Source: Yaya Hong Kong Stock Circle Author: Kyle In the first half of this year, statistics show that at least 180 Hong Kong stock companies have implemented share buybacks, with a total amount of HKD 121 billion, setting a new high in the same period of history. Especially in the Internet companies, almost every shareholder return program has been significantly improved, which can be said to have opened a new era of Internet shareholder returns. Among these companies, Tencent, the "North Star" of Hong Kong stocks, is undoubtedly the most prominent. In the first half of this year, it contributed more than 40% of the repurchase volume of the Hong Kong stock market, firmly occupying the seat of the "repurchase king" of the Hong Kong stock market. In the second quarter, Tencent's single-quarter repurchase amount reached HKD 37.5 billion, which doubled from the first quarter's HKD 14.8 billion. The repurchase average price increased from HKD 290.6 to HKD 361.8, an increase of nearly 25%. It is worth mentioning that Tencent's repurchase amount this year will exceed HKD 100 billion, doubling from last year's HKD 49 billion. What is the concept of a one trillion repurchase plan? This amount is the sum of Tencent's total repurchase amount in the past ten years, which proves the management's confidence in future development and attaches importance to the demands of investors. Through various means such as repurchase cancellation, dividends, and physical distribution, Tencent has truly given back to shareholders in the capital market while achieving performance growth. One, the significance of a trillion repurchases is actively emerging. Looking back at the past two years, since Tencent's major shareholder Prosus began to reduce its holdings, the stock price has been somewhat suppressed. In particular, there have been regular trading behaviors in the market when Hong Kong stocks perform poorly. For example, Hong Kong-listed companies have a "silent period for repurchase" in the month before the financial report is released, during which repurchase is not allowed. This caused great upward pressure on the stock price whenever Tencent entered the repurchase silent period before last year. As can be seen from the following data, of the five silent periods before the end of 2023, only Tencent's stock price in October-November 2022 rose, and in other times it fell. However, since the end of last year, Tencent's stock price has risen during two consecutive silent periods. Especially after the launch of the trillion-dollar repurchase plan this year, the repurchase volume has far exceeded the number of shares sold by major shareholders. Therefore, whether it is on normal trading days that can be repurchased, or during silent periods, the impact brought by the sale of major shareholders can be ignored, and this point is being formed by market consensus. For example, during the repurchase silent period from January to March this year, which happened to be the worst half-year Hong Kong stock market, the Hang Seng Index fell to 14,800 points. Tencent's performance during this period was significantly better than before. Even though the short selling ratio once reached 20%, the stock price did not fall, and the final interval increase was 6%. After the release of the better-than-expected 2023 annual report and the restart of the repurchase at the end of March, Tencent's stock price performed even better in the second quarter, with an increase of nearly 25%. During the same period, the Hang Seng Index and the Shanghai and Shenzhen Composite Indexes fell significantly, with gains of only 8% and 4%, respectively, while Tencent significantly outperformed the Hong Kong stock market with a gain of 25%. Behind this phenomenon, there is no doubt that the trillion-dollar repurchase plan, which has doubled from last year's amount, has played an important role. More importantly, after the repurchased shares are cancelled, Tencent's share capital has been declining for three consecutive years. Since 2021, Tencent's total share capital has decreased from 9.608 billion shares to 9.355 billion shares. In the first quarter of this year, Tencent issued ordinary shares decreased by 1.1% compared to the previous quarter, and the repurchased shares have also been gradually cancelled since this year. This trend will continue to increase earnings per share and further enhance shareholder value. (Caption) Starting in 2022, Tencent has increased its repurchase efforts. With the repurchase cancellation, the company's total share capital has gradually decreased.

Author: kyle

一、金价不断新高，铜价故事结束

在金价连创新高，A/H黄金股，以及黄金首饰股都在大跌时，这的确让人有些疑惑，尤其是在前两个月市场对黄金股还大唱好的前提下，突然黄金股与金价的关联性就失效了？

近期有两个原因影响了黄金股与金价的关联性。

一是在近期金价上涨时，铜价也跌了，而国内大多数黄金股的金铜营收比是5:5，好一些的黄金占到6成营收，但也有的铜收入占6成营收，所以在铜价大跌时利抵消了金价的上涨，而铜收入占更高的黄金股受到的影响则更大。

