Zhang Kun's annual report is an instantly effective "value investing lesson."
Tracking Zhang Kun’s periodic reports is a "wonderful" process for value investors.
Sometimes it feels like a "one-on-one" coaching session, offering logical thinking around a certain hot topic; sometimes it’s like mentoring, showing you step by step the decision-making process and what could go wrong if not done that way; sometimes it’s like a therapy session for the soul, calming investors’ worries and anxieties in adverse markets using long-term data and historical cases.
Zhang Kun’s latest (March 31) annual report is more like a live course on consumer industry investing. Through extensive references and rigorous logic, he shows you why consumption in society will inevitably start, why the government will improve social security, which companies benefit from this, and how ordinary people can invest and benefit from the grand narrative of mainland China’s inevitable domestic demand recovery.
If you have extra capacity, you can also revisit the fund’s quarterly report from two months ago. The narrative then and the current discussion ingeniously complement each other—one from the external world, one from internal logic—both explaining the essence of domestic demand and consumption.
If you’re still thirsty for more, you can open this annual report’s transaction records (top 20) and all holdings, and compare them to the past to understand a professional investor’s choices and operations. Naturally, this is somewhat like an advanced course.
Even if you bring this annual report back to its original essence, there’s still plenty of valuable investment information to chew on. Especially after the early 2026 silver shock and today’s Middle East geopolitical events, after the paper prosperity and sudden negative surprises, the stability and resilience of many consumer stocks held by Zhang Kun are becoming increasingly apparent.
On March 31, driven by Feitian Moutai’s price hike, Moutai unusually opened high and strengthened, closing up about 2.11% against the trend.
Such performance easily brings to mind a verse from Qian Liu, King of Wuyue in the Five Dynasties and Ten Kingdoms period:
Wait until the flowers bloom on the path, then return at your leisure.
Over the past year, “linear extrapolation” has become a market habit
In this annual report, Zhang Kun first discusses a psychological finding about investing in today’s market.
He says that in 2025, a prominent market feature has been “linear extrapolation”: as investors continue to see falling house prices, weak consumer confidence, and ongoing deflationary pressure, the tactical avoidance of "domestic demand" and "consumption" has gradually evolved into strategic doubt, with many investors inclined to believe this is a permanent state.
This fits the nature of the brain, which naturally prefers simple trend extrapolation—it’s intuitive and saves mental energy. The brain tends to overemphasize "recent events"—the recency effect makes short-term hardships appear as eternal darkness.
However, a crucial aspect of value investing is to counteract physiological instincts. As Howard Marks said: "Trees don’t grow to the sky, and very few things go to zero."
He believes that if you shift your focus from the scoreboard, you’ll see a divergence: on one hand, there’s an expectation implicit in stock prices that companies will become value traps; on the other, companies continually generate free cash flow, accumulate cash, and deliver increasingly higher returns to shareholders. This divergence often precedes significant investment opportunities.
The suppressed enormous consumption potential will eventually be released
This opportunity arises from the market's "undervaluation" of consumption and disregard for the investment logic itself.
Zhang Kun says that by the end of 2025, total deposits for residents reached 165.9 trillion RMB, loan balances were 83.3 trillion RMB, net savings reached 82.6 trillion RMB, increasing by over 14 trillion compared to the end of 2024. In comparison, total retail sales for 2025 were about 50 trillion RMB, and sales of newly built commercial housing were 8.4 trillion RMB.
Zhang Kun analyzes that these numbers show that residents do not lack consumption ability. 82 trillion RMB in net savings quietly sits in bank accounts (at the end of 2020, net savings were only about 30 trillion RMB), representing precautionary savings due to insufficient confidence. However, lack of confidence is cyclical, not permanent.
He firmly believes in a simple truth: the ultimate goal of economic development is to meet people’s growing demand for a better life. The pursuit of a better life is humanity’s eternal motivation—be it better consumer goods, higher-quality tech services, or more advanced healthcare.
Demand may be delayed, but it never disappears. Every ordinary household’s micro-level wish for a better life is an unstoppable force.
The recovery of domestic demand is not a question of if, but when
Zhang Kun further predicts that when real estate prices stabilize and the social security system improves, this enormous suppressed consumption potential will be unleashed.
Though the exact day spring arrives is unknown, he is certain it will come. And right now, prices are very cheap. In global economic history, no hard-working, wise country has failed to give its people a better life after achieving industrialization. Our East Asian neighbors are good examples; living standards in moderately developed countries are achievable.
History shows: stock prices are the weather, but value is the climate. Even in extreme cold, as long as the climate belt (national strength and economic development) remains, spring is inevitable in the physical sense.
Thus, he firmly believes the recovery of domestic demand is not a question of “if,” but of “when.”
The process of waiting for spring is not fruitless
Zhang Kun continues, "as we wait for spring, the process is not fruitless."
In 2025, many companies in the portfolio implemented unprecedented dividend and buyback plans. Whether looking at the free cash flow ratio or shareholder returns, they are significantly attractive compared to the current 30-year government bond yield.
