Hong Kong stocks fell slightly by 0.07%, although the index did not turn red, the structure is not bad, with more rises than falls.
Anatomy of the large cap market.
The A-share Shanghai Composite has fallen for three consecutive days, finally showing signs of a bit of stabilization. Hong Kong stocks fell slightly by 0.07%, although the index did not turn red, the structure is not bad, with more rises than falls.
The latest data from the United States is still disappointing, with 7.673 million job vacancies in July according to the JOLTS report, dropping to the lowest level since early 2021, significantly below the expected 8.1 million and the previous value revised down from 8.184 million to 7.91 million. If the non-farm payroll report on Friday confirms a continued deterioration in the labor market, the probability of a 50 basis point rate cut by the Fed in September will increase significantly. However, I personally believe that the possibility of a 25 basis point cut is greater. Regardless, the general direction of the rate cut is already irreversible.
As mentioned before, as long as the Fed cuts interest rates, the most certain beneficiaries are the local property stocks in Hong Kong, because the rate cut will reduce debt expenses and indirectly boost profits. Today, stocks such as SHK PPT (00016), Hysan Dev (00014), and Henderson Land (00012) have all risen by more than 2%. It's obvious that there has been recent lurking of funds in these stocks.
Today's major event is the China-Africa Cooperation Forum. On September 5th, China announced at the opening ceremony of the China-Africa Cooperation Forum Beijing Summit that, to promote the implementation of the 'Ten cooperation plans', the Chinese government is willing to provide a total of 360 billion RMB in financial support over the next 3 years. China has decided to grant 100% tariff-free treatment on products for all Least Developed Countries, including 33 African countries with diplomatic relations with China. Currently, relations between Europe and the United States are not smooth, and Africa, as a potential area for underdeveloped countries, is of significant strategic importance both in terms of resources and geopolitics. Supporting African development and construction will also pave the way for China's future. If Africa develops well, the level of trade will continue to rise.
The prospects for cooperation in Africa are broad, but for now, the focus is likely to be on infrastructure development. Therefore, the demand for cement is relatively certain. For example, Huaxin Cement (06655) completed the construction of the largest cement plant in Tanzania in September 2023, and its stock rose by 4.38% today. Meanwhile, West China Cement (02233) has investments in Ethiopia, the Democratic Republic of Congo, and Mozambique, and is jointly building the largest cement plant in Ethiopia with the East Africa Holdings Corporation, with an expected annual output of 4.5 million tons, which can meet 50% of Ethiopia's cement demand.
The real estate rumors have surfaced again. It is reported that China is considering a two-step reduction in the existing housing loan interest rates to alleviate the burden on residential households and slow the pressure on bank profits. Informed sources revealed that the financial regulatory authorities have proposed a total reduction of about 80 basis points for existing house loan interest rates nationwide, to be implemented in two steps. The first reduction may take place in the next few weeks, and the second reduction will take effect early next year. The plan would likely apply to first-time and second-time homebuyers. However, this news has not yet been confirmed by the financial regulatory authorities.
Given the current economic situation, it seems likely that the reduction of existing housing loan interest rates is not unfounded. Let’s look at the data disclosed by the central bank. At the end of the second quarter of 2024, the balance of personal housing loans was 37.79 trillion yuan, compared to 38.19 trillion yuan at the end of the first quarter, a decrease of 400 billion yuan. This indicates that more people are paying off their loans early, which poses a risk to the banks' prime assets. Only by lowering the existing housing loan interest rates can the situation be stabilized.
According to Daiwa's estimates, if the mainland reduces the existing housing loan interest rates by 80 basis points, it will lead to a 9% decrease in profits for domestic banks. The further decline in bank stocks today indirectly confirmed this. With the weakness in the banking sector, the advantages of insurance companies have come to the forefront, leading to a collective surge in insurance stocks. China Pacific Insurance (2601), PICC Group (1339), and PICC P&C (2328) all saw increases of over 3%.
Of course, the direct benefit of lowering the existing housing loan interest rates is to boost the real estate stocks. Greentown China (3900) plans to acquire a 40% stake in Nantong Chuangyu Real Estate for 1.111 billion yuan, resulting in a 4.79% increase today. Vanke (2202) secured consortium loans led by Ping An Bank and Bank of Communications, totaling 11.48 billion yuan, resulting in a 2.52% increase today.
Real estate intermediaries are also stirring things up. On social media platforms, multiple Beijing property intermediaries have released videos claiming that Elon Musk bought the Shouyunlu No.8 aerial quadrangle project in Hesheng, Beijing for $150 million. Tesla responded in the afternoon of the 5th, stating that this was fake news. According to information published by the public account 'Manhe Beijing', Elon Musk's mother, Maye Musk, attended an event for this project in Beijing in September 2023. This kind of gimmickry is evident, indicating that the days of intermediaries are reaching a tipping point.
Tesla has announced that they will launch FSD in Europe and China in the first quarter of 2025 (pending regulatory approval). FSDv13 will also be released in October, with necessary intervention increasing by approximately 6 times. The Unpark, Park, and Reverse functions in FSD will also be launched at that time. This announcement has once again sparked interest in autonomous driving, with the concept of applied terminal Luobokuaipao taking the lead, causing A-share leader Dazhong Transportation (600611.SH) to hit the limit up, followed by a sharp increase in Shanghai Dazhong Public Utilities (600635.SH). The H-share of Shanghai Dazhong Public Utilities (01635) was pulled up by hot money, resulting in a 21.14% surge, with the aim of creating space for Dazhong Transportation.
