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In the blink of an eye, it has been nearly two years since Hillhouse invested in Gree.

In early December 2019, Gree Electric Appliances (SZ: 000651) announced that there had been a change in the controlling shareholder and actual controller of Gree Electric Appliances. Gree Group withdrew and Hillhouse became the largest shareholder, with a total payment of 41.662 billion yuan and a share transfer price of 46.17 yuan. This investment has established Hillhouse's prominent position in China's secondary market.

On July 28, 2021, the stock price of Gree Electric fell to 46.16 yuan during the trading, and the floating profit of Hillhouse Investment Gree disappeared, leaving only dividend income.

This is not just a problem for Gree Electric's family. Also in 2019, Hillhouse invested 1.5 billion yuan in the third quarter to purchase the value stock Conch Cement (SH: 600585), with a price of about 40 yuan at the time of establishment. After two years of market changes, it dropped to 35.39 yuan per share, and only received a dividend in June of this year.

In the third quarter of 2020, Tianjin Liren, a secondary market institution under Hillhouse, purchased 265.62 million shares of Shanghai Electromechanical (SH: 600835) for 1.732 billion yuan. This company owns the well-known elevator brand "Shanghai Mitsubishi" and continued to increase its holdings at the end of 2020, with a total holding of about 520 million yuan at the end of the period. However, Shanghai Electromechanical's stock price performance was also unsatisfactory, falling continuously below Hillhouse's cost line.

A similar situation also occurred in its investment cases in China's Taibao Hong Kong Stock (HK: 02601) and Yili Shares. Whether held for two years or two months, most of these undervalued 'value stocks' of Hillhouse investments have underperformed.

Unlike the great success in growth stocks in the past two years, Hillhouse's value based investments have achieved little in these years. The important reason is the long-term weak performance of large traditional industry giants, including Gree and Conch Cement, in the secondary market.

Zhang Lei, who studied under David Svensen, is proficient in value investment theory, but in the past two years of investment, the vast majority of cases using traditional "value investment" have encountered varying degrees of pressure.

This is by no means a matter of Hillhouse's investment and research capabilities. In fact, there is not just one investment institution that has fallen into the quagmire of value stocks, and almost all "value investors" are facing the dilemma of investing in value stocks. Since 2020, global capital market preferences have strongly shifted towards growth stocks. Except for Baijiu, most of the traditional industries with insufficient growth performance are poor.

Gree Electric's stock price performance (January 2019 to present)

Investors began to compare growth stocks with value stocks - A-share investors summarized them as "Maozu" and "Ningzu", meaning value companies represented by Maotai and growth companies represented by CATL. The performance of two types of companies in the secondary market fluctuates, and few investors, including Zhang Lei, are able to easily invest in both types of companies.

01. Value stocks accompany the last seat

This is not just the neglect of undervalued stocks in history, but it is likely to be the most severely differentiated one.

Observing the changes in China's capital market since the 2018 Sino US trade war, we can see a clear main line of risk preference changes:

From 2019 to 2020, value stocks are more popular in the market, investors chase so-called "core assets", and the stock prices of "value blue chips" such as Kweichow Moutai and Midea Group keep rising;

Public funds with heavy holdings of such stocks are being sought after, and investors are flocking to buy them. By September 2020, there had been an extreme situation of two billion dollar funds selling wildly for a day.

Since the second half of 2019, many over-the-counter investors have actively entered the market after discovering that "various types of securities" have experienced significant increases. Soon, the enthusiasm for investment in growth stocks was ignited, and new industries such as photovoltaics and new energy vehicles received close attention from incremental funds.

After full hype in the "core assets", photovoltaic and new energy vehicle sectors, the 2021 Spring Festival has become a key turning point. After the beginning of the new year, the market experienced a significant retreat and core assets began to decline.

However, investors' risk preference has become increasingly high throughout the evolution of the market. Various industrial chains, including chips, photovoltaics, and new energy vehicles, have been thoroughly understood by investors, and investors have begun to carefully study and invest in various vertical sub markets, rapidly increasing the valuation of these vertical sub markets.

Recently, various cutting-edge technology themed stocks have become increasingly active, including representative sub categories such as miniLED, lithium hexafluorophosphate, LiFSI, which most investors almost never pay attention to. The market differentiation has almost reached its extreme.

Throughout the entire process, undervalued "value stocks" performed respectfully with the last seat.

Traditional industry giants represented by Gree, Conch Cement, and Vanke have mostly started to decline from high levels in 2020, with Vanke starting to decline as early as February and Conch Cement peaking and falling at the end of July,

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