Intelligence Hong Kong Stock Analysis | Short-selling forces contained, stock market surges, funds flock to interest rate cut concepts

[Market Analysis]

Today, A-shares experienced a major turnaround, with all three major indexes rising sharply and Hong Kong stocks steadily rising with a 2.06% increase at the close.

Yesterday, the China Securities Regulatory Commission approved the suspension of securities lending and borrowing starting from today (July 11), with existing securities lending and borrowing contracts to be settled by September 30. The margin requirement for exchange securities lending has been raised from 80% to 100%, and for private equity funds from 100% to 120%, effective from July 22. For a long time, the market has been critical of securities lending and borrowing, as it is a bearish practice that only institutions can engage in to make money by short selling. This is inherently unfair to retail investors. This time, the regulatory authorities finally listened to the market's voice, taking decisive measures at a critical moment to directly curb short selling. Although the scale of securities lending and borrowing is not particularly large, in a bear market, this force has a significant impact on the market. The key is that the regulatory authorities have shown the will and determination to crack down on short sellers. Under this momentum, short selling forces will inevitably have to retreat and can only make money through long positions.

The Federal Reserve once again sounded "dovish". Powell stated during a congressional hearing that the Fed does not need to wait for inflation to fall below 2% before cutting interest rates, showing a clear change in attitude. Coupled with a significant downward revision of non-farm payroll data in the United States, the probability of the first rate cut in September has increased significantly. The Nasdaq and S&P in the U.S. continue to hit new historical highs.

The U.S. CPI data for June, to be released at 20:30 tonight, is crucial. Investors will focus on the core CPI. If the month-on-month increase in the U.S. core CPI is between 0.15% and 0.20%, it will further drive up U.S. stocks, but perhaps accelerate to a short-term high afterwards. If it is below 0.1%, then there will undoubtedly be a significant increase. In other cases, a decline is likely. It is highly probable that the core CPI will decrease, but the extent is not expected to deviate too much.

If the rate cut begins in September, the space for domestic monetary policy will open up, and rate cuts and reserve requirement ratio cuts in the fourth quarter are worth looking forward to.

Against this backdrop of expectations, sectors related to rate cuts will be sought after by the market. Firstly, the most sensitive sector is real estate, such as New World Development (01030), Country Garden Services (06098), and China Resources Land (01109), but the gains are relatively modest as further observation of U.S. inflation data is needed.

The market's stronger response is in the innovative pharmaceutical sector. In addition to the national encouragement of innovative drugs at the fundamental level, the State Council executive meeting approved the "Implementation Plan to Support the Development of Innovative Drugs throughout the Chain". More importantly, after the overseas easing of interest rates, capital expenditure in the pharmaceutical sector will increase, overseas market operations will improve, and related stocks such as Zhaoyan New Drug (06127), Kanglong Chemical (03759), and Xinda Biotech (01801) have all risen by more than 6 points.

Consumer stocks also show vitality, with consumer electronics represented by Qutai Technology (01478). The company announced that it expects the group's attributable comprehensive profit for the six months ended June 30, 2024, to increase by approximately 400% to 500% to about RMB 21.692 million compared to the six months ended June 30, 2023 Unexpectedly, the performance was so explosive, with a direct increase of 24.13%, Shun Yu Optical (02382) and High Wealth Electronics (01415) were both stimulated. The duty-free shop China International Travel Service (01880) also rose by 7.65% today. This indicator must be closely watched by everyone. It is very likely that this time it will start to emerge from the bottom.

Tesla continues to rise, which is a positive boost for domestic car companies. The market's focus has shifted to stagnant varieties at the bottom, such as XPeng (09868) and Li Auto (02015). Among them, XPeng's MONA M03 new model recently had its global debut and is expected to be officially released in August, becoming a super star product in the A-class pure electric market. Automotive-related suppliers are also strengthening, such as Premium Sound Solutions (PSS) under AAC Technologies (02018), a leading global high-end audio system supplier. Recently released popular models such as Aito M9, Xiaomi SU7, and Li Auto L series all use AAC Technologies/PSS company's speaker products. Today, it rose by more than 6 points again.

Good news came from the upstream lithium battery sector. The China Automotive Power Battery Industry Innovation Alliance released battery market data for June 2024 and the first half of the year, showing that driven by the new energy vehicle market, the total output of power batteries and other batteries in mainland China in June was 84.5GWh, an increase of 2.2% monthly and 28.7% annually. Sales volume was 92.2GWh, an increase of 18.4% monthly and 51.2% annually. Among them, the sales volume of power batteries was 69.3GWh, an increase of 23.3% monthly and 37% annually; with the gradual digestion of high lithium salt inventory, the overseas expansion of new energy vehicles, and other factors driving the return of lithium salt demand, the supply and demand pattern of the lithium salt industry is expected to improve after the fourth quarter of 2024, leading to a turning point in prices. Yesterday's stock pick Ganfeng Lithium (01772) rose by 8.88% again today.

