward trajectory and embark on a widely anticipated "slow bull" market, what do you believe are the determining factors?

Li Xunlei: The core factors center on fundamental performance, particularly the growth of listed companies' profits. Focusing on constituent indices, like the CSI 300 or CSI 100, which encompass predominantly larger and well-performing companies is essential. If these firms can enhance their fundamentals, I believe a "slow bull" trend is sustainable.

Currently, however, the challenge lies in maintaining profit growth rates, which today hover around 2.5% for listed companies’ profit increases in the first half of the year. For a "slow bull" to emerge, a minimum growth rate of at least above 10% would need to be established.

Wang Hui: It's often said that the stock market acts as a "barometer" for the economy, but this barometer seems misaligned with China's economic trends. Recent statistics indicate no significant changes, and profit growth appears lackluster, as you've noted. How then has the stock market sustained its upward momentum over the past year?

Li Xunlei: This can be understood as follows: stock prices fundamentally hinge on corporate earnings growth and the prevailing interest rates. If earnings growth is sluggish but interest rates decrease sharply, valuations can increase accordingly. Similarly, if risk-free rates remain stable while earnings rise, stock prices may also appreciate.

I prefer to use the PEG (Price/Earnings to Growth) ratio for evaluation. A high growth rate drives down the PEG, signaling investment value. Conversely, if growth is stagnant and the P/E declines, it can reflect improved valuations. Both aspects contribute to stock price increases in this round.

This recent rally is more closely related to rising valuation levels. For instance, declining bank deposit rates dissuade capital from savings, pushing individuals toward stocks or alternative investment vehicles.

Wang Hui: Movement of deposits.

Li Xunlei: Exactly, that contributes to the stock market's rise. In 1995, one reason behind the Japanese stock market's rally was the halving of interest rates, pushing valuations higher. Should we also lower rates significantly next year, upward momentum may persist.

I believe both influences are present, but it's unlikely that interest rates will continue descending indefinitely—prolonged rate drops could potentially harm banks. Hence, achieving a "slow bull" requires rising corporate profits. However, declining financing costs due to lower interest rates also favor profit growth, allowing both variables to positively impact the market.

Wang Hui: What are your views on the overall valuation of A-shares? You mentioned it as being “moderate.”

Li Xunlei: The term “moderate” indicates a comparison within historical contexts. Currently, A-share valuations hover around historical medians. This translates to not being perceived as high or low. In contrast, the US S&P 500 and Nasdaq indices sit above their medians, suggesting a bubble in US equities relative to historical comparisons.

Wang Hui: If we witness a "slow bull" trend, would we anticipate upward shifts in valuation levels?

Li Xunlei: If valuations do ascend, it signals heightened risk appetite from investors. My preference would be for stability in valuations while indices rise; this would imply profit growth. Should profits sustain their upward trajectory, and valuations stay reasonably positioned, stock market growth becomes sustainable.

The most favorable stock market uptrend isn’t spurred by increasing P/E ratios. For example, the recent STAR Market technology-focused ETF showcases an astonishing average P/E ratio around 180, which is quite excessive. Many rationalize this by projecting optimistic future earnings growth upwards of 100 or even 200%. Essentially, this means recovering earnings would take 180 years.

Wang Hui: Recently, there's been a significant migration of deposits, as bank interest rates are low, leading many to transfer funds into stocks or different equity markets for better returns. How do you perceive this trend, and what might it indicate?

Li Xunlei: Based on July data, there's indeed evidence of funds migrating from savings, but August figures suggest this trend isn’t overwhelmingly strong—some migration exists, yet overall household savings have increased.

Currently, residents’ deposits exceed 160 trillion yuan. Evaluating the potential outflow quantifies several trillion; however, moving pent-up savings substantially upward is unlikely.

Broad-based deposit migration seems unrealistic, reflecting a downward trend in household leverage since 2021. Households typically increase leverage as economic cycles rise, evidenced during ascending property prices. Following the peak in real estate in 2021, household savings have risen, indicating a tendency for wealth accumulation as they reduce debts.

Presently, we remain entrenched in a declining real estate cycle, implying households might become more conservative rather than aggressive. That said, the performance of A-shares indicates an uptick in household risk appetites—a positive development.

