Main points of investment

First, review: since mid-June, it has been suggested that the pace of the Hong Kong stock market in the second half of the year first suppressed and then rose, the third quarter was the stage of concentrated risk release, and there was a monthly shock in the market from mid-July to the end of August.

• The June interim strategy report "embracing the Future Core assets" pointed out that "after the centenary, the third quarter may be the relatively concentrated stage of risk release in the second half of the year, and the market rhythm in the second half of the year first suppressed and then rose."

• At the end of June, "going through the fog of risk and embracing the growth of high performance-to-price ratio" clearly pointed out that "with the deployment of the central government's economic work for the second half of the year, the stock risk will be released or accelerated in late July."
  

• July 15 "Science and Technology Changniu initial stage of the bumps" clearly reminded: "the monthly market volatility, after July 15, especially in August into the performance period, there is a shock adjustment when long-term ideals and short-term performance reality meet." Enter the critical period of defusing stock risk. It is recommended to wait for concussion before layout.

• In early August, the report "short-term wind and rain, long-term opportunities" prospects "August Hong Kong stock market is still subject to risk suppression, some long-term high-quality assets will take the lead in bottoming. Short-term shock, long-term opportunities are emerging.

• The Hong Kong stock market showed a systemic risk impact after the education "double reduction" policy in July. After the across-the-board slump, the risk has been fully released. This article will look forward to the related risks and long-term opportunities.

II. Outlook 1: industrial policy risks are significantly released, regulators strengthen communication with the market, and ultimately respect each other.

• First of all, based on the fact that China will still implement a market economy, the regional characteristics of the bottom of Hong Kong stocks have been highlighted.

1) after the "double reduction" policy of education, the panic in Hong Kong stocks spread, which experienced the destruction of valuations and the release of risks.

As of August 26, the Hang Seng Index PE had fallen to 10 times, the lowest since 2014, while the Hang Seng Index grew by 30.5% in 2021. Hong Kong stocks Hang Seng Index broke net again on August 20, PB

2) short sellers in Hong Kong stocks are crowded, and if there is any policy improvement, it is easy to have short squeezing. The rebound on August 23rd and 24th is a case in point.

• Secondly, the "policy bottom" of Hong Kong stocks is beginning to show. Recently, the Xinhua News Agency, the China Securities Regulatory Commission, and the Central Finance Office have continued to release positive signals, among which the meeting of the Securities Regulatory Commission stressed: strengthen market communication, stabilize policy expectations, and steadily promote the opening of the capital market to the outside world.

1) the 0820 system Mid-year Regulatory work Conference held by the CSRC emphasized two key points: one is to "create conditions to promote Sino-US audit regulatory cooperation, strengthen market communication, and stabilize policy expectations and institutional environment". This will help to achieve mutual respect between capital markets and regulatory policies, and improve investors' understanding and expectations of regulatory policies. The second is to "unswervingly promote the institutional opening up of the capital market to the outside world, deepen the connectivity between the mainland and Hong Kong markets, and firmly support the stable development of Hong Kong's capital market." this will help ease the worries of some overseas investors about the so-called "anti-capital" and strengthen investors' confidence in Hong Kong's capital market.

2) after the relevant media asked the relevant media about "how to deal with the polarization between the rich and the poor and achieve common prosperity", the deputy director of the Finance Office of the 0826 Central Committee said that "the policy of regulating and regulating Internet platforms is treated equally and is aimed at violations of laws and regulations." it is definitely not aimed at private enterprises and foreign-funded enterprises.

• Third, the "fundamental bottom area" of the pillar industry of Hong Kong stocks is emerging.

Although the regulatory risks of the Internet as the mainstay of the Hong Kong stock market have not been eliminated, recent policies have reduced the possibility of extremely pessimistic expectations. We judge that the Internet as China's competitive advantage will not be easily abandoned, and the policy is expected to improve in the fourth quarter.

1) recently, policies in the areas of personal information protection law, anti-unfair competition, and labor protection have been issued one after another, and the subsequent policies, norms or penalties in online game management and data security will gradually become clear. 2) in the "Zhejiang High-quality Development and Construction of Common Prosperity demonstration Zone (2021-2025)"focus on Internet +, life and health, new materials three major science and technology highlands".

III. Outlook 2: credit risk is no longer a concern, and China's monetary policy environment will be further relaxed.

• Under the background of anaesthesia, surgery and broad currency, we should resolve the stock risk and guard against systemic risk, and credit risk is being properly handled.

