Zhang Kun's annual report is an instant-effective "value investing class."

Ask AI · Why did Zhang Kun significantly increase his holdings in the healthcare and hard technology sectors?

Following Zhang Kun’s periodic reports is a “wonderful” process for value investors.

Sometimes it’s like one-on-one guidance, offering logical thinking around a hot topic; sometimes it’s like mentorship, hand-in-hand explaining why he makes certain decisions and the issues with not doing so; sometimes it’s like a mental therapy session, calming ordinary investors’ worries and anxieties in adverse conditions with long-term data and historical cases.

Zhang Kun’s latest (March 31) annual report is more like an on-site course on investing in the consumer industry. Using extensive references and rigorous logic, he shows why social consumption will eventually pick up, why the country will improve social security, which companies will benefit, and how ordinary people can profit from China’s inevitable domestic demand recovery narrative.

If you have extra capacity, you might also review the quarterly fund reports from two months ago, where Zhang Kun’s narrative then and his current explanation form a clever “complement.” One from an external perspective, the other from internal logic, both discussing the essence of domestic demand and consumption.

If you’re still thirsty, you can also look at the trading records (top 20) and all holdings in this report, compare with past data, to understand the choices and operations of a professional investor. Of course, this is like an advanced course segment.

Even if you just focus on the report itself, many investment insights are worth pondering. Especially after the silver wave in early 2026 and today’s Middle East geopolitical events, after experiencing paper wealth and sudden negative shocks, the stability and resilience of many consumer stocks held by Zhang Kun are gradually becoming evident.

On March 31, driven by the rare price increase of Feitian Moutai, Moutai opened high and strengthened, closing up about 2.11% against the trend.

But this performance easily reminds one of a line from the Five Dynasties and Ten Kingdoms period by King Qian Mu of Wu and Yue:

“Waiting for the flowers on the roadside to bloom, I can return slowly.”

The market’s “linear extrapolation” has become a habit over the past year

In this report, Zhang Kun first shares a discovery about his current market investment psychology.

He says that in 2025, a prominent feature of the market is “linear extrapolation”. When continuously seeing falling housing prices, lack of consumer confidence, and persistent deflationary pressures, investors’ worries about “domestic demand” and “consumption” have shifted from tactical avoidance to strategic questioning, with many believing this to be a permanent state.

This aligns with brain characteristics: the brain is naturally biased toward simple trend extrapolation because it’s intuitive and energy-efficient. The brain overweights “recent events,” and “recency effect” makes short-term difficulties seem like eternal darkness.

However, one key aspect of value investing is to oppose this physiological instinct. As Howard Marks said: “Trees don’t grow to the sky, and very few things go to zero.”

He believes that if we shift our focus away from the scoreboard, we’ll see a divergence: on one side, the stock prices imply a risk of value traps; on the other, companies continuously generate free cash flow, accumulate cash on the books, and deliver increasing shareholder returns. This divergence in investment history often signals an imminent significant opportunity.

The suppressed huge consumption potential will eventually be unleashed

This opportunity stems from the market’s “low regard” for consumption and its neglect of the investment logic itself.

Zhang Kun states that by the end of 2025, the total resident savings in China will reach 165.9 trillion yuan, with resident loans at 83.3 trillion yuan, and net savings at 82.6 trillion yuan—an increase of over 14 trillion yuan from the end of 2024. In comparison, the total retail sales of consumer goods for 2025 are about 50 trillion yuan, and new commercial housing sales are 8.4 trillion yuan.

He analyzes that these data show that residents are not lacking consumption capacity. The 82 trillion yuan in net savings quietly sits in bank accounts (compared to about 30 trillion yuan at the end of 2020), formed by precautionary savings due to lack of confidence. But confidence deficiency is cyclical, not permanent.

He firmly believes in a simple truth: the ultimate goal of economic development is to meet people’s growing needs for a better life. Humanity’s longing for a better life is an eternal motivation—whether it’s better consumer goods, higher-quality tech services, or more advanced medical care.

Demand will only be late, not disappear. Every micro-aspiration of ordinary families for a better life is an unstoppable force.

The recovery of domestic demand is not a “whether” but a “when”

Zhang Kun further predicts that when housing prices stabilize and social security systems are further improved, this suppressed huge consumption potential will eventually be released.

He admits he doesn’t know the exact day spring arrives, but he is confident it will come. Moreover, prices are very cheap now. In human economic history, there has never been a country that, after completing industrialization, failed to improve its people’s living standards. East Asian neighbors have set a good example, and middle-developed countries’ living standards are promising.

History shows: stock prices are like weather, value is like climate. Even in extreme cold spells, as long as the climate zone (national foundation and economic development) remains unchanged, spring is an inevitable physical reality.

Therefore, he firmly believes that the recovery of domestic demand is not a “whether” but a “when.”

The process of waiting for spring is not fruitless

Zhang Kun continues, “In the process of waiting for spring, we are not empty-handed.”

In 2025, many companies in the portfolio implemented unprecedented dividend and buyback plans. Whether it’s the free cash flow ratio or shareholder returns, they are significantly attractive compared to the current 30-year government bond yields.