Wang Hui: In this recent market wave, termed a "tech bull,” segments such as chips, AI, and innovative pharmaceuticals outpace gains within the main board. Given the growth prospects in capital markets, do you foresee a structural shift in Chinese listings toward prioritizing high-tech firms?

Li Xunlei: Yes, the recent stock performance aligns with trends in the US, where tech stocks excelled. The advancements in technology and the emergence of applications relative to AI further underline this parallel.

However, consider that while American tech stocks hold higher valuations, their market doesn't approach the extreme seen within China; the Nasdaq averages around 40 times earnings—much lower than our average.

This tech bull in China raises questions regarding its underlying strength. I still emphasize the 80/20 rule, as China's sector concentration remains low compared to the US’s “Seven Sisters”—the giants responsible for substantial value. While smaller ventures could become industry leaders, not all will see growth; many will remain obscured.

Wang Hui: Recent statistics indicate tech stocks represent over 40% of the S&P 500's market cap, while China’s top ten listed firms predominantly comprise banks, insurance, and energy sectors. Though sizeable, tech growth is markedly rapid. In light of this, many regard American tech stocks as overly speculative—what do you believe about the bubbles forming in A-share tech stocks?

Li Xunlei: I hesitate to assess this objectively; however, reiterating the "80/20" phenomenon is critical. It’s essential not to presume that every tech stock represents a winning formula—only a select few will achieve significant growth, warranting the inevitable market culling.

Secondly, China's economic progression diverges from the US, as our top ten listed firms remain entrenched in traditional sectors—financial, liquor, etc. Our economic transition toward technology-based companies will necessitate additional time, yet there potentially exist a few resilient firms emerging within this landscape, albeit building robust competitors will also take time.

Given the notable disparity, US technology giants frequently achieved growth through acquisitions—historically, they engage in triple-digit deals—whereas A-shares host comparatively few acquisitions, hindering expansion efforts.

Wang Hui: It seems domestic businesses exhibit a hesitance to pursue mergers and acquisitions, whether for transitioning or expanding their influence. What do you think drives this apprehension?

Li Xunlei: There are likely several factors, including local protectionism—mergers strip tax revenues from local economies—and the dynamics within family-owned enterprises. Many private enterprises operate as family-based businesses where the ownership isn't separate from management. Such an arrangement contrasts significantly with the US model; in the latter, ownership and professional management often differ, aligning shareholders solely with maximizing profit.

Cultural conflicts around corporate governance also emerge, which complicates appetite for acquisitions, contributing to a shortage of transformative cases and inhibiting enhancement within enterprises.

This disparity is evidenced again with US market leaders where tech companies boast substantial market capitalizations, embedding them as pivotal players globally.

Wang Hui: While the commentary indicates a gradual increase in the number of tech stocks, their comparative scale versus mature US markets remains relatively modest. Notably, there’s recently been a surge in Wall Street's enthusiasm for Chinese tech stocks. What’s your perspective on this trend? Do you believe Chinese tech stocks will gain favor among international investors moving forward?

Li Xunlei: This is indeed plausible. China's implementation of AI is competitive with US capabilities, particularly in applications. I expect several industry giants will emerge from China's tech landscape, analogous to leading internet firms from past trends. However, predicting the timeframe, quantity, and reach of these players remains challenging.

Wang Hui: Regardless of prospects, will we likely encounter an “80/20” rule, wherein the strong persist and dominate?

Li Xunlei: A migration in China’s economy can’t be ignored, signifying a transition from the "old three categories" of exports to the “new three,” suggesting our manufacturing is shifting direction. Currently, investment magnifies toward technology, indicating a necessity to embrace this sector, albeit discerning which to support becomes paramount.

Wang Hui: Some experts have projected that by 2040, China's capital market could quadruple, reaching CNY 400 trillion. What’s your interpretation of this forecast?

Li Xunlei: I find such predictions lack significant value. Growth could stem from an increased number of listed firms, improved quality in listings, or a rise in valuations. Misconceptions regarding China’s equity assets often arise when solely focusing on A-shares. In reality, numerous firms have listings outside China's A-shares—Hong Kong, the US, among other regions.

Commonly, we cite the US stock market's substantial value, overshadowing GDP ratios due to limited foreign exchanges. Chinese firms often have multiple listing venues; akin to distinguishing global giants that attract US listings.

