National Day holiday Chinese assets become "hot favorite"! Can A-shares be expected today?

According to Hong Kong's Wind Information, Chinese concept stocks continued to show strong gains on Monday. The FTSE China A50 Index rose by 1.98%, the iShares MSCI China ETF rose by 4.68%, and the Direxion ETF (code: YINN) which triples the FTSE China surged by as much as 13.68%. In addition, the NASDAQ Golden Dragon China Index remained stable, but has risen by 11.6% since September 30th.

In terms of individual stock performance, EHang Intelligent soared by over 21%, Highsun Group rose by over 11%, ATS Solar, Dada Group saw gains of nearly 10%, JinkoSolar rose by over 9%, Wuxin Technology and SMIC Semiconductor both rose by around 7%, Kingsoft Cloud and Daqo New Energy rose by over 6%. However, some stocks experienced significant declines, with Agora falling by over 13%, Tiger Brokers dropping by over 7%, SD Biosensor and KE Holdings falling by around 6%, Bit Digital dropping by over 5%, and Bilibili falling by around 4%.

The widespread rise of Chinese concept stocks in this round indicates that the market's optimism towards Chinese assets is gradually increasing, especially against the backdrop of foreign institutions collectively upgrading their ratings on Chinese stocks.

Hong Kong Stocks Continue to Surge

Hong Kong stocks closed higher again on Monday, with the Hang Seng Index surging by over 9% during the National Day holiday, the Hang Seng Tech Index and the Hang Seng China Enterprises Index both rising by over 10%. The premium of A-shares over H-shares has rapidly decreased, and it is almost certain that Chinese assets will continue to rise after the holiday.

With a series of economic and policy measures announced before the holiday, Chinese assets have become the focus of global funds and are being snapped up. With the A-share market closed for the 7-day National Day holiday, Hong Kong stocks continued to rise. On Monday, the Hang Seng Index, Hang Seng Tech Index, and Hang Seng China Enterprises Index all hit two-and-a-half-year highs. During the National Day holiday, the three major indices recorded cumulative gains of 9.30%, 13.36%, and 10.93% respectively.

In terms of sectors, within the Wind Hong Kong secondary industry classification, the diversified financial industry in Hong Kong saw the highest cumulative increase of 48.75% during the holiday period, with the semiconductor sector also rising by over 40%. Nine industries including insurance, technology hardware and equipment saw gains of over 10%.

A-shares Expected to Continue Rising

With the strong performance of Chinese concept stocks and Hong Kong stocks during the holiday, the market also holds optimistic expectations for the performance of A-shares after the holiday. Zheshang Securities recently released a report pointing out that, taking the SSE Index as the observation object, the current A-share market is showing characteristics similar to several historical reversal trends: valuations are at historical lows, the first round of rapid ascent in the reversal trend is underway, and there has been a fatigue-induced decline before the ascent.

Zheshang Securities pointed out that similar market windows have appeared in April 1996, January 2009, and around January 2019. During these three periods, the first round of rapid ascent in A-shares ranged between 30% and 35%, although the timing of each ascent varied, the magnitude of the rise showed a high degree of consistency.

The report further analyzed the commonalities of these historical windows. After the rapid ascents in 1996 and 2009, the market's period of volatile adjustment was relatively short, while in 2019, the ascent period was longer, and the corresponding volatile adjustment period was also extended. In addition, historical data shows that the adjustment magnitude was concentrated around 15%, and the time for rises and falls exhibited a certain symmetry. This characteristic indicates that the market usually enters a short-term volatile period after a rapid rise, preparing for the next round of ascent Zhejiang Securities also emphasized that the period of volatility after the first round of rapid rise often accompanies the structural transformation of the market's main theme. For example, in 2009, the cyclical sector became the market leader, with resource stocks represented by coal and non-ferrous metals performing prominently in the second round of rise; while in 2019, semiconductors, electric vehicles, and consumption upgrades became the market's main theme, with the ChiNext Index showing significant excess returns in the second round of rise.

Since September 18th, the SSE Index has risen by more than 20% cumulatively. Combining the performance of the Hong Kong stock market during the holiday period, Zhejiang Securities expects that A-shares are still likely to continue to rise rapidly after the holiday. The Sci-Tech Innovation Board may also undergo structural optimization in the subsequent market volatility, becoming a new market focus.

Everbright Securities pointed out that against the backdrop of continued efforts in domestic policies, the "profit-making effect" in the A-share market is clearly returning. Everbright Securities stated that the rebound space in the current market has opened up, investors' confidence in the market is gradually recovering, and policy support at the fund level and continuous improvement in economic data are providing strong momentum for the market's rebound.

Looking at the market rebound around the Spring Festival, besides clear policy support for fund flows, investors' expectations for the annual economic targets and some economic data exceeding expectations are also important reasons driving the continuous rise in the market. Everbright Securities believes that in the current market environment, investors should pay attention to the specific implementation of policies and the performance of subsequent economic data.

With the continuous efforts in policies, the market is expected to continue to be driven by funds. Recently introduced supportive policies, especially policy measures in the real estate, technological innovation, and consumption upgrade sectors, may become important drivers for further market rise.

Foreign institutions are upgrading ratings one after another

The international capital market's attention to Chinese stocks is also increasing. Recently, foreign institutions have been upgrading their ratings on Chinese stocks, showing growing confidence in the prospects of the Chinese market.

BlackRock Investment Research recently announced an upgrade in the rating of Chinese stocks from "Neutral" to "Overweight." BlackRock stated that given the discount of Chinese stocks relative to developed market stocks nearing record levels, coupled with multiple potential catalysts, there is still room for short-term increase in holding Chinese stocks.

BlackRock believes that amid heightened global market volatility, Chinese stocks exhibit higher attractiveness due to their relatively low valuations and strong fundamentals. Especially with confidence injected into the market by Chinese policies, investors expect more funds to flow into the Chinese stock market.

Morgan Stanley's Chief Economist Xing Ziqiang also expressed optimism about the Chinese market. He pointed out that during the recent "Golden Week" holiday, he had extensive exchanges with over 3,500 international investors and found that overseas investors' confidence in the Chinese economy is gradually recovering. Xing Ziqiang believes that the potential of the Chinese market and the supportive policies implemented by the government make international investors more optimistic about the future development of the Chinese economy.

HSBC also recently upgraded its rating on Chinese mainland stocks from "Neutral" to "Overweight," noting that the current valuations are still relatively low and with investors holding lighter positions, participating in this upward trend remains a good opportunity. HSBC's valuation model shows that Chinese mainland stocks are undervalued by about 15%, and it is expected that this upward trend will continue as more funds flow in Guosen Securities pointed out that recently, foreign capital has shown a significant increase in interest in Chinese equity assets. From September 24th to 30th, the turnover of northbound funds exceeded the trillion yuan mark, significantly higher than the previous levels of turnover. EPFR data shows that from September 26th to October 2nd, the net inflow of foreign stock funds investing in the Chinese market reached $5.89 billion, with actively managed foreign funds switching from net outflows to net inflows, and passive foreign funds seeing further net inflows.

Guosen Securities stated that the allocation willingness of European and American funds to the Chinese market is gradually strengthening. With the continuous inflow of foreign funds, the Chinese stock market is expected to usher in a new round of upward trend.

Overall, with the collective optimism of foreign institutions, coupled with policy support and market recovery, strong upward momentum is being injected into the A-share market.

Source: Wind.