In the previous issue of "Chief Perspectives," it was noted that "old trees with new blossoms" offer better value, primarily based on a fundamental understanding of the symmetry principle in capital markets. Symmetry in financial markets refers to the relative equilibrium and similarity in price, time, and spatial dimensions of investment targets. Well-known symmetrical phenomena in stock investing include double tops (M-head), double bottoms (W-bottom), the adage "the longer the sideways movement, the higher the breakout," mean reversion, and gap-filling.
Symmetry essentially represents balance or equilibrium, and dynamic equilibrium is a fundamental law of economic operations. The familiar general dynamic equilibrium describes how an economic system, over time, continuously adjusts elements such as prices, output, and interest rates to transition from imbalance to balance, dynamically adapting to external changes. This process will manifest in China's modernization path during the 15th Five-Year Plan period, moving from imbalance to a new equilibrium. "Old trees with new blossoms" can be seen as the stock market's reflection of industrial rebalancing.
### I. Market Review: Rotation Between Old and New, the Revival of "Old Deng" During the 2025 tech stock bull market, value investors were humorously dubbed "Old Deng" (short for "old disciples") as their holdings underperformed sectors like AI and semiconductors, making them "left behind." However, market styles rotate, and "Old Deng stocks" may eventually shine. These stocks are characterized by stable earnings, generous dividends, low volatility, robust business models, sustainable payout capabilities, and deep moats. "Old Deng" investors follow discounted cash flow and margin of safety principles, emphasizing long-term holding and risk control under the banner of value investing.
Recently, the market has witnessed a classic rotation, with "Old Deng" making a comeback. Weekly equity observations show strong gains in power equipment, steel, coal, retail, and social services, while communications, electronics, beauty care, and defense sectors lagged. Among major asset classes, the STAR 50 and Hang Seng Tech indices also struggled. In this weak market, is the rotation between earnings and sentiment, bonds and equities, growth and value, genuine growth and speculative growth, gold and the dollar temporary, or the start of a new trend? From a strategic perspective, the years-long barbell strategy shows signs of shifting toward the middle—could this signal the long-awaited value resurgence of "core enterprises"? After all, the barbell strategy resembles a football tactic without midfield control, and as the saying goes, "Whoever controls the midfield controls the game"—a principle applicable to both football and investing.
### II. Industrial Rebalancing: The Importance of Traditional Industries in Short-Term Demand Expansion To answer these questions, relying solely on recent market metrics like valuation and volatility yields little insight. A longer-term perspective is needed, analyzing traditional industries—dubbed "Old Deng"—within the 15th Five-Year Plan framework. The Plan categorizes industries into three groups: traditional ("Old Deng"), emerging ("Middle Deng"), and future ("New Deng").
1. **Traditional Industries Under Long-Term Policy: Stabilizing Growth, Employment, and Income** The 15th Five-Year Plan aims to upgrade traditional industries while nurturing emerging and future sectors. Traditional industries form the "backbone" of China's industrial system, accounting for ~80% of manufacturing value-added. They are pivotal to stabilizing growth, employment, and income. As economic pressures mount and domestic demand expansion becomes urgent, traditional industries bear indispensable responsibilities. The logic is straightforward: boosting domestic demand hinges on purchasing power, which ties directly to income growth, and employment is the pathway to higher income. Compared to emerging and future industries, traditional sectors excel in sustaining growth and employment.
Beyond manufacturing, services play a vital role in job creation. Service sectors must pursue high-quality efficiency, while traditional manufacturing requires industrial upgrading. Key measures include elevating the global competitiveness of mining, metallurgy, chemicals, light industry, textiles, machinery, shipbuilding, and construction, fostering advanced manufacturing clusters, and accelerating qualitative and quantitative growth.
2. **Traditional Industries in Markets: Analyzing Operating and Financial Leverage** Policy support alone isn’t enough to justify investing in traditional industries—market performance is key. By evaluating operating leverage (asset intensity) and financial leverage (debt levels), industries can be mapped into four quadrants, each suggesting distinct allocation strategies:
- **Quadrant I**: High non-current assets and debt ratios above one-year averages. Amid slowing growth, further capacity and leverage expansion poses significant risks. - **Quadrant II**: Declining debt ratios but rising capacity. Short-term profitability pressures exist, with limited cyclical elasticity; growth relies on individual firms. - **Quadrant III**: Low leverage on both fronts. These industries lead in restructuring, with minimal new capacity likely, offering higher elasticity during economic recovery. - **Quadrant IV**: Falling operating leverage but rising financial leverage. Capacity contraction is underway, but high debt may constrain long-term balance sheet expansion despite short-term profit elasticity.
3. **Traditional Industries Amid Short-Term Anti-Involution: Tracking PPI** Traditional industries are at the forefront of countering involution (excessive competition). Investors focus on capacity control and price rebounds to lift profitability, monitored via the Producer Price Index (PPI). September data shows: - **Mining**: Coal (+2.5% MoM), ferrous metals (+2.6%), non-ferrous metals (+2.5%). - **Metallurgy**: Ferrous metal smelting (+0.2%). - **Chemicals**: Raw materials (-0.4%), fibers (-0.2%). - **Textiles**: -0.2%. - **Construction**: Non-metallic minerals (-0.4%). These trends underpin recent stock gains in traditional sectors.
### III. Investment Strategy for Traditional Industries: Embracing High-Quality Development to Escape the Guevara Dilemma The value of traditional industries lies not just in being "cheap" but in their potential for renewal ("old trees with new blossoms"). Stubbornly clinging to cheapness leads to the "Guevara Dilemma"—a term describing rigid mindsets and values formed under specific historical, social, or political contexts that fail to adapt to change, inspired by Che Guevara’s post-revolutionary inflexibility.
In investing, this manifests as strategy ossification. Some investors overweight sectors or themes despite shifting markets, incurring losses. The 15th Five-Year Plan mandates integrating traditional industries into high-quality development frameworks, combining them with new models, technologies, and factors. Convergence among traditional, emerging, and future industries is inevitable, driven by smart, green, and integrated transformations, technological upgrades, digitalization, and organizational reforms.
MACD golden crosses signal bullish momentum for select stocks.