值得一提的是，在上半年时，市场买黄金股更关注金价的走势，对铜价走势的关注是次要的，原因可能是黄金不断创历史新高的上涨叙事更吸引人，没太关注铜价潜在的影响因素。当然， $Copper Futures(DEC4) (HGmain.US)$ 铜价在上半年也涨了40%，阶段性涨幅并不输给黄金，铜价给企业盈利也贡献了不少。  

但铜价在6月份开始加速下跌，最多一度跌超20%，铜价反倒给黄金股带来了负反馈，好比金价和铜价是双驱动，铜价开始大幅下跌了，这是市场没有预估到的，而这是导致黄金股下跌的最大变数。

Looking back at the opinions of various institutions on the price of gold and copper in the first half of the year, the bullish sentiment towards gold has evolved from skepticism to consensus, as the correlation between gold and US interest rates weakened. The US dollar is also approaching a rate cut, and the demand for gold from central banks around the world provides support, leading to a positive outlook for gold.

However, the situation is different for copper, as its fundamentals are leaning towards the negative side. Global demand for copper is not as high, and the main reason for the rise in copper prices in the first half of the year was the shutdown of several major copper mines in South America. Goldman Sachs predicts a 2% increase in copper mine supply this year, lower than the market's expected 6% growth, making this year the weakest level since 2020. Additionally, the expectations of a dual rate cut from the US and China to stimulate the economy continue to support copper prices, leading to a higher speculative level compared to gold. At that time, Goldman Sachs set a target price of $15,000 per ton for copper by 2025.

In other words, although copper demand is weak, the stoppage of copper mines by producers has not led to a significant increase in supply. The focus of the market in speculating on copper prices depends on when the US will cut interest rates to stimulate the economy and inflation, assuming that the US economy does not face any recession risks.

However, in June, both domestic and US economic data weakened simultaneously, leading to a further decline in demand. Typically, Chinese copper inventories tend to decrease in the second quarter, but this year they have seen a substantial increase instead. Currently, copper stocks in the Asian region of the London Metal Exchange have surged to their highest level since 2016, with inventories decreasing much less than expected by Goldman Sachs.

The weakening of domestic and foreign economic data along with the risk of a US recession has disrupted the copper price speculation. From June onwards, copper prices have been falling sharply, prompting Goldman Sachs to also lower their target price for copper from an average price of $15,000 per ton by 2025 to $10,500 per ton. This indicates the high speculative nature of copper prices, which were previously largely driven by rate cut expectations, with relatively few based on fundamental factors. This is why the market holds two different views on copper prices, with buying of copper prices more focused on speculating on the timing of rate cuts rather than optimistic on actual demand.

Returning to the trend of golden industrial concept stocks this year, among the hotly traded stocks in the golden industrial concept sector $ZIJIN MINING (02899.HK)$And$CHINAGOLDINTL (02099.HK)$Looking at it. From May 20th to early August, the price of copper fell by 21% from its high, while the price of gold rose by 2%, and zijin mining group and chinagoldintl fell by around 20%.

So, now that stock prices have dropped so much, gold has hit a new high, copper prices have also rebounded, is there a chance for this round to repair valuations?

Secondly, this is the moment for the recovery of golden industrial concept stocks.

Next, looking at the low point of copper prices in early August, from early August to now, gold has risen by 10%, copper has also rebounded by 10% after hitting bottom, while zijin mining group only rebounded by 10%, chinagoldintl not only did not rebound, but also fell by 17%, evidently there is a significant disagreement in the market here. It's not necessarily wrong to say that this round of golden industrial concept stocks were wrongly killed, because the sharp drop in copper prices offset the rise in gold prices, one cannot simply focus on the record high gold price.

It is worth noting that currently domestic interest rates have been cut, the US dollar has also been cut, gold continues to reach new highs, copper prices have also rebounded from the bottom, next is to be bullish on the continued rebound of golden industrial concept stocks, firstly because this round of decline has been too large, gold has also increased significantly, influenced by some market sentiment of pessimism and undervaluation, secondly, because the loose monetary policies in China and the USA support the rise in copper prices, which is the biggest catalyst for copper prices.

However, the extent of the rebound depends on the proportion of gold/copper revenue of each company, companies with a higher gold proportion naturally rebound faster, those with a higher copper proportion rebound slower, and we also need to wait for the rebound in copper prices. For example, the gold/copper revenue ratio of zijin mining group is around 6:4, while chinagoldintl's copper revenue accounts for 60%, and gold revenue accounts for 40%, so their rebound is slower in this round. This is also why the text mentioned in the beginning, the reason for the divergence in the trends of domestic and US golden industrial concept stocks, with the gold revenue proportion of US golden industrial concept stocks being quite high.

