Intelligence Hong Kong Stock Analysis | Hang Seng Index breaks 20,000 points with record high trading volume, funds go on a buying spree causing a market crash

【Market Analysis】

The market is going crazy, it's so strong that it's scary. The Hang Seng Index broke through the 20,000-point mark without any suspense. It closed at 20,632 points, up 3.55%, with a surge in trading volume to 445.7 billion, setting a new historical high. The A-share market also set several records, with the ChiNext turnover reaching 439.5 billion yuan, the highest in history. The ChiNext Index rose by 10%, exceeding the 7.16% increase on September 16, 2015, becoming the largest single-day increase in history.

The People's Bank of China has decided to reduce the reserve requirement ratio for financial institutions by 0.5 percentage points (excluding financial institutions with a 5% reserve requirement ratio already in effect) starting from September 27, 2024. After this reduction, the weighted average reserve requirement ratio for financial institutions is about 6.6%. This level still leaves some room compared to central banks of major economies internationally. There are three months left until the end of the year, and there may be a further reduction of 0.25-0.5 percentage points. The 7-day reverse repurchase rate, a key policy rate, has also been lowered again, from 1.70% to 1.50% in just two months. The easing trend in the liquidity situation is already evident.

The reason for the rapid rise in this market is mainly due to breaking conventional expectations. Not to mention the policy bombshell, the key is the unusual timing of the announcement. For example, the meeting on September 24 was an additional meeting, not known in advance, emphasizing the element of surprise. Looking at yesterday's Politburo meeting, according to the usual schedule in previous years, it is held in April, July, and November. The November meeting was moved up to the end of September. The reason is that the situation is urgent. The economic performance in the first three quarters of this year was roughly good in the first quarter, flat in the second quarter, and declining in the third quarter. Looking at the performance of each quarter, the growth rate in the first quarter was 5.3%, and 4.7% in the second quarter, maintaining a 5.0% growth rate in the first half of the year. The purpose of this emergency meeting is to plan a comprehensive set of policies before the start of the fourth quarter to hedge against the downward economic trend and prepare for a final push to achieve an annual GDP growth rate of around "5%". Therefore, September is a key point this year. In addition, the Fed's interest rate cut cycle has already begun, objectively opening up a lot of policy flexibility.

Looking at the unexpected effects, the recent continuous rise has severely impacted neutral hedging strategies in the market, forcing many hedge funds to close out short positions at a loss on a large scale. This not only applies to short positions in HKChina, but also includes emerging market funds. Strategies that were originally long Japan/India and short HKChina are under tremendous pressure and are forced to shift. It can be predicted that mainstream Asia-Pacific hedge funds have suffered significant losses in the past week. The significant rise in overseas Chinese assets this week has been an important driving force for the disappearance of short positions and the shift to long positions by hedge funds.

To understand how hot the Chinese market is, just look at the Nasdaq Golden Dragon Index, which surged by 10.85% last night, a historically rare increase, showing the extent of foreign frenzy.

The domestic market has also reached a frenzy. The biggest news today is that the Shanghai Stock Exchange's system crashed. The trading volume in the morning was higher than the entire day last Monday, and the Shanghai Stock Exchange crashed starting from 10:10 am, with severe order congestion, most orders unable to be executed or canceled, and the Shanghai Composite Index moving in a straight line, taking about an hour to return to normal Analysis indicates that quantification is causing trouble, because the previous regulation on quantification has led quantification institutions to try every means to split orders so that the system cannot recognize them as quantified orders, while regulatory agencies are trying every means to identify quantified orders and manage them. With the full force of quantification, it is inevitable that such small orders will be significantly amplified in the short term, overwhelming the identification system and consuming massive resources. Coupled with many retail orders, it directly exceeds the limit. This technical issue is actually relatively easy to handle, just optimize the relevant restriction algorithms, it is not a physical storage issue.

As the market heats up, some securities firms have issued notices encouraging employees to cancel vacation requests as much as possible on September 30th. The main reason is that given the recent rapid market heating up, the workload for customer marketing services, complaint resolution, and response has doubled. In view of the above situation, to ensure the smooth and efficient operation of various tasks, all units are requested to make reasonable arrangements, and vacation requests for September 30th should be canceled as much as possible. The latest situation is that the number of online account openings has significantly increased, and the overall work has become overwhelming. It can be seen that incremental funds will continue to enter the market.

Securities stocks are going crazy, with Guotai Junan International (01788) soaring by 45.83%, China Galaxy Securities (06881) and CITIC Securities (03908) rising by nearly 18%, and yesterday's stock market darling, CITIC Securities (06030), rising by nearly 15%. The logic of these securities firms is quite clear, it is the expectation of a bull market. With this kind of trading volume, securities firms can expect a full load of commission fees alone, not to mention proprietary and other businesses. This is the strongest logic, bull market speculation on securities firms. Of course, the Hong Kong Stock Exchange (00388) also directly benefits, soaring by over 11% today.

Next is real estate. On September 27th, media reports cited sources as saying that Shanghai and Shenzhen are expected to cancel the remaining important home purchase restrictions. Currently, cities with limited purchase policies include Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, and some areas in Hainan. Many industry insiders previously expected further optimization and adjustments to the home purchase restrictions in Beijing, Shanghai, and Shenzhen. The statement from the highest level yesterday to "stabilize the decline" is a signal in itself, indicating that the market clearly believes that various positive news will be introduced. Longfor Group (00960) and Vanke (02202) mentioned yesterday both rose by over 16%.