It would be shortsighted to solely anticipate A-share appreciation to carry the market towards CNY 400 trillion. Strategies to expand overall valuations may require increasing shares alongside existing entity counts. Thus, concentrations on overall composite volumes and valuations should encompass fundamentals rather than sheer quantity.

Wang Hui: Currently, many citizens are experiencing challenges, notably stagnant incomes contrasted with their savings, coupled with limited investment channels. Historically, real estate has been a favored avenue for wealth preservation and appreciation, with as much as 70% of household wealth tied up in property. Clearly, attitudes toward real estate are transitioning. In light of these changes, do you foresee a shift towards greater capital allocation in financial markets, particularly towards stocks? Might the stock market emerge as a favored investment tool, replacing real estate over the coming decade?

Li Xunlei: This is plausible. Presently, over 60% of households’ asset allocations reside in real estate, contrasting with American equivalents where stocks often hold a substantial position exceeding real estate shares. Moving ahead, it’s likely more capital will flow into markets; yet, merely possessing capital does not guarantee increased valuations.

As discussed, a discerning approach to investment remains requisite—merely being attracted to stocks doesn't necessitate gains. If the market holds merit, then greater flows into stocks will be forthcoming. It’s important to realize that commodity allocations don’t inherently correlate with price surges—market performance hinges predominantly on the earnings power and growth rates of the listed firms.

Wang Hui: To encourage a broader public participation in equity markets, investing must yield tangible results or the perception of potential profitability. Historically, however, the bulk of retail investors have found themselves on the losing end of investment activities. Why does this occur, and how can individuals protect themselves from such outcomes?

Li Xunlei: The capital market inherently functions as a mechanism of wealth redistribution. The evolution of the US market from a retail-dominated sphere to one led by institutions resulted in many retail investors being "squeezed out." Eventually, individuals who felt unsuccessful transitioned towards fund investments, acknowledging the specialization involved in the field.

Many perceive the stock market as a pathway to wealth or a means to alter fate, generating unreasonably high expectations. From historical trends, the ratio indicating profitability among individual investors within A-shares remains notably low, reflecting a need for realistic acceptance of such dynamics.

Economic laureate Robert J. Shiller conducted analyses over two decades on markets spanning 15 countries, revealing that the stock market generally fails to stimulate the consumption wealth effect—whether in bull or bear phases.

Wang Hui: Lacking a wealth effect? Why, then, do people turn to trading stocks?

Li Xunlei: Traders often earning sizable returns are those with considerable capital or institutional backing. High-income earners don't significantly drive consumer behavior via stock returns. If middle or low-income individuals were to gain, it may contribute positively to consumption; however, Shiller's review indicated minimal correlation with broader consumption patterns despite observable stocks translating into profits.

Wang Hui: The notion that the stock market lacks evident impacts on personal wealth growth appears contrary to common perceptions, as many enter trading seeking financial gain.

Li Xunlei: Indeed, this leads into questions of behavioral finance. Diverse participants exist in the market—companies, intermediaries, individual investors, institutions—all driven by profit motives.

Corporate gains stem from IPO pricing; their valuations must exceed asset acquisition figures for positive cash flow. Intermediaries reap benefits through fees, managing investors' assets, while the state capitalizes via transaction taxes. Ultimately, investor profitability remains concentrated among a minority—a reality frequently echoed in phrases like "in a group of ten, seven lose, two break even, and one profits."

Shiller’s research aimed to scrutinize stocks’ wealth effects to consumer behavior, offering implications for the erratic nature of underlying correlations observed over extensive periods.

I understand that apart from the competition among parties seeking returns, frequent trading exacerbates challenges. Investors commonly struggle with aversion to risk yet pursue gains, leading to severe losses due to a chase of price.

Housing presents a clear wealth effect since properties don't transact frequently, stabilizing values over time. Conversely, if individual stock investors maintain buy-and-hold strategies, they could realize similar potentiation of wealth.

Wang Hui: The stock market requires liquidity; if holders adopt an excessively long-term strategy, liquidity might dwindle. Furthermore, A-shares are often identified as highly retail-oriented—do you see this as a drawback or an advantage?