• There is likely to be "broad currency and broad credit" in the fourth quarter.

0730 the Politburo meeting pointed out that "promoting the formation of physical workload at the end of this year and early next year"; the 0824 symposium on money and credit of financial institutions convened by the central bank mentioned that "efforts are still needed to maintain steady credit growth."

Outlook 3: overseas risks are passivated for a short time, the risk of tracing to the source of the epidemic has become numb, and the Fed Taper cannot "whip the corpse".

• In the short and medium term, looking forward to the rest of the year, the Fed's policy exit guidelines are expected to remain moderate and have a limited impact on the financial markets. moreover, the dead pig is not afraid of boiling water, especially for Hong Kong stocks, which have already been hit by systemic risks.

• In the medium to long term, there is no systemic risk to overseas liquidity.

Again, in the context of the great power game, keeping interest rates low and stimulating economic growth in the medium and long term will be the only way for the United States to get out of the quagmire of high debt.

V. Prospect 4: the Hong Kong stock market still has special value in the era of great power game, and the strategic opportunity lies in China's new economy.

• In the long run, in the context of the great power game, the Hong Kong stock market has irreplaceable special value to the motherland.

In the era of connectivity, Hong Kong stocks are a key component of China's large equity market. Hong Kong's capital market plays an irreplaceable role as a bridge and continues to attract global funds to allocate China.

Hong Kong shares are a useful supplement to A-shares, making it convenient for Chinese enterprises, especially private enterprises, to carry out a global layout. Hong Kong's status as a financial center has the unique advantages of "one country, two systems and linking China and the West" that other financial centers do not have. will make good use of it.

Hong Kong is the global hub of offshore RMB business and the bridgehead of RMB internationalization strategy.

• Hong Kong stocks will continue to benefit from the return of Chinese-listed stocks and the IPO of new economy enterprises, and foreign positions will also gradually shift from Chinese-listed stocks to Hong Kong stocks.

Prior to this, under the influence of the US "Foreign Company Accountability Program", institutional investors converted US-listed ADR into Hong Kong stocks to deal with the risk of US delisting of US-listed Chinese stocks. Since the beginning of this year, the tracking and adjustment of BABA by the MSCI and FTSE indices has accelerated this trend. According to our calculation, as of August 2, 2021, compared with the past year, BABA-SW, JD.com Group-SW, Bilibili Inc.-SW and NetEase, Inc-S have increased the proportion of outstanding shares in Hong Kong by 19.4,8.7,5.0 and 3.6 percentage points respectively.

In mid-August, the 13f disclosure of the US Securities Regulatory Commission showed that Blackrock significantly reduced his position in BABA's ADR in the second quarter of this year, causing market concern about the systematic sale of China's Internet leaders by foreign investors. in fact, the overseas mainstream buyer institutions represented by Blackrock have only converted ADR into Hong Kong stocks, which is not fully understood by the market.

VI. investment strategy: comply with the new stage of China's common prosperity, grasp the bottom area of Hong Kong stocks, and patiently look for bargains.

6.1Grasp the bottom region of Hong Kong stocks, patiently bargain layout, with regulators to strengthen communication with the market and follow-up policy optimization, foreign investors are expected to increase their holdings of high-quality Chinese assets at bargain prices.

1) the development path of common prosperity reflected in the recent regulatory trends has something in common with the ESG investment and social responsibility advocated in Europe and the United States, and the mainstream foreign investment has also realized this. 2) with regard to the recent tightening of industrial supervision, mainstream foreign-funded institutions examine it from a historical perspective and understand that the recent regulatory trend in China is in line with the objective law of economic development. 3) from the perspective of positions, even at the end of July, when the regulatory risk was at its heaviest, foreign investors did not systematically reduce their positions in Hong Kong stocks, and the sell-off in the technology sector mainly came from mainland funds.

6.2Investment opportunity 1: continue to be optimistic about the general direction of Ke Chuangniu and the advanced manufacturing of Nuggets Hong Kong stocks.

Looking forward to the medium and long term, under the long-term background of the protracted game among great powers, the advanced manufacturing industry is still the protagonist of the "core asset of the future" market. First of all, the long-term international economic competition will be carried out around the three highlands of science and technology, advanced manufacturing and domestic consumption; second, the Jugla cycle of science and technology-related industries in the medium term has begun; third, with the "housing without speculation", breaking the exchange, and the net worth of financial products, China's social wealth allocation of equity assets is in the ascendant.

