Intelligent Decision-making Reference | Continuously seize the opportunities of sector rotation

[Editor's Market View]

Despite the absence of southbound funds during the National Day holiday, it did not hinder the enthusiasm of foreign investment, and the Hang Seng Index continued to expand its space. Securities and autonomous controllable sectors remained active.

On October 4th local time, the U.S. announced a surge of 254,000 in non-farm payrolls in September, the largest increase since March 2024, surpassing the revised 159,000 in August and far exceeding the market's general expectation of 150,000. In addition, the unemployment rate dropped to 4.1%, a decrease of 0.1 percentage points, reaching a new low since June 2024. The U.S. CPI data for September will be released this week. With strong employment data, how inflation will affect the magnitude of the next rate cut is significant, with the current expectation at 25 basis points.

The State Council Information Office will hold a press conference at 10:00 am on October 8, 2024 (Tuesday), with NDRC Director Zheng Zhajie and Deputy Directors Liu Sushe, Zhao Chenxin, Li Chunlin, and Zheng Bei introducing the "systematically implementing a package of incremental policies to solidly promote the improvement of the economic structure and the continuous positive development trend," and answering questions from reporters. This indicates that policies are moving towards the implementation stage.

China Securities Depository and Clearing Corporation Limited will advance the opening of the unified account platform and identity verification system from October 6th to cope with the massive account opening applications during the holiday. The original opening time for the two services was October 7th. The market is quite hot, and various units are preparing in advance, including the Shanghai and Shenzhen Stock Exchanges conducting another full-network test on October 7th.

Overall, the policy support for the Hong Kong stock market remains unchanged, continuously seizing the opportunities of sector rotation strategically.

In terms of hotspots, under the influence of policies such as the trade-in for new policy combined with vehicle manufacturer incentives and the effect of new cars, the new energy vehicle market was booming during the National Day holiday, with many car companies reporting good news. On October 1st, several new energy vehicle companies released their September delivery performance reports successively, with multiple brands setting new delivery records. Tesla will hold a "Robotaxi" event on October 10th local time. It is expected that new energy vehicles, autonomous driving, etc., will remain active.

According to the official website of the Nobel Prize Committee, the results of the 2024 Nobel Prize selection will be announced from October 7th to 14th. Pay attention to whether there is any news stimulus related to GLP-1 "weight-loss drug."

The market risk event this week is Israel's retaliatory action against Iran, observing whether oil and other facilities are bombed. Pay attention to the oil and gas sector.

[Top Stock Picks of the Week]

China International Travel Service Corporation Limited (01880)

The company achieved revenue of RMB 31.265 billion in the first half of 2024, a year-on-year decrease of 12.81%; net profit attributable to equity holders was RMB 3.283 billion, a year-on-year decrease of 15.07%; non-GAAP net profit was RMB 3.238 billion, a year-on-year decrease of 16.0%. Based on financial data, the company's 2Q24 revenue was RMB 12.458 billion, a year-on-year decrease of -17.44%; net profit attributable to equity holders was RMB 976 million, a year-on-year decrease of -37.60%; non-GAAP net profit attributable to equity holders was RMB 939 million, a year-on-year decrease of -39.79%. The gross profit margin for Q2 was 33.87%, up by +1.03 percentage points year-on-year; the sales expense ratio was 17.84%, up by +3.09 percentage points year-on-year; the management expense ratio was 3.75%, up by +0.03 percentage points; Financial Expense Rate -2.78%, YoY -2.47pct; Net Profit Margin attributable to parent company 7.83%, YoY -2.54pct. With the increase in the proportion of mid-to-high-end product sales, the improvement of sales promotion management mechanisms, optimization of product pricing and discount strategies, the profitability continues to recover, driving the gross profit margin up.

Looking ahead, with the new policy of the downtown duty-free market being implemented, the downtown duty-free shops operated by China Duty Free Group under China International Travel Service in Beijing, Shanghai, Qingdao, Dalian, Xiamen, and Sanya will be the first batch of transformed downtown duty-free shops. In addition, 8 cities including Guangzhou, Chengdu, Shenzhen, Tianjin, Wuhan, Xi'an, Changsha, and Fuzhou will each establish 1 downtown duty-free shop, further expanding the coverage of downtown duty-free shops. These changes are expected to further boost the inbound and outbound duty-free market, bringing new growth opportunities for duty-free operators such as China Duty Free.