He then quotes Graham’s famous “Mr. Market” theory. He says this bipolar partner (the market) reports a price every day. In early 2021, it was euphoric, quoting sky-high prices, with investors willing to pay 50-60 times P/E for quality domestic demand assets, believing they would grow forever. By the end of 2025, it became depressed, quoting astonishingly low prices. The same set of companies, with unchanged competitive barriers and even better free cash flow, saw valuations compressed to 10-20 times. “Mr. Market’s” mood swings between “incredible optimism” and “hopeless pessimism,” rarely staying in a “reasonable” middle ground.

If you see stocks as ownership in a business, the question becomes simple: if you own a high-barrier, cash-generating, debt-free excellent company, would you panic and sell just because your neighbor (Mr. Market) is in a bad mood and quotes a low price?

No. Instead, you’d stay put or even want to buy more from your neighbor.

Mr. Market generously gives us this option for free

Zhang Kun states that the current portfolio can be summarized as “high certainty of basic returns + free call options.”

The basic return comes from dividends and buybacks under undervaluation, which already offer yields better than bonds.

The call option: once the domestic economy stabilizes and recovers (e.g., CPI turns positive, retail growth picks up), the earnings expectations and valuations of these quality companies will face significant upward revision potential.

He also emphasizes, “Right now, Mr. Market is generously giving us this option for free.”

Zhang Kun stresses that it’s better to pursue “vague correctness” than “precise error.” He believes that the vague correctness is: China’s long-term upward momentum remains; he’s buying some of China’s best companies; their valuations are low, and they are actively rewarding shareholders through buybacks and dividends.

Investing is an infinite game. In the short term, the market is a voting machine, full of emotional noise; but in the long run, it’s a weighing machine, measuring companies’ ability to generate free cash flow. The return of value may be delayed but will not be absent. Every buyback, dividend, and efficiency improvement adds to shareholder value. The prices of high-quality assets are unlikely to stay below their replacement costs for long, let alone at levels where privatization is very profitable.

The “middle” prefers frontier technology and medical innovation

Because Zhang Kun’s holdings are always quite concentrated, the “middle” holdings often include “hidden heavyweight stocks.” But this time, his decisive operations on some stocks are evident.

For example, in the E Fund Quality Enterprise Three-Year Holding Fund, stocks like SF Holding, Meituan-W, and KE Holdings were fully sold off in the second half. Meanwhile, Hong Kong Exchanges & Clearing (HKEX) was increased from 60k shares (ranked 13th mid-year) to 200k shares (ranked 11th at year-end).

Additionally, the “middle” holdings at year-end introduced new names, excluding tiny caps, such as Huatai Medical, New Industry, and NetEase Cloud Music, with holdings worth hundreds of millions. This indicates a late-year focus on healthcare and specific communications services sectors.

Similarly, in the E Fund Asia Select Fund, besides the absent Meituan and SF Holding, some stocks were reduced. Mid-year heavyweights like SK Hynix and ASML were significantly trimmed, dropping to the “middle” zone. Also, Keda Semiconductor was cut sharply, falling from 12th to 17th. Prada was slightly reduced but remained stable, holding the 11th position.

Meanwhile, Intra-Cellular Therapies and Futu Holdings were heavily increased, with the former rising from 20k to 180k shares (from 17th to 14th place), and the latter entering the top ten holdings.

Additionally, Atour Lifestyle was a new addition to the “middle” holdings in the second half and is the last stock in the portfolio with a holding value over 1.66M yuan.

It’s clear that in overseas investments, Zhang Kun has significantly realized profits or reduced holdings in semiconductor equipment and storage chip sectors. At the same time, he actively increased positions in brokerage/financial services and divested some internet and logistics stocks, showing a decisive style and substantial rebalancing.

In E Fund Quality Select, companies like Yum China, HKEX, and CNOOC remain steady in this zone. Mid-year “hidden heavyweight” stocks like Focus Media and JD Health entered the top ten by year-end, while Prada was reduced to the “middle” zone.

Many well-known internet and blue-chip stocks in the 11-20 rank at mid-year, such as NetEase-S, SF Holding, Meituan-W, Tencent Music-SW, and KE Holdings, have completely exited that tier by year-end, even dropping out of the holdings list.

The most notable change is that six new companies appeared in the 11-20 rank, heavily concentrated in two sectors: new industrial biotech, Huatai Medical, and Beiter Medical for healthcare; and Moore Threads, Muoxi Integrated Circuits, and Yiswei Materials for semiconductors and AI hardware.

In the same vein, the E Fund Blue Chip Selection also shows similar features.

From the new “middle” holdings, the newly built or increased positions include pharmaceutical and consumer stocks like New Industry, Huatai Medical, NetEase Cloud Music, Nongfu Spring, and new “U” listed companies on the STAR Market, such as Moore Threads-U, Muoxi Co-U, Xi’an Yicai-U, and Beiter-U. Many of these are in information technology or healthcare hardware sectors, though the absolute amounts are small, they appear densely in this zone.

Overall, on one hand, Zhang Kun has divested or reduced some Hong Kong internet stocks (NetEase, Meituan) and logistics real estate (SF, KE Holdings); on the other, while maintaining stable assets like HKEX, he has heavily allocated funds into cutting-edge semiconductors (Moore Threads, Muoxi) and high-end medical devices (New Industry, Huatai Medical), reflecting strong optimism for frontier tech and medical innovation.