Intelligence Decision Reference | The key to the Hang Seng Index stabilizing lies in whether incremental funds can enter quickly.

[Editor's Market View]

Last week, global stock markets weakened collectively under the dual pressures of rising US bond yields and the Middle East conflict. The Shanghai Composite Index fell below 3,000 points, while the Hang Seng Index approached 17,000 points.

The continuous market weakness is the result of various factors, with liquidity being a key factor. The withdrawal of foreign capital has a significant impact on the market. Therefore, the key to stabilizing the Hang Seng Index lies in whether incremental funds can enter the market quickly.

On October 23, China Investment Corporation announced that it had bought exchange-traded open-end index funds (ETFs) on that day and would continue to increase its holdings in the future. The previous increase in holdings of the four major banks by China Investment Corporation had a limited effect due to the relatively small amount of funds. If there is a sustained and substantial increase in holdings, it will boost market confidence.

According to reports, the once-in-five-years National Financial Work Conference is scheduled to be held at the end of this month, focusing on topics such as how to prevent and resolve financial risks. The main focus is on whether there will be direct stimulus for the real estate industry.

In terms of external factors, the short-term focus of the market is still on the Israeli-Palestinian conflict, but it is not expected to escalate into a major conflict. Countries around the Middle East are also adjusting their strategies. One positive signal to note is that Australian Prime Minister Albanese will visit China from November 4th to 7th. This is his first visit to China since taking office and the first visit by an Australian Prime Minister to China in seven years.

Overall, there are more positive factors for the Hang Seng Index around the 17,000 level, and it is expected that breaking below 17,000 could form a bear trap. The hot spots continue to revolve around technologies such as Huawei's 5.5G and wind energy with positive stimuli. On the negative side, according to the Global Times, relevant departments are conducting tax inspections and land use investigations on companies under Foxconn.

[This Week's Featured Stock]

China Hongqiao (01378)

China Hongqiao's subsidiary, Shandong Hongqiao New Materials Co., Ltd., released its third-quarter report, showing that in the first three quarters of 2023, Shandong Hongqiao achieved revenue of 97.9 billion yuan, a YoY decrease of 2%; net profit of 6.53 billion yuan, a YoY decrease of 36%; among them, Q3 achieved revenue of 33.4 billion yuan, a YoY increase of 4% and a MoM decrease of 6.3%; net profit of 4.32 billion yuan, a YoY increase of 226% and a MoM increase of 168%, with performance far exceeding expectations.

Shandong Hongqiao is a subsidiary of China Hongqiao, and 94.52% of its profits belong to China Hongqiao. Shandong Hongqiao mainly includes China Hongqiao's domestic electrolytic aluminum, alumina, and power sectors. China Hongqiao's overall profit is based on Shandong Hongqiao's profit, plus the profits from the Indonesian alumina and Guinea bauxite sectors.

The market originally expected the profit per ton of electrolytic aluminum in Q3 to be between 1,600-1,700 yuan, but the actual calculation is around 2,500 yuan. This is mainly due to better-than-expected average selling prices of electrolytic aluminum and alumina, significantly lower electricity prices in Yunnan during the Q3 flood season compared to self-generated electricity costs in Shandong, and better-than-expected performance of Yunnan aluminum plants.

The profit elasticity brought by the decline in thermal coal prices was fully reflected in Q3. Since Q4, the rebound in coal prices has had a certain impact on costs, but Q4 aluminum prices are expected to be higher than Q3 (historically low inventory + no incremental supply in the short term, providing support for aluminum prices), so profitability is expected to remain high in Q4.In addition, the third-quarter report of the closed-end stock fund managed by star fund manager Qiu Dongrong showed that Zhonggeng Hong Kong Stock Connect Value 18-month closed-end stock fund increased its holdings of China Hongqiao in the third quarter, making it the third largest position.

[Industry Observation]

The latest data released by Canalys shows that in the third quarter of 2023, the global smartphone market only declined by 1% YoY, indicating a slowdown in the decline.

In China, Huawei's smartphone sales have shown strong growth. BCI data shows that Huawei's market share has increased from around 10% before the release of the Mate60 series to 19.4% during W40 (October 2nd to October 8th), ranking first in the domestic market. According to Counterpoint Research data, the Huawei Mate 60 Pro sold 1.6 million units within six weeks of its release. Stores have stated that this is still the case despite shortages, and the sales volume would be even higher if supply is sufficient.

The launch of Huawei's heavyweight new products is expected to stimulate the current consumer electronics market, ignite consumers' enthusiasm for upgrading their devices, and promote the recovery of terminal demand. On the other hand, Huawei's "strong comeback" will also encourage other smartphone manufacturers to further innovate their products and launch more competitive new products, which is expected to promote the upgrading and transformation of the industry chain and bring more investment opportunities.

In addition, major brands are actively replenishing their inventories in preparation for the peak season in the fourth quarter. It is expected that this fundamental trend will continue on a quarterly basis. The market's response to stock prices is expected to be on a monthly level.

The Hong Kong stock market is closely watching companies such as Semiconductor Manufacturing International Corporation (00981), Sunny Optical Technology (02382), and BYD Electronic (00285).

[Data Analysis]

Data released by the Hong Kong Stock Exchange shows that the total number of open positions for Hang Seng Index futures (October) is 125,104 contracts, with a net open position of 52,061 contracts. The settlement date for Hang Seng Index futures is October 30th.

Looking at the distribution of long and short positions in the Hang Seng Index, at the 17,172 point level, the concentration of long positions is close to the axis, indicating bearish sentiment in the Hong Kong stock market. The US market has gradually accepted the prospect of high policy interest rates next year, with the 10-year Treasury yield briefly breaking through the 5% level and the 30-year yield closing at 5.08%, both reaching their highest levels since 2002. The global bond market has made significant adjustments in response to US bonds, with the 10-year yield in Germany closing at 2.9% and the 10-year yield in Italy briefly surpassing 5%, both reaching their highest levels since the European debt crisis. High-grade and high-yield bonds in the US have also been impacted by the bond market, leading to a deep adjustment in global stock markets. The Hang Seng Index is expected to continue to decline this week.

[Editor's Note]

There are more and more signals at the bottom. One of them is the intensive application for Hong Kong-listed innovative pharmaceutical ETFs. Eight fund companies, including E Fund, Huatai-PineBridge, Bosera, and Invesco Great Wall, have all submitted registration materials for their ETF products investing in the Hong Kong-listed innovative pharmaceutical sector to the China Securities Regulatory Commission (CSRC). Among them, only Huatai-PineBridge Fund's Huatai-PineBridge Hang Seng Innovative Pharmaceutical ETF is a QDII fund, while the other seven companies plan to invest in the Hong Kong-listed innovative pharmaceutical market through the Hong Kong Stock Connect.

The collective layout of Hong Kong-listed innovative pharmaceutical ETFs by fund companies is due to the fact that the valuation of Hong Kong-listed innovative pharmaceuticals is already cost-effective, and also because innovative pharmaceuticals have both growth potential and safety in a market environment lacking clear themes.

Funds have been clearly arranged. In the medium to long term, innovative pharmaceuticals, high-end medical devices, and other technology-intensive sub-sectors will continue to be the direction supported by national policies and pursued by companies for catching up and development, making them worth paying attention to for investment opportunities.

[Disclaimer] This VIP information product is for communication and discussion purposes only and does not constitute any investment advice. Unauthorized reproduction is strictly prohibited. For more high-quality information and data products, please log in to the "Zhixin Finance" app for inquiries.