Yesterday, we mentioned the securities sector. Looking at the resumption of trading in A-shares by Guosen Securities (002736.SZ), it did not see a significant increase. Instead, it fell by 4.98%. The reason for this was the announcement by Guosen Securities that the company plans to purchase 96.08% of the shares of Wanhua Securities held collectively by Shenzhen Capital, Kunpeng Investment, Shenzhen Cifi, Shenzhen Venture Capital, Yuanzhifuhai No.10, Chengdu Jiazi, and Haikou Jinkong through the issuance of A-shares. The financing for the acquisition of a poorly performing Wanhua Securities seems to be a mission-based restructuring, and may not necessarily lead to significant growth in performance, hence the normal decline. However, the weak performance of Guosen did not have a negative impact on the securities sector, as most of the securities stocks rose today. This indicates that the market supports this type of restructuring.
In today's Hong Kong stock market, Haitong Securities (06837) has performed well. The reason is that the chairman of HFT Fund has been replaced. The new chairman, Lu Ying, has accumulated rich experience in the sell-side research field, and previously served as the head of research at Haitong Securities. In 2014, Lu Ying achieved a "seven consecutive victories" at XCFD, becoming a "platinum analyst". In simple terms, the incoming knowledgeable leader is expected to bring greater benefits to HFT Fund. With Haitong Securities holding 51% of HFT Fund's shares, it surged by 5.48% today. Guangfa Securities (01776) mentioned yesterday also rose by 2.89%.
According to the latest Counterpoint Research foldable smartphone shipment tracking report, global foldable smartphone shipments increased by 48% year-on-year in the second quarter of 2024. China continues to lead the growth of the foldable smartphone market, accounting for more than half of the total shipments, while other regions also saw significant market expansion this quarter. Foldable screen shipments in Western Europe, Asia-Pacific (excluding China, India, and South Korea), and Latin America have seen significant growth, primarily due to strong performances from Chinese smartphone brands, particularly Honor and Motorola. Keep an eye on Sunny Optical (02382).
On September 5, the State Council Information Office held a series of themed press conferences on "Promoting High-Quality Development." Zou Lan, Director of the Monetary Policy Department of the People's Bank of China, stated that the average statutory deposit reserve ratio of financial institutions is currently about 7%, and there is room for further reduction. After the general announcement, the next step is implementation.
Sector Focus
On September 4, according to media reports, Taobao and Tmall responded that in order to enhance the shopping experience for consumers, Taobao plans to add WeChat Pay capabilities. After the end of the solicitation of opinions, platform rules will be adjusted, and this adjustment will cover all Taobao and Tmall merchants. WeChat Pay also stated that the functional adaptation with Taobao platform merchants is currently being opened, and the specific launch time will be announced through the Taobao platform.
This is a win-win situation. For Alipay, openness is conducive to further expanding the development space of Alipay. On September 4, Meituan's core businesses, including "Meituan Takeout," "Meituan Pharmacy," "Meituan Power Bank," "Meituan Bike Sharing," "Meituan Task Delivery," and "Meituan Hotels," were launched on the Alipay mini-program. As for Tencent (00700), it is more obvious because WeChat has a huge user base, with more users accustomed to using WeChat Pay. Adding the payment business of Taobao and Tmall will directly increase the transaction volume and also obtain valuable consumer transaction data, which will also benefit its advertising business. Therefore, Tencent's performance will be better.
At the same time, the dual efforts of these two giants have a significant driving force for the payment industry. The major Hong Kong stocks include: LianLian Pay (02598) and Yeahka (09923). However, these two stocks have obvious weaknesses, mainly due to underperforming financial results. The future growth of the overseas market will determine whether there will be a greater increase in performance.
CRRC Corporation (01766): Inclusion in the FTSE China A50 Index, New signings maintain steady growth trend
Kingsoft (03888): Operating profit nearly six times higher in the first half of the year, game business revenue exceeded expectations.
Kingsoft Software released its second quarter financial report, with operating revenue of 2.474 billion yuan, a year-on-year growth of 13%; net profit attributable to shareholders of 0.393 billion yuan, a year-on-year growth of 587%.
Commentary: The proportion of gaming business has exceeded expectations. In the second quarter, gaming business revenue increased by 20% year-on-year to 1.29 billion yuan, mainly due to the outstanding contribution of "Dust White Forbidden Zone" and the successful launch of "Sword Net 3 Boundless", as well as the continuous growth of personal and institutional users subscribing to domestic office software. WPSAI has entered the overseas beta testing phase, and its enhanced product features are expected to provide sustainable value enhancement for the office business, and the scale of paying users and ARPU may achieve double growth.
The company's future pipeline mainly includes: the launch of self-developed mobile game "Sword World: Origin" in Q4 2023, and the release of the mobile game "Sword World 3" and sci-fi mecha online game "CodeB.R.E.A.K." in 2024. The company mainly benefits from the year-on-year growth of DAU and total sales of the old game "Sword Net 3", and the second-dimensional shooting mobile game "Dust White Forbidden Zone" has been released in July and entered the overseas market to expand the customer base. "Dust White Forbidden Zone" and "Sword Net 3 Boundless" will be the core contributors to the revenue growth of the gaming business in the following years, along with the resilience performance of flagship IP and steady breakthroughs in new tracks. It is expected that the gaming business revenue of the company will achieve a year-on-year growth of more than 20% for the whole year.