This year's return is 71%. He Fangzhou: The core logic of this round of gold's rise is the weakening of the US dollar. The gold bull market will continue, at least until next year or the year after.
Recently, He Fangzhou from Wanjia Fund made a judgment on the mid- to long-term trends of non-ferrous metals, especially gold, in the China Securities Journal ETF special livestream.
The class representative of Investment Homework has summarized the key points as follows:
1. From the perspective of long-term narrative logic, liquidity support, and the macro background, we believe the non-ferrous market is far from over; it may just be at the starting phase and has not reached halfway.
2. The strengthening of gold can be said to have begun this year or even last year. I think the big logic for the next two or three years won’t change. Rate cuts are only a catalyst, not the core; the core is still the weakening of the US dollar's credit, which is the key logic for this round of gold's rise.
3. Gold's upward cycle is not over at least through next year, possibly the year after. The narrative logic of central bank gold purchases and de-dollarization will remain a mid-to-long-term theme.
4. Copper resources have not been significantly overestimated. At this point, I think non-ferrous metals, especially industrial non-ferrous metals, are mostly driven by copper’s narrative. Other metals may attract market attention and allocation due to increased copper demand.
He Fangzhou has 9 years of experience in the securities industry and less than 2 years in fund management. He joined Wanjia Fund in June 2022, currently serves as a quantitative investment fund manager, and was formerly an assistant in the Quantitative Investment Department. He previously was Operations Manager in the Operations Department of Huatai-PineBridge Fund and a researcher in Da Cheng Fund’s Index and Futures Investment Department. The total scale of assets under this fund manager is currently 7.718 billion yuan.
The Wanjia CSI HK Stock Connect Innovative Drugs ETF managed by him has performed outstandingly. In the ranking of mutual fund performance in the first three quarters, this fund ranked 14th with a return rate of 114.01%.
As the market fluctuated, the fund subsequently saw a normal pullback. As of October 21, its year-to-date gain was 92.97%, but this still ranked it first out of 3,416 comparable products.
Below is the fund’s performance at different stages:
Of note is a change in the fund’s manager. On June 25 this year, He Fangzhou was appointed as co-manager with Yang Kun; after only three months, the fund removed Yang Kun on September 26, and He Fangzhou became the sole manager.
The three non-ferrous ETFs under his management have also performed excellently. As of October 21, in roughly 353 days of He Fangzhou's tenure (since November 2, 2024), all three funds have seen YTD returns of 66%-71%, ranking in the top 3 among peers; their annual returns have stably remained above 60%.
Recently, the non-ferrous sector has strengthened collectively, with gold repeatedly hitting record highs. However, it experienced a rare plunge yesterday. What does the future hold?
The class representative of Investment Homework has compiled the essence of He Fangzhou's sharing as follows:
The Logic Behind Non-Ferrous Rally
Q: Lately, the non-ferrous resources sector has shown significant growth. Can you both share the fundamentals driving these assets’ recent strength? Mr. He, please go first.
He Fangzhou: This year’s primary industry or thematic indexes of non-ferrous metals have widely gained between 70% and 90%; among the stocks in these indexes, quite a few have doubled.
Since the start of the year, by primary industry ranking, the return of the non-ferrous metals theme index has been more than 20% higher than the runner-up, the telecom industry index. The performance has been very robust and striking.
I think the logic and reasons behind it include these aspects:
First is the macro liquidity issue—namely, the Fed’s move toward rate cuts.
In the process of rate cuts, as globally priced commodities, non-ferrous metals are affected both by the global economic recovery and cycle changes on one side, and by the dollar index and global rate-cut wave on the other.
In the context of ample liquidity and rate cuts, bulk commodities will see a favorable dividend window.
Second, there’s supply–demand mismatch. On the demand side, whether it’s grid upgrades, industrial transformation, or global smart grid construction, the demand for non-ferrous, especially copper, is very high. Under such structural changes, our demand for non-ferrous metals continues to rise.
Moreover, I think a recovery in manufacturing is a factor.
After the pandemic, the global economy bottomed out and then began to recover. Whether it’s infrastructure, domestic consumer recovery, or major construction projects, the demand for copper, aluminum, and zinc is very high.
Domestic policies to stabilize the property market/blamed real estate also stimulate non-ferrous metal demand. The improvement in fundamentals, combined with ample liquidity, has pushed this round of sustained gains.
On the supply side: global copper mine capacity is slowing down. 2024 global copper production is forecast at 21 million tons, up just 1.2% year-on-year, far below actual demand growth, clearly highlighting supply–demand mismatch.
Furthermore, environmental policies are becoming stricter. Mining is getting harder, and major producers like Peru and Chile face stricter regulations and lengthier approval cycles. Supply can't keep pace, and this drives up prices.
