Intelligence Decision Reference | Hang Seng Index tests annual support line again

[Editor's Market View]

The global market is booming, but the A-share market continues to adjust, with the Hong Kong stock market showing a stronger trend, and the Hang Seng Index rebounded slightly last week.

In the U.S., non-farm payrolls increased by 206,000 in June, higher than the market's expectation of 180,000, but significantly lower than the previous value of 272,000; the unemployment rate rose to 4.1%, higher than the market's expectation of 4.0%. Overall, the data reflects a cooling trend in the labor market. This implies a high likelihood of a rate cut by the Federal Reserve in September. This week, the U.S. Bureau of Labor Statistics will release the June CPI inflation data, a key inflation indicator, to observe whether it is moving towards the Federal Reserve's target.

The second round of voting for the French National Assembly elections will be held on July 7th. The latest polls indicate that far-right leader Le Pen is not expected to win an absolute majority in the French elections. If the results align with the polls, France will have a hung parliament. In the UK, the Labour Party won the elections, but there will not be major policy changes. The Iranian elections were relatively unexpected, with a moderate candidate unexpectedly winning. Observations are needed to see if this leads to changes in foreign policy.

Over the weekend, there were no significant positive news in the domestic market, mainly the news of six departments jointly cracking down on counterfeiting. It's more of a long position than a short one. This week, the market will focus on some important data, such as June CPI, PPI, as well as financial data including new loans in June, M2, and total social financing scale. Market expectations are not high from a market perspective. It is expected that the Hang Seng Index will once again test the annual support line.

The State Council executive meeting approved the "Implementation Plan to Support the Development of Innovative Drugs throughout the Chain." The meeting emphasized the need to strengthen policy support throughout the chain, coordinate the use of price management, medical insurance payments, commercial insurance, drug procurement and use, investment and financing policies, optimize review and approval processes, and medical institution assessment mechanisms, to jointly promote the breakthrough development of innovative drugs. It is expected to bring new stimulus to innovative drug companies.

[Featured Stocks of the Week]

Innovent Biologics (01801)

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The weight loss effect of the GLP-1R/GCGR dual agonist Marzotto peptide jointly developed by Innovent Biologics and Lilly is superior to similar competitors. Previously, the first domestically produced GLP-1R/GCGR dual agonist completed clinical trials, giving Marzotto peptide a competitive edge. Innovent Biologics raised approximately HKD 2.357 billion through a rights issue to accelerate multiple clinical research plans and product commercialization. About 30% of the funds raised (approximately HKD 707 million) will be used for the development, marketing, and commercialization of IBI362 (Marzotto peptide), a GLP-1R/GCGR dual agonist for treating diabetes and obesity, and a potential best-in-class candidate in the clinical stage. Innovent Biologics' IBI-362 provides both blood sugar reduction and weight loss effects, offering multiple benefits to patients. Currently, IBI-362 is at the forefront domestically, with the 6mg specification expected to be approved by the end of 2024 to early 2025, and the 9mg group will start Phase III clinical trials within the year The company's innovative R&D pipeline covers multiple fields. In the fourth quarter of 2023, Daboshu (Xindeli monoclonal antibody injection) continued to experience rapid sales growth driven by its broad indications and continuous coverage by national medical insurance, strengthening its leading position in the market. Other products also maintained significant growth overall. The launch of the new product Toleisumab has helped the company enter the cardiovascular disease market, further enriching its commercial layout. Recently, the company has intensively released clinical data on its oncology and metabolism pipelines, further validating its strategic advantages in key areas such as GLP-1, next-generation IO, and ADC.

[Industry Observation]

The Chinese aviation market in the first half of the year showed characteristics of "significant recovery in turnover with resilient demand."

1. Significant recovery in fleet turnover. In the first half of the year, the scale of passenger aircraft slightly increased, with passenger-kilometers growing by nearly 15% year-on-year, compared to a 3% growth in 2019. The daily utilization rate of passenger aircraft has recovered to 7.8 hours, with over 90% recovery compared to 2019.

2. Resilient aviation demand. In the first half of the year, passenger traffic increased by nearly 24% year-on-year, compared to a 9% growth in 2019 (domestic +13%, international -18%). Airlines are adjusting prices for volume during the off-peak season, leading to a significant increase in passenger load factor.

3. Differentiated international recovery. Since the beginning of the year, the overall recovery of international passenger-kilometers has been faster than initially planned, with European routes surpassing 2019 levels, Asia-Pacific routes recovering by about 70%, and North American routes only recovering by 20-30%. It is expected that international flights will continue to steadily recover, driving the digestion of domestic excess capacity and off-peak supply and demand.

Recently, summer travel passenger flow has continued to rise, with industry estimates of daily average passenger flow exceeding 2 million and expected to continue. Ticket prices are also steadily increasing. At the same time, the pre-sale progress of summer travel tickets continues to accelerate, with optimistic expectations for summer travel demand. Parent-child travel will remain a major demand, with the proportion of child passengers increasing since late June, driving summer travel passenger flow to reach a historical high.

Considering the impact of major events on summer travel passenger flow, analysis institutions predict that the peak passenger flow will be delayed and more concentrated. It is expected that the peak summer travel period will begin in late July and continue until early August. At that time, the market-driven effect on ticket prices is expected to be fully reflected, once again verifying the logic of profit center rising after supply and demand recovery. In the Hong Kong stock market, attention should be focused on Air China (00753) and China Eastern Airlines (00670).

[Market Data Analysis]

Data released by the Hong Kong Exchanges and Clearing Limited (HKEX) shows that the total number of open contracts for Hang Seng Index Futures (July) is 121,210 contracts, with a net open position of 45,520 contracts. The settlement date for Hang Seng Index Futures is July 30, 2024.

Looking at the distribution of long and short positions in the Hang Seng Index, at the 17,800 point level, there is a concentration of long positions near the axis, providing short selling momentum for Hong Kong stocks. This week, Federal Reserve Chairman Powell will testify before Congress, and the market is concerned about the latest thinking on interest rate policy. The Hang Seng Index is expected to decline this week.

【Editor's Note】

Since the beginning of this year, 14 of the top 20 global stock markets have hit historical highs; developed markets have led the way, while emerging markets have caught up. Global investors are voting with their feet, believing that the rate-cut cycle has begun (despite the repeated postponement of rate cuts by the Federal Reserve). Based on the logic of the global rise and catch-up of risk assets, Hong Kong stocks, as the cheapest global risk asset, will receive some global capital allocation. Although there may be further tests in the short term, the downside is supported, so there is no need to be pessimistic.

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