Li Xunlei: Markets with limited liquidity become stagnant pools. However, liquidity relies on active participants, with retail investors largely generating it, albeit incurring transactional costs. China's market surely will transition from a "retail-led market" to an "institutional-led market”—a necessary evolution within A-sharing.

Throughout this journey, numerous retail participants will inevitably face challenges due to their frequent trading behaviors and insufficient comprehension of capital markets. Their natural tendency towards herd behaviors results in lackluster performance.

Comparably, Hong Kong's stock market is markedly reducing individual investor presence. Progress is clear; in the early '90s, A-share trading consisted of 99% retail, now it's below 80%—a trajectory of improvement that comes with complexities.

Wang Hui: Most retail traders, as you noted, may find it hard to make profits, so why do so many remain interested in stock trading?

Li Xunlei: This parallels the allure of lottery gaming. The prospect of potential windfalls encourages participation.

Stock trading also encompasses numerous psychological elements; many traders prematurely sell profits while hesitantly parting with losing stocks, a common snafu. They adhere to the belief they must profit prior to selling, only to see losses escalate until forced to surrender at a disadvantage.

Wang Hui: A timely response is crucial.

Li Xunlei: With knowledge gaps, many individuals regard stocks as discrete assets instead of holistic portfolios. Generally, one should evaluate all holdings collectively—deciding whether to retain or sell all based on an overall assessment rather than focusing on individual wins or losses.

Wang Hui: Many have approached trading stocks as a pastime; for a mere investment of 30,000 or 50,000 yuan, they derive an astonishing sense of engagement and thrill. Tracking daily market movements becomes a lifestyle choice.

Li Xunlei: There’s a valid rationale here. Direct engagement in trading fosters awareness of global and domestic developments, alongside nuanced insights into technological advancements and shifts within various industries. The crux, however, lies in the construction of a sound investment portfolio.

Recognizing your own risk profile—be it risk-seeking or risk-averse—guides optimal asset allocations: how much goes to equities, bonds, and precious metals? Establishing a balanced portfolio offers sounder economic breathing room.

Wang Hui: Presently, what would comprise a reasonable allocation? Years ago, you authored two compelling articles: "Buy What You Can’t Afford" (2006) and "Buy What You Can’t Obtain" (2018). Amid our “asset scarcity” environment, what should ordinary investors seek now to preserve or enrich wealth?

Li Xunlei: Those articles carry their temporal contexts. Presently, it may prove difficult to identify assets fitting the previously depicted criteria. The general term “asset scarcity” refers to a lack of reliable yield-generating assets; similar bonds are few and often yielding extremely low returns.

Thus, allocating assets remains challenging. With gold reaching historical highs, now isn't opportune timing, as many instances call for patience—hesitant to engage in trading activities amid excessive enthusiasm.

Great opportunities oft arise under market duress, where panic-selling provides advantageous entry points.

Wang Hui: So, now seems to be a phase of waiting rather than acting?

Li Xunlei: Yes, it would be wise to bide your time. The stock market has experienced substantial rallies; bond yields have begun to rise. Should these yields reach certain levels, it may present an opportune time to reconsider positioning. Similarly, precious metal prices have soared.

Wang Hui: Recently, gold and silver have skyrocketed. Numerous analysts foresee bullish long-term prospects for these metals. Notably, your bullish stance on gold began a decade back, a viewpoint that has proven accurate as gold surpasses $4200 per ounce. Do you maintain this bullish outlook?

Li Xunlei: Caution is warranted, seeing that gold’s cumulative gain has exceeded 50% this year—the kind of spike that signals potential issues.

As a precious metal, a 50% annual increase is abnormal. It’s essential to avoid participating in these frenzied markets. I recommend purchasing during cooler periods and selling amid excitement.

Since early 2016, my advocacy for gold maintained consistent rationale. Initially, skepticism abounded, some arguing gold no longer maintains monetary attributes while others promoted cryptocurrencies as future currencies. Naturally, when prices hover at lows, skepticism remains high, unlike scenarios where consensus aligns positively at significant peaks.

Diverse perspectives surfaced—many possess impressive analytical skills, yet struggle to apply foundational math effectively or grasp context. While many cling to cryptocurrency potential, its overarching supply remains dwarfed against extensive fiat currencies, illustrating a disconnect in underlying valuation.