Additionally, hot topics like international tensions and geopolitical complexity have triggered expectations of rising non-ferrous metal prices.
Therefore, a loose liquidity/rate-cut background, supply–demand mismatch, and the rising strategic status of non-ferrous metals all logically support the sector’s strength.
Gold’s Upward Cycle Unchanged—at Least Until Next Year or the Year After
Host: What’s the logic behind gold’s current rally? How does it differ from earlier this year? Or is it a continuation of the main theme?
He Fangzhou: The gold rally started this year, or even last year; I think the macro logic for the next two or three years remains unchanged, mainly due to the weakening of the US dollar.
Why did gold start rising in late August? Basically it’s because the market is trading on Fed rate-cut expectations. But rate cuts are just a catalyst, not the most crucial factor; the core is still the weakening of USD credit, which is the core logic this round.
As for whether the gold top is “unimaginable,” I think one must look at this dialectically.
First, a risk warning: there are no assets that only rise and never fall, but this is only within certain time frames. Gold has had bear markets, but I believe this gold bull market will continue.
What's the underlying logic? It’s difficult to predict gold’s top, but I can judge the duration of the rally.
For example, the Shanghai gold price has broken through 900 from 200, 300, or 500. It may even surpass 1100 in the future; or COMEX gold rising from 2300 to above 4000—these points are hard to predict, as gold doesn’t directly depend on supply/demand or costs. What does it depend on?
I think the window for rising gold prices has already opened, as has the upside potential. From an annual perspective, the gold bull market has been running for several years, starting in 2022.
Recently, there have been signs of the rally slowing. From this angle, I believe gold’s upward cycle will not be over this year—at least not next year or even the year after.
Because both the US dollar weakening and USD credit downturn cycles will not end in the coming year. Gold’s time and space for gains thus remain open.
This Gold Rally’s Long-term Narrative and Timeline Are Difficult to Estimate
Q: What’s your logic for allocating to this asset class? How long do you think the trend can last?
He Fangzhou: I think the long-term narrative, logic, and rally duration this time are all hard to estimate.
Essentially, gold is not trading supply/demand or just interest rates, but rather a form of confidence.
Long term, gold has been tied to the US dollar. Even after the Bretton Woods system ended, the price is still driven by rates, dollar index, and risk aversion.
Globally, central banks keep buying gold, causing gold’s share of reserves to snowball higher.
Second, geopolitics—Russia–Ukraine conflict, trade conflicts, global political uncertainty—keeps risk aversion high. Black swans serve as event catalysts, causing gold price jumps.
Third, expectations of a US economic recession.
Data shows that during Fed rate cut cycles, the US economy usually performs poorly.
For example, in 2008, with continual rate cuts, US economic and social issues, and real estate problems kept erupting. Policy tools are used to buffer the economy and achieve a soft landing.
In this rate-cut cycle, expectations and logic about US recession are widely discussed and traded.
Most importantly, the US debt problem. Gold reflects the cracks in confidence towards international assets, external environment and the dollar.
So far this year, outstanding US public debt has neared $40 trillion. Under high interest rates, debt keeps expanding, which puts the dollar in a passive position.
In this context, most countries rationally reduce their dollar reserves and turn to assets able to withstand USD credit risk shocks—gold being a top choice.
Thus, the recent gold surge mostly reflects risk aversion and confidence problems. We believe central bank gold-buying and de-dollarization narratives will remain a mid–long-term theme in the future.
Copper Isn’t Significantly Overestimated, Industrial Metals Are Driven by Copper
Host: You mentioned fields like AI and new energy, viewed as long-term narratives driving metal demand.
Which specific metals see genuine demand from these fields? Are some non-ferrous sub-sectors overestimated currently? Mr. He, please comment.
He Fangzhou: I think the demand from AI and new energy for electricity is real. Ultimately, these new areas rely on electricity in application and production.
New energy vehicles require electricity, so do GPUs for computing, and future AI models or even physical robots—all depend on electricity. Wherever electricity is needed, it requires transmission.
Thus, demand for copper from cables and electrical wires is strong. For copper, this pull is very tangible.
Also, domestic NEVs (new energy vehicles) are rapidly gaining market share, which spurs the need for more charging piles, stations, and home chargers.
Additionally, the photovoltaic power sector also consumes a lot of copper for cables.
Building a 1-megawatt PV station consumes about 5 tons of copper for cables. Goldman Sachs estimates that by 2030, global power grids and infrastructure will contribute over 60% of global copper demand growth.
Therefore, for copper—the "king of commodities" or the most important non-ferrous metal—it is akin to the “industrial blood” of a new era. We believe copper isn't significantly overestimated.
In fact, within industrial non-ferrous, a rise in one metal often drives others. When gold rises, silver and platinum follow; rising copper can lead aluminum, nickel, cobalt, and others higher.