• New energy vehicle industry chain: 1) the new energy vehicle market is growing rapidly, and the potential of related car companies is promising. It is suggested to pay attention to Byd Company Limited, Great Wall Motor, Geely Automobile, NIO Inc., XPeng Inc.-W, Li Auto Inc.-W and so on. 2) electrification + intelligence + lightweight to promote product upgrading and increase the bicycle value of related parts, it is recommended to pay attention to Nice, Fuyao Glass Industry Group, Minshi Group, Zhuzhou CRRC Times Electric and so on. 3) the demand of new energy terminal supports the price of energy metals, and the tight supply accelerates the upward trend of lithium price. It is suggested to pay attention to Ganfeng Lithium and so on.

• Science and technology hardware: 1) semiconductors are still in the rising cycle of prosperity, and with the accelerated construction of de-beautification production lines, the domestic industrial chain is accelerated, and the performance is expected to continue to grow; 2) other electronic subdivision tracks such as e-cigarettes and car lenses maintain rapid growth, and there is huge room for growth in the future. 3) Consumer electronics may be affected by the lack of core in the second half of the year, but with the easing of the supply chain and Apple Inc's innovation year next year, the overall supply chain performance and valuation are expected to rise. It is recommended to pay attention to Semiconductor Manufacturing International Corporation, Hua Hong Semiconductor, Sunny Optical Technology, BYD Electronic and so on.

• Traditional manufacturing upgrading: manufacturing leaders ushered in technological upgrading or carbon neutralization policy dividends, with their own original advantages continue to infiltrate into new areas with broad market space, ushering in new growth logic, such as machinery, chemical industry, electrolytic aluminum and so on. It is recommended to pay attention to Sany International, CIMC Enrique and so on.

• New energy power operators: under the "double carbon" goal, the corporate attributes of new energy power operators have been switched to public utilities with high growth potential, and are currently in a state of valuation and repair. it is recommended to pay attention to China Longyuan Power Group Corporation, China Resources Power Holdings, Xinyi Energy, CGN New Energy, Datang New Energy, Huaneng International Power shares, Xintian Green Energy and so on.

6.3Second, investment opportunities: to be able to adapt to the "consumption +" of the era of common prosperity.

• Property management business management: the stock price has been greatly adjusted in the short term due to the impact of the labor security rights and interests of workers in the real estate industry and new employment forms. However, in the medium and long term, the growth space and certainty of property management companies are still very strong.

  1) the dependence of property management companies on related companies is decreasing, and their own business is also diversified. 2) property management companies can hedge against the rise in labor costs through increased project density, the use of high-tech means and partial price increases. 3) Business management companies are directly related to social consumption, and the elasticity and sustainability of growth are better. It is recommended to pay attention to Xuhui Yongsheng Service, Sunac Services, Baolong Commercial, China Shipping property, Country Garden Services Holdings, China Resources Mixc Lifestyle Services and so on.

• Biomedicine: the recent pullback of the pharmaceutical sector is obvious, but from a fundamental point of view, a number of sub-areas have shown a high degree of sustained prosperity. In the future, the track-based investment in medicine is still very important, and the track that meets the "maximum common divisor" of investors is still the focus. 1) CXO section: follow Wuxi Biologics and Wuxi Apptec. 2) innovative medicine plate: pay attention to INNOVENT BIO, Kang Fang Bio-B, Nuocheng Jianhua-B, Corning Jerry Pharmaceutical-B, Oukang Weiwei Bio-B * 3) Pharmaceutical plate: focus on CSPC Pharmaceutical, Kang Zhe Pharmaceutical, Broad Pharmaceutical; 4) device plate, pay attention to Xianruida Medical-B, etc.; 5) Medical service plate: pay attention to Jinxin reproduction.

• Sports shoes and clothing: in the short term, sports events such as the Olympic Games and the National Games, as well as the "Hongxing Erke" incident, have aroused the enthusiasm of domestic brands. In the long run, under the accumulated technological research and development and sports resources marketing, Hong Kong stocks have a number of national brands that are "easy to wear, good-looking, and good-priced", and occupy an important position in the international market. It is suggested to pay attention to Li Ning Co. Ltd., Bosideng International, Shenzhou International Group and so on.