He then invokes Graham’s famous “Mr. Market” theory. This manic-depressive partner (the market) quotes a price every day. In early 2021, he was exuberant, quoting absurdly high prices, and investors were willing to pay 50-60 times price-to-earnings for quality domestic assets, believing the growth was permanent. By late 2025, he became depressed and quoted extremely low prices. The very same companies—whose competitive moats remained, and even whose free cash flow improved—saw their valuations compressed to 10-20 times. "Mr. Market’s" mood swings between two extremes: "unbelievably good" and "irreparably bad," rarely staying at "reasonable" in-between points.
If you treat stocks as part ownership of a business, the question becomes simple: if you owned an excellent, high-moat, cash-generating, debt-free company, would you panic and sell just because your neighbor ("Mr. Market") is in a bad mood and quotes a low price?
No. On the contrary, you’d sit tight—or even buy more from your neighbor.
Mr. Market generously gives this option for free
Zhang Kun says the current portfolio can be summarized as "high certainty base returns + free call option."
Base returns: Dividends and buybacks under low valuation already provide yields superior to bonds.
Call option: Once the domestic economy stabilizes and improves (e.g., CPI turns positive, retail sales growth warms), these quality companies’ earnings and valuations will be significantly revised upward.
He also says, "at present, Mr. Market generously gives us this option for free."
Zhang Kun emphasizes he’d rather pursue "fuzzy correctness" than "precise error." He believes fuzzy correctness is: the long-term upward momentum of China’s economy remains; he is buying China’s best companies; their valuations are low and they are actively giving back to 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 is a weighing machine, weighing the ability of companies to generate free cash flow. Value’s return may be delayed, but it won’t be absent. Every buyback, every dividend, every move to improve efficiency adds value for shareholders. The price of quality assets is unlikely to stay below replacement cost for long, and even less likely to remain at levels where privatization would be highly profitable.
The “mid-tier” preference for frontier tech and medical innovation
Since Zhang Kun’s holdings are always quite concentrated, in the conventional “mid-tier” holdings section, there are usually not many "hidden heavyweights," but this time you can still see his decisive moves on some stocks.
Take the E Fund Quality Enterprises Three-Year Holding Fund for example: SF Holding, Meituan-W, and Beike were completely cleared in the second half of the year, while Hong Kong Exchange received an increase—from 60,000 shares at mid-year and 13th place, to 200,000 shares and 11th place at year-end.
Additionally, the year-end “mid-tier” holdings saw new faces (excluding micro-cap changes): Winteam Medical, New Industries, and NetEase Cloud Music were newly added holdings worth tens of millions. This shows additional layout in healthcare and selected communication services in the second half.
Looking at the E Fund Asia Select Fund: besides Meituan and SF Holding disappearing, some stocks were reduced. Former absolute heavyweight SK Hynix and ASML were significantly reduced, falling back to “mid-tier.” Likewise, Koten Semiconductor was heavily reduced, dropping from 12th to 17th place. Prada was slightly reduced but overall stable, holding 11th.
Interactive Brokers and Futu Holdings received large increases; the former rose from 20,000 shares mid-year to 180,000, moving from 17th to 14th; the latter jumped straight into the top ten heavyweights.
Atour Lifestyle entered “mid-tier” in the second half and is the last holding in the portfolio worth over ten million.
You can see that in overseas investing, Zhang Kun took profits or reduced holdings in semiconductor equipment and memory chips, while actively increasing positions in brokerage/financial services and removing some internet and logistics stocks, with decisive moves and large shifts overall.
From E Fund Quality Select, Yum China, Hong Kong Exchange, and CNOOC remained "rock-solid" in this category. Former “hidden heavyweights” Focus Media and JD Health moved into the top ten at year-end, while Prada was reduced to “mid-tier.”
Many well-known internet and blue-chip stocks in the 11-20 rank mid-year, such as NetEase-S, SF Holding, Meituan-W, Tencent Music-SW, and Beike-W, had completely exited that group by year-end, or even from the holdings list.
The most notable change is the appearance of 6 entirely new companies in the 11-20 range, highly concentrated in two sectors: medical and health (New Industry Bio, Winteam Medical, Bib Better Pharma), and semiconductor and AI hard tech (Moore Threads, Muxi IC, ESWIN Materials).
E Fund Blue Chip Select shows similar features.
Among new "mid-tier" faces, built-up positions include medical and consumer stocks: New Industry, Winteam Medical, NetEase Cloud Music, Nongfu Spring; and new “U”-listed companies on the STAR Market: Moore Threads-U, Muxi-U, Xi’an E Material-U, Bib Better-U. Most are hard tech companies in IT or healthcare, and while absolute amounts are small, they are highly concentrated in this bracket.
Overall, on one hand, Zhang Kun realized profits or trimmed Hong Kong internet (NetEase, Meituan) and logistics/real estate chain (SF, Beike) stocks; on the other, while retaining robust assets like Hong Kong Exchange, he aggressively allocated funds to hardcore semiconductors (Moore Threads, Muxi) and high-end medical devices (New Industry, Winteam Medical), reflecting strong optimism for frontier tech and medical innovation.
Risk disclaimer and limitation of liabilityThe market has risks; investment needs caution. This article does not constitute personal investment advice, nor does it take into account individual users’ special investment objectives, financial circumstances, or needs. Users should consider whether any opinions, viewpoints, or conclusions herein are suitable for their specific situation. Investing based on this is at your own risk.