Baidu Group (09888) successfully attracted attention with its robotaxi, while Tencent (00700), Meituan (03690), and other giants' stock prices remained strong, leaving Alibaba (09988) looking lonely. There are rumors today that on July 6th, Jack Ma returned to Hangzhou and appeared at Alibaba's headquarters. Last time, the day after Jack Ma returned to China, Alibaba announced the "most important change in 24 years", redefining and restructuring the governance relationship between Alibaba Group and its various businesses, initiating an organizational structure adjustment of "1+6+N". Daniel Zhang announced stepping down, with Joseph Tsai and Eddie Wu from the "Eighteen Arhats" respectively taking over as Chairman of the Board and CEO of the group, and so on. I wonder if there will be new initiatives this time, and Alibaba rose by 2.46% today.

Please note that on July 10th, the first batch of China Securities Gaoxin Hong Kong Stock Connect Central Enterprise Dividend ETFs were listed for trading. On the first day of listing, the performance of the 4 ETFs varied. This may be related to the pace of new fund positions. Wind data shows that as of June 11, 2024, the "China Securities Gaoxin Hong Kong Stock Connect Central Enterprise Dividend Index" has a cumulative net return rate of 23.69% in the past year and 67.55% in the past three years Since the base date, the cumulative net return rate is 85.03%. In the short term, dividend stock trading seems a bit crowded, but in the long term, the price-earnings ratio of the CSI Guoxin Hongli Index for central enterprises through the Hong Kong Stock Connect is about 8.16 times, the price-to-book ratio is about 0.81 times, the overall valuation performance is at a low level, the dividend yield is 4.91%, and even after adjustment, it is still worth paying attention to.

[Sector Focus]

Good news has come from the communication sector in China: a new breakthrough has been made in the key technologies of 6G, which is marked by the integration of communication and intelligence. The 4G and 5G communication links are expected to have the transmission capability of 6G. Academician of the Chinese Academy of Engineering and Professor at Beijing University of Posts and Telecommunications, Zhang Ping's team has built the world's first 6G field trial network based on the integration of communication and intelligence, verifying the feasibility of 4G and 5G links having the transmission capability of 6G. This communication system is designed to be intelligent and simple, with significant improvements in its capacity, coverage, and efficiency.

This achievement and its innovative theory have been published in the Chinese communication journal "Journal of Communications". Compared to 5G, 6G has higher speed, lower latency, wider connection density, and can achieve deep integration of communication with artificial intelligence and intelligent perception. Artificial intelligence will enhance the perception and semantic understanding capabilities of communication. Ubiquitous communication of 6G will extend the tentacles of artificial intelligence to various fields and corners. The integration of the two will accelerate the formation of new formats of the digital economy.

Main stocks: China Telecom (00928), China Mobile (00941), China Unicom (00763), China Tower (00788), ZTE Corporation (00763).

[Individual Stock Analysis]

Xinjiang Goldwind Science & Technology Co., Ltd. (03800): Overseas Polysilicon Project Accelerates Landing, Cost Advantage Continues to Expand Market Share Constantly Rising 

On June 3, Xinjiang Goldwind Science & Technology Co., Ltd. announced that it has reached a cooperation agreement with Mubadala, a sovereign fund of the United Arab Emirates. The subsidiaries of both parties will explore the development of the first polysilicon project in the United Arab Emirates. The United Arab Emirates is actively transitioning to clean energy, and the company's cooperation with Mubadala will also promote the development of the local photovoltaic industry chain from the material end.

Comments: The company's overseas polysilicon project may accelerate its pace of landing, with the possibility of starting construction by 2024. The current market mismatch feedback does not affect the high-growth trend of the industry. On the demand side: photovoltaics will be deeply embedded in the construction of new power systems; "photovoltaics + solid-state batteries + efficient energy storage + super fast charging" will build an energy base for the low-altitude economy.

Currently, the global industrial chain is undergoing a deep restructuring, and China's photovoltaic industry going global has become inevitable. In the next five years, the market size of perovskite stacked batteries is expected to achieve geometric growth. The company has completely exited the rod silicon field in 2023, focusing on polysilicon. With an annual polysilicon production of 203,600 tons, as technology optimization, modular capacity expansion, and quality improvement continue, the company's annual polysilicon costs have decreased by 27%, with the production cost at the Baotou base already reduced to 35.9 yuan per kilogram, further expanding the cost advantage over rod silicon, and the market share is expected to further increase. The company's accelerated expansion of modular capacity is expected to reach nearly 500,000 tons by the end of 2024 The company's four major production bases are expected to maintain a high capacity utilization rate after 2024Q2. It is estimated that the cash cost/total cost by the end of the year is expected to be below 34 yuan/40 yuan per kilogram, which still has a significant advantage compared to the cash cost range of 35 yuan per kilogram for top-quality companies using the Siemens process. The company recently signed a three-year 425,000-ton procurement contract with the leading silicon wafer company Longi, which is conducive to rapidly increasing market share, combined with CCZ to improve pulling efficiency. In addition, the company has continuously improved the efficiency of perovskite components by acquiring a 45% stake in Xiamen Weihua, a subsidiary of Xin-Energy, over the past 23 years.

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