Intelligent Decision Reference | Overall Market Sentiment Tends to be Optimistic

【Editor's Market View】

After excluding special extreme conditions, both the US and Asia-Pacific stock markets are recovering, and the Hong Kong stock market also saw two consecutive weekly gains last week.

From the latest data, it is almost a consensus that the Federal Reserve will cut interest rates by 25 basis points in September. This week, the market is focusing on the Jackson Hole Global Central Bank Annual Meeting held from August 22nd to 24th, where major central banks including the Federal Reserve and top economists will discuss the most urgent issues regarding the global economy and monetary policy. The market will closely watch every word Powell says at the meeting. There is a high probability of continued dovish remarks, guiding the stock market further upwards. However, under the continuous rebound of the US stock market, it is important to pay attention to the pace.

Domestically, key financial data is lower than expected, objectively requiring an increase in policy stimulus intensity, combined with the upcoming Fed rate cut, strengthening the easing expectations, and the overall market sentiment will be more optimistic.

Last week, the financial reports of major giants were strong, and the market also gave positive feedback. This week, attention will be on the financial reports of Baidu (09888), Bilibili (09626), XPeng Motors (09868), Xiaomi Group (01810), and others.

Over the weekend, the NDRC and other four ministries: focused on increasing the promotion of key projects in transportation, energy, water conservancy, and other infrastructure. For national key private investment projects that meet the conditions, the government will increase support through arrangements such as central budget investments. This brings opportunities for related industries in infrastructure construction.

On the 16th, the detailed rules for the second round of the policy for replacing old cars with new ones were officially released. Compared to the first round of implementation rules released in April, this new policy has undergone significant changes. In terms of scrapping and renewal of automobiles, the subsidy standards for purchasing new energy passenger vehicles have been increased from the original subsidy of 10,000 yuan to 20,000 yuan, and for purchasing fuel passenger vehicles from 7,000 yuan to 15,000 yuan, doubling and more. The central government's support has been further increased, and the subsidy funds for scrapping and renewing automobiles are implemented on the principle of 9:1 between the central and local governments, with specific sharing ratios determined by region. The new energy industry may bring new catalysts.

【Stock Pick of the Week】

China Hongqiao (01378)

The electrolytic aluminum industry is currently at a peak in terms of supply, with capacity almost reaching its limit and limited future increments. Projects like Guizhou Anshun Aluminum and Chinalco are expected to start production next year, and Sichuan also has technical renovation projects awaiting resumption, but the overall increment is not significant. In terms of demand, it is currently in the off-season, showing relatively weak performance, with prices falling to the cost support level, making it difficult to continue to decline. The alumina market has seen a supply shortage this year, mainly due to domestic ore shortages and overseas accidents leading to reduced supply. Reductions in production in Australia and India have had a significant impact on global supply, leading to reduced imports. As a result, alumina prices remain high, with spot transaction prices exceeding $500.

Comment: Over the past 24 years, the prices of the company's two main products, electrolytic aluminum and alumina, have both shown significant increases. The average prices of electrolytic aluminum in Q1 and Q2 of 24 were 19,047 yuan/ton and 20,584 yuan/ton respectively; while the average prices of alumina were 3,325 yuan/ton and 3,564 yuan/ton. At the same time, the purchase prices of major raw materials such as coal and anode blocks have decreased. The average prices of Shanxi power coal at the pit mouth in Q1 and Q2 of 24 were 749 yuan/ton and 700 yuan/ton respectively; the prebaked anode average price was 4,534 yuan/ton and 4,597 yuan/ton (average price in Q4 of 23 was 4,858 yuan/ton) According to the calculation by Zhongtai Securities, the net profit per ton of electrolytic aluminum in Q1 and Q2 of 2024 was 1658 yuan/ton and 2502 yuan/ton respectively; the net profit per ton of alumina in Q1 and Q2 of 2024 was 356 yuan/ton and 558 yuan/ton respectively. The profits of the company's two main businesses have both significantly expanded. The company leads globally in terms of enterprise scale, cost, and profitability in the aluminum industry, with a valuation level comparable to overseas peers offering a 90-128% upside potential.

[Industry Observation]

As mobile phone brands continue to launch new products and foldable screens become more popular, the industry chain is expected to experience high growth.

On July 12, Honor released the new foldable screen phones Magic V3 and Magic Vs3. On July 19, Xiaomi launched two foldable screen phones, Xiaomi MIX Fold 4 and Xiaomi MIX Flip. On the morning of July 29, Huawei released a teaser video for the nova series small foldable phones, with Huawei nova Flip expected to be the cheapest foldable screen product ever from Huawei, priced lower than the Pocket 2. According to Digitimes, Apple is expected to launch its first foldable iPhone in 2026.

On July 29, IDC released the market share data for China's foldable screen phone market in 202402, with a total shipment volume of 2.57 million units in Q2, a year-on-year growth of 104.6%. Counterpoint predicts that the global shipment volume of foldable screen phones will reach 55 million units in 2025 and exceed 100 million units in 2027.

Foldable screen phones represent a significant change in the form factor of phones, making it very convenient for viewing text and video content. The hinge and screen are the major incremental components, with the hinge mainly designed by brand manufacturers and the related structural components manufactured by enterprises, with a value ranging from 300 to 700 yuan. The screen is mainly provided by panel manufacturers with flexible AMOLED screens, involving some film material manufacturers in the upstream.

Key stocks to watch in the Hong Kong stock market include BOE Varitronix (00710), S-Link International (00732), and Truly Opto-electronics (00334).

[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 (August) is 117,744 contracts, with a net open interest of 39,610 contracts. The settlement date for Hang Seng Index Futures is August 29, 2024.

Looking at the distribution of bull and bear positions in the Hang Seng Index, at the 17,430 level, the bearish warrants are concentrated near the axis, providing momentum for long positions in Hong Kong stocks. This week, the Federal Reserve's Jackson Hole Symposium will take place, with Powell scheduled to speak on the morning of the 23rd. The Fed will release the minutes of the July FOMC meeting. Based on the pricing in the U.S. interest rate futures market, traders believe there is a 100% probability of a one-rate cut in September and a 34% probability of a two-rate cut. The Hang Seng Index is expected to rise this week.

【Editor's Note】

Looking at the flow of funds, EPFR's data shows that last week, overseas active funds continued to flow out of overseas Chinese stock markets, with approximately $240 million flowing out for the 66th consecutive week. About $650 million in overseas passive funds also continued to flow out. Meanwhile, southbound funds maintained their inflow momentum, with a total inflow of HKD 16.59 billion last week, accelerating from the previous week's inflow of HKD 15.24 billion.

Due to the downturn and valuations approaching historical lows again, institutional investors were quite bullish over the weekend, with a somewhat hopeful "turning the corner" sentiment: Guosen Securities stated that "the rebound trend in Hong Kong stocks is expected to be established in the short term," CITIC Securities mentioned that "multiple indicators show the bottoming characteristics of Hong Kong stocks once again, and Hong Kong stocks may see monthly-level valuation recovery," while CICC commented that "the market will have support, and it will show greater elasticity than A-shares in the short term."

Hopefully, the market trend will align with the expectations of institutions, and southbound bottom-fishing funds will be able to breathe a sigh of relief.

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