Given this logic, my view on copper is firm. With aluminum, its capacity is limited due to policy red lines. If property prices stabilize and recover, aluminum might benefit in the short term from copper's gains. Long term, it will return to the path of economic recovery.
Thus, now, non-ferrous—especially industrial non-ferrous—are mostly driven by copper’s story. Other metals may get more attention and allocation due to copper demand.
Market focus on copper can be seen in stock indices, commodity futures, global demand, and price shifts, all led by copper’s narrative or demand pull.
Other metals may require further economic data changes, or actual application in new productive forces, new energy, or AI before prices justify current valuations.
Short-term Volatility High, Build Non-ferrous Positions in Batches
Q: Mr. He, what's your view? In the short and long term, how should investors analyze the situation, should they get in?
He Fangzhou: Ok, looking at short-term volatility, after the October holiday, non-ferrous saw big swings. Even at the sectoral index level, there were daily moves over 5%; individual stocks even more volatile.
Investors often wonder whether to buy now or wait, worry about buying at a high, yet see the trend remains strong.
How to view this? First, short-term volatility is definitely amplified.
Investors with low risk appetite can be more cautious by building positions gradually.
Firstly, this sector has had a strong rally since April this year, with significant gains. External shocks, supervision, or cooling rhetoric may affect sentiment.
Looking at the industry cycle, factors like rate cuts, USD weakening, supply–demand issues can't be quickly resolved short-term.
The fundamentals and improved profits from de-competition favor the sector in the longer run.
Short term, international tensions and geopolitics may trigger price volatility.
Thus, both from mid-long term or short-term event catalysis, these assets are still worth investor focus.
But non-ferrous is ultimately a cyclical sector.
For resource products, pay attention to macroeconomic cycles and data, adjust positions reasonably; at the firm level, monitor fundamentals like profits and capex, and keep confidence in asset allocation.
Non-ferrous Valuations Relatively Reasonable
Host: Many focus on pricing and valuation—now that many non-ferrous stocks have rallied, valuations aren’t as cheap as earlier this year.
How do you gauge their valuation now? Should we rely more on traditional PE, PB, or resources in-the-ground? Are current prices expensive or fair value?
He Fangzhou: Yes, as mentioned, non-ferrous had big gains since April, both from macro narratives and ample liquidity.
Non-ferrous thematic indexes have generally jumped 70% to 90% this year. But static metrics, such as an industrial non-ferrous index I track, show a static PE of about 22, PB about 3.4, and price/cash flow of 12.9. Compared to the last decade, the overall valuation percentile is below 50%.
So by traditional PE, PB, etc., valuation is relatively reasonable.
From a macro level, the recovery-driven PPI climb and narrative-driven cyclical recovery foster price rises in non-ferrous, with strong endogenous PPI momentum.
Third, with rate cut expectations and a USD pricing system, weak USD credit and a sliding dollar index have driven up asset prices for miners.
As for using traditional PE/PB versus resource in-the-ground valuation, I think PE/PB is more traditional and intuitive for investors; resource value makes sense long-term as it reflects a miner’s underlying value. But reserves valuations also shift with policy, mining conditions, and ore grade changes.
Thus, valuation is a dynamic process. To judge whether something is expensive or fair value, secondary market investors should use multidimensional metrics, not just one method.
We hope to buy great companies or the most valuable resources at reasonable prices.
The Non-ferrous Rally Is Far from Over, Now Just the Starting Phase
Host: Mr. He, you mentioned the Wanjia CSI Industrial Non-ferrous Metals Theme ETF and its investment in non-ferrous metals. Is now a good entry point?
He Fangzhou: At this point, the index is already up over 70% this year, so it’s not cheap per se.
As said, it is relatively reasonably valued. For such investments, we recommend smoothing out purchases through regular, staggered investments (DCA).
Because from a long-term narrative, liquidity, and macro standpoint, we believe the non-ferrous rally is far from finished; it’s likely just at the starting phase, not half over yet.
But yes, cumulative gains are large so far this year, so short-term volatility is much bigger than for unreached sectors.
For index products, the best way is to stretch out the investment timeline.
First, diversify with index investing; second, dollar-cost average, keeping each purchase within rational and controllable dimensions for a better mindset.
For example, investing 70%–80% or all assets into one sector exposes you to notable emotional swings on modest short-term moves—long-term holding then requires a fight with human nature every day.
But reducing investment per time and diversifying over time controls average costs and smooths returns; if you’d DCAed between last year and early this year, you could be up 60%–70% now with better peace of mind.
And if the long-term trend continues, DCA/diversifying/increasing holding period will build both conviction and mindset for long-term holding.
Source: Investment Homework Pro by Wang Li
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