Investment typically benefits from contrarian thinking: if consensus arises around optimistic growth, then reassess your stance on participation. If everyone doubts expansion, consider whether it's ripe for entry.

Wang Hui: What potential alternatives mirror gold's status a decade ago for investment?

Li Xunlei: Few alternatives exist. Hence, patience remains prudent—seasoned investors should resist the urge to act simply due to idle capital, as inaction ensures the avoidance of potential losses. The investment driving force must reflect an calculated assessment of risk versus reward thresholds.

Wang Hui: What’s your forecast regarding gold's short-term and medium-term movements?

Li Xunlei: Back in 2015, I projected gold might reach $5000 per ounce. Now, as we near this benchmark, anticipate a substantial correction, though precisely when remains unclear. No asset witnesses a one-directional path; the same applies to gold, especially as public sentiment shifts positive.

Wang Hui: What’s the logic behind gold's unprecedented surge? Who are the primary buyers driving this demand?

Li Xunlei: There isn’t necessarily an identifiable major player. The global context points towards debt-oriented economic structures requiring low-interest rates for successful bond issuance. Increases in debt simultaneously necessitate amplified currency printing. Various geopolitical dynamics—including Trump’s trade disputes and ongoing conflicts—have additionally propelled gold's valuation significantly.

My enduring confidence in gold stems from observing how global economics wade through cycles of peace which help stabilize regulatory frameworks. Economies tend to follow patterns of stimulus—which fueled growth only to embroil them in inflationary conditions, leading to economic contractions and further borrowing spurts—a cycle continuous like adding flour to water until large currency volumes abound.

Gold and silver maintain inherent monetary attributes; as liquidity inflates, their values inevitably rise.

Wang Hui: China’s central bank has augmented its gold reserves for eleven consecutive months, paralleling a worldwide trend of central banks accumulating gold. What underpins this strategy?

Li Xunlei: This focuses on enhancing currency negotiation clout. With the dollar dominating but depreciating simultaneously, holding extensive dollar assets exposes risks. Central banks seek to optimize their asset structure by amplifying gold reserves while reducing dollar positions.

Wang Hui: Although you advise against ordinary investors chasing gold at high points, for those still interested, what proportion of one’s portfolio do you find justifiable for gold investments? For example, Ray Dalio recommends 15% in gold or Bitcoin—what is your stance?

Li Xunlei: I believe the recommended allocation is appropriate. Earlier this year during a televised dialogue, I suggested retaining 20% in gold; presently, however, a maximal position of 10% appears more warranted—so even 20% seems excessive.

Wang Hui: Dalio appears to equate Bitcoin and gold as similar asset classes. Do you agree?

Li Xunlei: I tend to concur. However, Bitcoin's volatility is substantially more pronounced than gold. Both assets represent scarcity, although Bitcoin carries more vulnerability due to drastic fluctuations, marking it as a risk asset typically employed as a hedge against dollar depreciation—this mirrors similar roles as described for gold properties.

Wang Hui: In light of your assertion that a 10% allocation to gold seems prudent, outside this component, what further portfolios might investors contemplate?

Li Xunlei: Presently, I would recommend a structure comprising 20% equities, 20% bonds, and holding 50% in cash to wait for advantageous opportunities. Investing parallels hunting; it’s not about impulsive trade; rather, ensure readiness before targeting hunts under strong prospects.

Wang Hui: Ordinary investors may feel unequipped when it comes to gold investments. What channels might best suit their needs? Options include physical gold, jewelry or bullion, gold stocks, gold ETFs, and futures. If a novice investor wishes to purchase gold, which route would you prioritize?

Li Xunlei: First, I would rule out futures—overwhelmingly, novice traders encounter losses in that arena. Should you desire liquidity, consider exploring gold ETFs, easily accessible via stock exchanges. For tangible assets, bullion remains the primary recommendation. Alternatively, for convenience, banks offer various gold products, including paper gold options.

Wang Hui: Thank you, Xunlei, for your insights. Your analyses surrounding the stock and gold markets will surely inspire many investors and enable them to gain valuable perspectives. Thank you once again for sharing your expertise on “MindStream.”

Li Xunlei: We have covered substantial ground today. My judgments carry inherent subjectivities and serve merely as references for all to consider.