Intelligent Decision Reference | Hong Kong stocks continue to be relatively strong, waiting to see if trading volume can keep up

[Editor's Market View]

Driven by performance, the overall trend of the Hong Kong stock market continued to be relatively strong last week, but trading volume did not keep up.

Jerome Powell delivered dovish remarks at the Jackson Hole Global Central Bank Annual Meeting: "The inflation rate has dropped significantly, the labor market is no longer overheated, the current financial market conditions are looser than before the pandemic, and it is time to adjust policies. The direction forward is clear, and the timing and pace of rate cuts will depend on future data, evolving outlook, and balancing risks." The futures market has increased bets on a rate cut by the Federal Reserve, with an expected cut of nearly 100 basis points by the end of the year; the probability of a 50 basis point cut in September has risen to 33% from before the speech.

A rate cut by the Federal Reserve is generally positive for the Hong Kong stock market, but this positive impact is weakening at the margin. This week, attention needs to be paid to several key issues:

1. Tensions in the Middle East are escalating. On the morning of the 25th local time, Israeli Defense Minister Gantz announced that Israel would enter a state of emergency within the next 48 hours. The Israeli Defense Ministry stated that this decision was based on "special circumstances on the front line."

2. Whether there will be an improvement in the PMI data released this week;

3. As the end of the month approaches, market volatility is inevitable. At the same time, the United States announced a new list of sanctions involving 42 Chinese entities and individuals. The tactic of maximum pressure is still playing out before Sullivan's visit.

In terms of hot topics, over the weekend, CCTV.com focused on the concept of clean energy bases, mentioning that the "14th Five-Year Plan and the Long-Range Objectives Through the Year 2035" propose the construction of nine major clean energy bases, with seven located in the western region. This strategic layout is closely related to the resource endowment and location advantages of the western region. Combined with last Friday's "Several Policy Measures to Further Promote the Formation of a New Pattern of Western Development," related infrastructure and clean energy projects in the western region are expected to be sought after.

With the Federal Reserve cutting rates, the continuous weakening of the US dollar is revealing opportunities for gold.

"Black Myth: Wukong" has sold over 10 million copies, expected to bring opportunities to the PC gaming, hardware, and cloud gaming industries.

Starting from September, assisted reproduction will be covered by medical insurance in Henan, Fujian, and Shaanxi provinces, with a total of 18 provinces in China including assisted reproduction in medical insurance coverage.

[Stock Picks of the Week]

SHENZHOU INTL (02313)

The company will release its performance on the 28th of this month. CCB International published a research report predicting that Shenzhou International's revenue for the first half of this year will increase by 15% year-on-year, with operating profit margin and gross profit margin expected to improve to 18.1% and 26.6% respectively, driving net profit to grow by 21% to RMB 2.578 billion.

Shenzhou International is one of the world's largest vertically integrated knitwear manufacturers, with products covering knitwear sports products, casual clothing, and underwear. The company's main customers include sports brands such as NIKE, ADIDAS, PUMA, and leisure brands like UNIQLO, with products sold in mainland China, Japan, the Asia-Pacific region, and Europe and America. Nike is Shenzhou International's largest customer, accounting for 31.1% of its revenue.

CCB International pointed out that while the growth in orders from Nike was only in the mid-single digits, disappointing, orders from other customers recorded strong double-digit growth, coupled with the sales recovery of Adidas and UNIQLO, forecasting an 11% revenue growth for Shenzhou in the second half of the year The company pointed out that Shenzhou China's production capacity utilization rate has reached 100% in the first quarter of this year. To support the growth in orders, the company has recruited a total of 6,000 workers since the beginning of the year and is expected to hire about 1,000 more employees within the year. At that time, the gross profit margin is expected to continue to improve. It is predicted that the gross profit margin and operating profit margin of the company in the second half of the year will increase to 27.2% and 19.3% respectively.

[Industry Observation]

With the continuous iteration of AI models, the optimization of large model inference costs, and the continuous enrichment of AI commercial scenarios, the landing of AI applications is expected to accelerate.

According to IDC's "China Large Model Platform Market Share 2023" report, the domestic large model market size is expected to reach 1.765 billion yuan in 2023. As 2023 is still in the early stage of large model development, the overall market size is not significant. In terms of market share, Baidu Intelligent Cloud's revenue from large models in 2023 reached 350 million yuan, with a market share of 19.9%, ranking first, followed by SenseTime, Zhizhi AI, Baichuan Intelligent, and Fourth Paradigm.

Baidu (09888) AI Cloud achieved revenue of 5.1 billion yuan in Q2 2024, a year-on-year increase of 14%. Revenue from generative AI continued to grow, accounting for about 9% of total AI Cloud revenue, higher than the 6.9% in the first quarter. In addition to GPU demand, the company stated that CPU expenses and public cloud expenses of GPU cloud customers have increased. Large models and generative AI are still in the early stages and require time to cultivate user habits. Although the competition in the domestic large model price war is becoming more intense, the inference cost of models is also continuously decreasing. The company expects AI Cloud revenue to continue to maintain strong growth in the next few quarters and will continue to improve profit margins.

In Q2 2024, Alibaba (09988) achieved capital expenditure on property and equipment of 11.939 billion yuan, a year-on-year increase of 98.75% and a quarter-on-quarter increase of 17.35%. The company will continue to invest in research and development and capital expenditure on artificial intelligence to ensure the growth of AI-driven cloud business. In the medium to long term, the company expects the overall revenue of Alibaba Cloud (excluding subsidiaries merged by Alibaba) to return to double-digit growth in the second half of this fiscal year and may gradually accelerate thereafter.

[Data Analysis]

Data released by the Hong Kong Stock Exchange shows that the total number of open contracts for Hang Seng Index (August) futures is 112,255 contracts, with a net open position of 30,857 contracts. The settlement date for Hang Seng Index futures is August 29, 2024. This cycle's settlement.

Looking at the distribution of bull and bear positions in the Hang Seng Index, at the 17,612 point level, the bearish warrants are concentrated near the axis, providing momentum for long positions in Hong Kong stocks. Federal Reserve Chairman Powell stated that the time for rate cuts has come as risks in the job market rise, and his latest remarks bring the possibility of a rate cut in September closer to reality. The Hang Seng Index is expected to rise this week.

【Editor's Note】

Some Hong Kong stocks are really undervalued. For example, BOE Varitronix, mentioned in the previous issue of this magazine, has seen an improvement in industry prosperity and a high total revenue growth rate, yet its market value is even lower than its net cash on hand. Recently, leading internet companies such as Alibaba, Tencent, and Xiaomi have shown strong performance. Against the backdrop of the US interest rate cuts, in the medium to long term, the Hong Kong stock market should be able to attract more overseas investors, leading to increased liquidity.

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