• Home appliances: the industry is currently in an environment of economic recovery after the epidemic and sustained growth of real estate sales in the United States. From the supply side, shipping capacity continues to be tight. It is good for the leading household appliance brands with excellent inventory management ability and deep binding with the main channels in North America, while the peak of short-term inflation has alleviated the pressure on the cost of household appliances. From the demand side, after the epidemic, overseas consumer demand escalated to household consumption, the trend of housing sales in the United States continued to improve, the epidemic led to the outbreak of overseas e-commerce, and the improvement of the efficiency of major logistics companies in the United States promoted the sustained growth of e-commerce penetration. Technology promotes the upgrading of small household appliances, which is conducive to the continuous improvement of market share of home appliance manufacturers with technical barriers and brand advantages. It is recommended to pay attention to JS Global Lifestyle Company Limited, VESYNC and Techtronic Industries.

6.4Third, investment opportunities: financial institutions that have made great achievements in the service department have long benefited from the new trend of China's economy and the allocation of social wealth to equity assets.

• Hong Kong Exchanges and Clearing: thanks to the open capital market, the continuous reform and optimization of the issuance system, and the perfect investor protection mechanism, Hong Kong Exchanges and Clearing first benefited from the return of US-listed US stocks and the listing of the new economy, and the scale of IPO is expected to remain among the highest in the world. The proportion of new economy companies and the connotation of interconnection are rich and boost trading volume, while laying the foundation for the creation and trading of derivatives products. Launch the new MSCI China A50 interconnection index futures contract, the trading volume is expected in the future.

• Securities firms: under the registration system, a large number of science and technology companies are expected to be listed, benefiting the head securities firms with profound investment banking business layout; securities firms' public offering licenses are expected to be liberalized, and capital management continues to transition to active management; residents' assets are accelerating the allocation of equity markets; securities firms actively embrace the transformation of wealth management; financial science and technology empower, embrace the digital age. The valuations of Hong Kong stock brokerages do not match their performance, with an average PB of 0.7 times and an average ROE of 7.4%.

6.5Investment opportunity 4: the Internet as the representative of the "bottom-grinding" assets, reverse thinking to do the band, waiting for the differentiation market after the policy is clear.

Internet valuation is already at the level of value stocks, which is in the stage of bottoming out, and the policy uncertainty that suppresses sentiment will gradually digest as the policy hits the ground and over time. As the Internet regulatory policy gradually falls to the ground, the Internet has entered a standardized development stage to prevent the disorderly expansion of capital, and the follow-up will revolve around the market space, competition pattern, business model and other aspects, according to the differences affected by the policy, and there will be a reshaping of profitability and valuation framework.

Among them, 1) there is a large expectation gap between the game and advertising industry, focusing on Tencent, etc.; 2) in the life service sector, the current Meituan-W stock price is at a reasonable level under the logic of PS valuation or long-term spatial discount; 3) e-commerce, antitrust breaks the restriction of choosing one of the two, JD.com Group-SW, Pinduoduo relatively benefit 4) with huge space in the cloud computing market, Kingdee International Software Group and Baidu-SW (Intelligent Cloud and self-driving), which are actively transforming, have been laid out on the track, and Tencent and JD.com Group-SW are actively catching up.

6.6Investment opportunity 5: looking for "undead birds" in traditional industries such as real estate, cement and banking, it is suitable for allocation funds that are good at investing in "bond assets" and is not suitable for ordinary investors to do transactions.

• Hong Kong inner housing stocks: with the change of the rules of centralized land supply, if the premium rate can be controlled, then the gross profit margin of real estate companies is expected to bottom out, and the sound leading real estate companies will maintain steady low growth in the future and maintain dividend payout rates. dividend yield will be at a high level, belonging to bond assets. It is recommended to pay attention to Xuhui Holdings, Longfor Group, China Resources Land, Baolong Real Estate, Sunac China.

• Cement: cement prices have "overfallen" in the off-season this year, the market is also very pessimistic, and the talk of "cement demand under the platform" starts again. Cement prices in South and East China have continuously led the market since August, coming out of the off-season haze and self-defeating pessimistic comments. At present, cement has entered the time of seasonal price increase, and the power load in Guangxi and other places is tight, and the "power restriction" will push up the cement price again. The expectation of fiscal stimulus is gradually rising, special bond issuance may accelerate in stages in the second half of the year, and under the support of peak season price correction and demand expectations, we can pay attention to the opportunity to repair the low valuation of the whole sector.