For some time now, influenced by complex market factors both domestically and internationally, the A-share market has been under continuous pressure, making it difficult for resource allocation, value discovery, wealth management, and investment functions to be fully realized. No matter how the market evolves and develops, it always has its own laws. Understanding history can help reveal the future. At present, broadening one's horizons and thinking calmly can help accurately grasp the historical position of the A-share market, see the marginal improvement in the supply and demand relationship of the stock market, and wait patiently for a series of measures to invigorate the market to accumulate momentum and take effect. Recently, the Securities Times launched a series of reports titled "Discovering the Investment Value of A-shares," which, through in-depth interviews and data mining, presents the positive changes happening in the A-share market from multiple angles, with the aim of building consensus, boosting confidence, and jointly promoting the A-share market out of the doldrums and onto a path of healthy and prosperous development. Please pay attention.

This year, patient capital has been receiving increasing attention.

The so-called "patient capital" refers to a form of capital that focuses on long-term investment and emphasizes stable returns. It is different from traditional short-term speculative capital, as it pays more attention to the long-term development potential and value creation ability of enterprises. So, what does patient capital mean for the current capital market, and what profound impact will it have on A-shares? How should patient capital be further cultivated and strengthened? On this matter, the Securities Times · Securities China reporter interviewed Liu Qingshan (hereinafter referred to as "Qinghe Spring"), the chairman of Beijing Qinghe Spring Capital Management Co., Ltd., a large domestic private equity institution.

Investment should be based on the long term.

Securities Times · Securities China reporter: As an investor, why should one pay attention to patient capital with a "long-termism" approach?

Qinghe Spring: Firstly, from a macro perspective, the long-term investment return rate of stocks is the highest. Although the history of A-shares is not long, and short-term fluctuations are relatively large, as an emerging market with great development potential, the overall annualized return rate of A-shares over the past 19 years is about 9.6%, far higher than the 4.3% of long-term government bonds, the 2.5% of short-term government bonds, and the 2.3% of inflation.

The history of the U.S. stock market is longer, from 1926 to 2023, the overall annualized return rate of the U.S. stock market reached 10.3%, also higher than the 5.1% of long-term U.S. government bonds, the 3.3% of short-term government bonds, and the 2.9% of inflation. The main reasons behind this are, first, although short-term macroeconomics are complex and changeable, society and the economy are always developing forward in the long term; second, enterprises are the main creators of social wealth and the main drivers of improving production efficiency. In the long run, listed companies can achieve a return rate higher than the average social return rate.

From a meso perspective, the long-term returns of investors are more in line with the shareholder returns and profit growth of enterprises. From 2005 to 2023, the annualized return rate of A-shares is about 9.6%, which matches the average ROE (Return on Equity) level of the entire A-share market of about 10.5%, and the compound growth rate of EPS (Earnings Per Share) is about 6.5%. Therefore, the longer the investment period, the more the power of enterprise profit growth dominates, and the role of valuation is significantly reduced. Therefore, long-term investors do not pay much attention to short-term market sentiment and stock price fluctuations.

From a micro perspective, the intrinsic value of an enterprise depends on the discount of long-term free cash flow. In our research and investment process, the core is the analysis of the enterprise's long-term competitiveness and the judgment of growth potential, and short-term performance games are not that important.

Cultivating patient capital has far-reaching significance.Securities Times · Broker China reporter: What roles will the growth of patient capital play in the A-share market?

Qinghe Spring: "Patient capital" has multiple meanings, involving strategic resource allocation, economic structural transformation, and capital market reforms, among other aspects. For A-share investment, we believe that in the long term, it will gradually release multiple benefits.

Firstly, from the perspective of the numerator, the continuous development of patient capital will be beneficial for stabilizing the profit cycle of A-shares in the long run. The growth of patient capital and the development of new qualitative productive forces complement each other, essentially constructing a new development model and accelerating the improvement of China's total factor productivity. In the past, under the dominance of the financial cycle, the profit cycle of A-shares fluctuated significantly, and with the gradual emergence of the innovation cycle in the future, the stability of A-shares' profits is expected to be systematically enhanced. At the same time, more high-quality and competitive listed companies will emerge.

Secondly, from the perspective of the denominator, patient capital is expected to extend the holding period of A-shares, which will be beneficial in reducing the market's risk premium in the long term. Due to the high inherent volatility in the long term, the implied risk premium level of A-shares has been relatively high, which is not conducive to the valuation enhancement and stability of A-shares. In the future, with the continuous increase of patient capital, a positive change is expected. On the one hand, assets that meet the preferences and stock selection standards of long-term capital are likely to enjoy the dividends first; on the other hand, the overall risk premium of the market is also expected to gradually decline, thus providing certain support for the overall market valuation.

Overseas experience can be drawn upon.

Securities Times · Broker China reporter: In the current environment, how can the proportion of patient capital be increased?

Qinghe Spring: First, increase the equity investment efforts of pension funds. The current institutional share in A-shares is less than 20%, and the development of long-term capital is still immature, with a significant gap compared to overseas developed markets. Taking the U.S. stock market as an example, the current institutional share is close to 60%. Referring to the experience of the U.S. stock market, the fastest period of increase in institutional share was around the 1980s, rapidly increasing from 20% in 1970 to 63% in 2000. The main driving force during this period was the active entry of U.S. pension funds into the market. From a policy perspective, the U.S. introduced IRA and 401K accounts, which greatly promoted the development of U.S. pension funds through tax deferral benefits. In terms of operation, U.S. pension funds operate in a highly market-oriented manner, with managers aiming for long-term investment, low fees, and a simple model. Specifically for the domestic market, it is suggested that China should also develop the second and third pillars of pension funds as soon as possible, while also improving the assessment and regulation of pension fund equity investment.

Second, enhance the inherent stability of the capital market. The A-share market has significant short-term fluctuations, which are obviously disturbed by macro factors and market sentiment, and the basic construction of A-shares still needs to be improved. Due to relatively poor self-regulation capabilities, it is necessary to take measures to deal with market failures. On the one hand, it can effectively stabilize the market, and on the other hand, it can inject confidence into the market.

In summary, we believe that investment should start from the long term, and in the future, more attention should be paid to the long-term returns of company shareholders, the long-term growth of profits, and the long-term creation of free cash flow. It is believed that with the continuous growth of patient capital, the vitality of A-shares is expected to be re-released.