[Industry Observation]

Due to the policy catalysis before the holiday, this week the prices of industrial metal commodities stabilized overall. LME March copper fell by 0.2%, aluminum rose by 1.2%, SHFE copper rose by 0.1%, and aluminum remained flat; in terms of equities, the day before the holiday, A-share copper and aluminum both strengthened, and during the holiday, H-share copper and aluminum continued to rise, with China Hongqiao +6.86%, Aluminum Corporation of China +7.26%, Zijin Mining +5.45%, and Luoyang Molybdenum +9.15%. This week, there was differentiation in overseas copper and aluminum inventories, with copper up by +1.09% on a weekly basis and +88.09% year-on-year, while aluminum was down by -1.77% on a weekly basis and up by +57.29% year-on-year.

From the commodity side, based on limited supply-side elasticity and prominent demand-side growth, the center of copper and aluminum commodities is moving upwards. The first half of 2024 may just be a preview of the future annual-level market. In the short term, the confirmation of the timing from rebound to reversal of copper and aluminum commodities is crucial. At present, the policy conditions have arrived: first, there is a substantial change in macro expectations, if relying on external factors - economic data verification, referring to the pattern after the rate cut in 2019, corresponding to this round, or around November 2024, observing changes in US real estate and manufacturing data; if relying on internal factors, it depends on the effective stimulus policy landing. Second, currently, a package of stimulus policies that have been introduced or are in progress domestically are expected to lead the change in macro expectations ahead of overseas economic data, driving the macro expectation change, but attention needs to be paid to the possible trading volatility risks after the rapid expansion in the short term. Meanwhile, recent geopolitical risks in the Middle East have increased, leading to a strong rebound in crude oil, which may also contribute to the overall strength of commodities.

In addition, for electrolytic aluminum, according to Xinhua Finance, during this year's dry season in Yunnan, there may be no production restrictions on electrolytic aluminum due to sufficient power supply. In the current market dominated by macro expectations, the additional impact on the prices of the aluminum industry chain is limited.

On the equity side, it is expected to see a dual increase in profit and valuation catalyzed by policies. Referring to the turning point driven by policies in 2018, even in the short-term rebound market, both copper and aluminum have excess returns; in the long-term reversal, this round of resource products with a superior supply-side structure theoretically have more cost-effectiveness in the medium to long term.

[Market Data Analysis] According to data released by the Hong Kong Exchanges and Clearing Limited (HKEX), the total number of open contracts for Hang Seng Index Futures (October) is 141,841, with a net open interest of 49,876 contracts. The settlement date for Hang Seng Index Futures is October 30, 2024.

Looking at the distribution of bearish positions in the Hang Seng Index, at the 22,737 level, the concentration of bearish warrants has significantly decreased compared to last week. The Chinese government quickly introduced a series of major stimulus policies, leading overseas funds to rebuild their positions. During the week-long National Day holiday, the Hang Seng Index surged by 2,000 points, leading to a demand for adjustments after the high. It is expected that with the A-share market opening after the holiday, it will support the stabilization of the Hang Seng Index. The outlook for the Hang Seng Index this week is positive, but the pace of increase may slow down.

[Editor's Note]

On October 5th, Goldman Sachs raised its rating on the Chinese stock market to "overweight" in its latest report, expecting a further increase of 15-20%. Goldman Sachs raised the target price for MSCI China from 66 to 84 and for the CSI 300 Index from 4000 to 4600.

In terms of sector allocation, Goldman Sachs upgraded insurance and other financial sectors to overweight, metals and mining to neutral, and downgraded telecommunications services to underweight.

A research institution has analyzed 11 instances in the history of global stock markets where there was a single-week increase of 20%. In the following 5-20 trading days, there were around 8 cases of a rebound of approximately 7%; in the subsequent 20-60 trading days, a consolidation phase ensued with fluctuations being the main trend; after 60 trading days, differentiation began, either entering another bull run or experiencing a new decline. History does not simply repeat itself, but there are always lessons to be learned. For investors who have already experienced significant gains, it is important to focus on the next two weeks of trading and then prepare for a potential period of consolidation.

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