Consumer stocks are also quite fierce, with the bellwether China Duty Free (01880) rising by nearly 14% again; the aviation sector mentioned yesterday also performed well, with Air China (00753), China Southern Airlines (01055), and China Eastern Airlines (00670) all rising by over 13%. The reason why aviation is more aggressive is because it is truly at the bottom, with high cost performance. Travel-related stocks mentioned such as Tongcheng-Elong (00780) and Trip.com Group (09961) were also very strong today, with both rising by over 13%. Other sectors mentioned, such as casino stocks like Sands China (01928), rose by over 14%.

The rise in consumer stocks has also stimulated the logistics sector. According to LatePost, Alibaba's Tmall is set to officially integrate with JD Logistics, a subsidiary of JD.com, and is expected to go live in mid-October. JD Logistics (02618) also surged by over 16% today CXO types favored by foreign capital have also exploded. Foreign institutions generally believe that the US Senate has not yet scheduled a vote on the "Biosecurity Act" legislative proposal, and it is expected that the relevant bill may not be passed by the end of this year. In addition, the US Food and Drug Administration approved 14 small molecule new drugs in the first half of this year, with 3 of them produced by WuXi AppTec (02359), once again confirming the company's competitive strategy of providing high-quality services at competitive prices. Institutions predict that WuXi AppTec's TIDES business acceleration will become the company's main driving force in the future. Today, it surged nearly 24%, driving other companies such as WuXi Biologics (02269), WuXi Jointown (02268), Zai Lab (06127), and GenScript Biotech (01548) all with gains of over 14%.

It is worth noting that there are rumors in the market that China plans to inject RMB 1 trillion into large state-owned banks, which may dilute earnings per share. Today, state-owned banks are all declining, with Agricultural Bank of China (01288) falling by over 6%, China Construction Bank (00939) and Postal Savings Bank of China (01658) both falling by over 4%. Non-state-owned commercial banks like China Merchants Bank (03968) are doing slightly better, with a small increase of 1.6%. However, overall, this round of strong performance seen in the previous period is not looking good, as seen with typical cases like China Mobile (00941).

When the market comes, do not fear highs. Both rises and falls follow the same principle. When it falls, one may think it will rebound quickly, only to find it lingering. Similarly, when it rises, it is not a one or two-day affair. Respect the trend. If you really don't know what to buy, investing in ETFs is also a strategy, as long as it does not deviate from the main line.

[Sector Focus]

On September 27th, Luo Yanjun, Director of the Insurance Supervision Department of the China Banking and Insurance Regulatory Commission, stated that nurturing genuine patient capital and actively supporting the stable development of the capital market are key. Insurance funds are relatively typical long-term funds. Next, the China Banking and Insurance Regulatory Commission will continue to optimize the regulatory policies for the use of insurance funds, guide insurance companies to improve internal long-term assessment mechanisms, increase investment in strategic emerging industries, advanced manufacturing, new infrastructure, and other areas, and better serve the development of new productive forces.

The State Council Information Office held a regular policy briefing. Wang Shengbang, Director of the Legislative Affairs Department of the China Banking and Insurance Regulatory Commission, stated that in response to new needs, the China Banking and Insurance Regulatory Commission is actively cooperating with relevant departments to promote the revision of the Insurance Law. The overall approach is to combine problem-oriented and goal-oriented approaches, aiming to address some deficiencies in the operation, supervision, and risk management of the insurance industry, and fill in the gaps.

Insurance stocks are also indispensable in a round of market trends, as they are both offensive and defensive good varieties. Similar to securities firms in some aspects, cash flow is a major feature, and in a good market, there will be more allocation to equity varieties. The improvement in performance is quite rigid, coupled with the encouragement of national policies, insurance stocks will continue to be sought after by large funds.

Key stocks in the Hong Kong stock market include: Ping An Insurance (02018), China Life Insurance (02628), China Pacific Insurance (00966), China Taiping Insurance (02601), etc.

[Individual Stock Exploration] China Life Insurance (00966): Impressive Investment Performance, Net Profit Exceeds Expectations

The company's net profit attributable to shareholders in the first half of the year increased by 37.1% year-on-year to 25.1 billion yuan, with a nearly doubled net profit growth in the second quarter, up by 99.4% year-on-year to 13.3 billion yuan, outperforming market expectations.

Analysis: China Life Insurance's new business value in the first half of the year increased by 22.8% year-on-year to 9.04 billion yuan, making it one of the fastest-growing companies in the industry. The NBV in the second quarter increased by 13.5% year-on-year to 3.85 billion yuan, maintaining strong growth on a high base from the same period last year. The scale of new single premiums slightly decreased, down by 11.8% year-on-year to 49 billion yuan, with individual insurance and bancassurance channels' new single premiums increasing by 10% and decreasing by 30% year-on-year, respectively, which is in line with market expectations. The decline in new bancassurance premiums was mainly affected by a significant decrease in upfront premiums due to the integration of reporting and underwriting. The value rate of channels improved rapidly, with individual insurance and bancassurance new business value rates increasing by 2.7 and 5.6 percentage points year-on-year to 30.6% and 12.5%, respectively, driving the overall value rate of the company up by 5.3 percentage points year-on-year to 18.7%. The core workforce of individual insurance slightly increased to 60,000 people, up by 0.8% year-on-year, and it is expected that the core workforce of individual insurance will continue to be the main driving force for channel value growth in the future. The impressive investment performance boosted the company's net profit beyond expectations. The company's total investment yield in the first half of the year was 2.7% (non-annualized basis), up by 0.7 percentage points year-on-year; the comprehensive investment yield was 3% (non-annualized basis), up by 0.9 percentage points year-on-year, mainly benefiting from the upward trend of equity markets and the bull market in bonds driving the fair value increase. The company's total investment income and fair value change income increased by 46.5% and 292.7% year-on-year, respectively, corresponding to a 24% and 11% growth in FVOCI equity assets and FVTPL assets from the beginning of the year.

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