For example, zijin mining group's gold/copper mine revenue ratio is around 6:4, while chinagoldintl's copper revenue accounts for 60%, and gold revenue accounts for 40%, so their rebound is slower in this round. This is also why the text mentioned in the beginning, the reason for the divergence in the trends of domestic and US golden industrial concept stocks, with the gold revenue proportion of US golden industrial concept stocks being quite high.

We compare Zijin Mining Group and other golden industrial concepts in the GDX ETF.$Newmont (NEM.US)$In comparison, NME's first half revenue was $8.4 billion, with gold revenue accounting for $7 billion, other metals revenue accounting for $1.4 billion, and the vast majority of revenue coming from gold.

$VanEck Gold Miners Equity ETF (GDX.US)$ The pure gold revenue proportion of other golden industrial concepts in it is also very high, with basic gold revenue accounting for over 90%, for example. $AngloGold Ashanti (AU.US)$ AngloGold Ashanti's first half revenue was $4.5 billion, with only $0.1-$0.2 billion in by-product revenue, so the trend of AU stock price is almost identical to the gold price.

Zijin Mining Group's total revenue in the first half was 150.4 billion yuan, with copper business revenue accounting for 29%, copper gross margin of 49%, while gold revenue accounted for 46.5% and gold gross margin of 28.3%. On the contrary, copper contributes significantly to the gross margin, so when copper falls, the negative impact on profitability will be even greater.

A revenue mix of 60:40 would be more popular as both gold and copper prices rise together, because the elasticity brought by copper prices would be greater than that of gold, just like the golden copper rally in the first half of the year, with the dual drive of gold and copper rising together. Now that the high-profit elasticity driven by copper prices has stopped, there is still an opportunity, as China and the USA are both easing together, and the market speculation logic will gradually return, at least copper prices have stopped falling.

Regarding gold, the logic of the rise has been mentioned too many times before and is well known to everyone, so I won't go over it again. What's interesting recently is a few points that have changed the previous market consensus.

An overseas gold analyst stated that although on the surface it seems that the central bank's increase in gold holdings has been paused, the People's Bank of China has not increased its gold holdings in the past few months. However, it is possible that the central bank is increasing its gold reserves through more covert means, roughly meaning that the central bank may be importing gold bars in London, refining them in a free trade zone, and not directly storing them in the form of transactions on the Shanghai Gold Exchange, avoiding recording withdrawal amounts on the SGE.

Due to the delay between central bank gold accumulation reports and China's gold exports to the UK, by comparing data, it will be found that the central bank started buying gold a few months before disclosing its position information. The market has underestimated the amount of gold purchased, as was the case in 2015, 2019, and 2022. Similarly, another analyst from foreign institutions recently revealed that the Saudi central bank has quietly increased its gold holdings in Switzerland since 2022, accumulating a total of 160 tons of gold. If the news is true, Saudi Arabia may be the second largest central bank buyer after China.

Another aspect is the trend of gold jewelry stocks. Previously, the market believed that if gold prices continued to rise, people would continue to buy gold jewelry as a store of value, at least based on reports disclosed in the first quarter of this year, showing that people continued to buy gold. The market has linked the trend of gold jewelry stocks to gold prices.

However, starting in the second quarter of this year, consumers began to reduce their purchases of gold jewelry and turn to buying gold bars, because some consumers felt that the price of gold jewelry was rising too quickly, fearing that gold prices would plummet after buying at the peak. These consumers adopt a holding and waiting attitude for a pullback, but gold prices continue to rise without looking back, causing$CHOW TAI FOOK (01929.HK)$,$Lao Feng Xiang (600612.SH)$The sales of these two well-established gold trinket stocks are lower than expected, making them the worst-performing gold-related stocks recently.

instead, a brand that was just listed a short while ago$LAOPU GOLD (06181.HK)$follows a similar path to luxury gold trinkets, with sales increasing during this period. Moreover, as trinket prices rise along with gold prices, the stock price has doubled since its listing. It seems to suggest that high-end consumers tend to buy more as gold prices rise.

Conclusion

Is it an overreaction to say that this round of golden industrial concept stocks is being unfairly hit? It's not completely unfounded for the decline, but this round is indeed due to the market sentiment not being very positive, with a limited rebound.

The next round of golden industrial concept stocks do have room for valuation recovery, especially when gold prices continue to hit new highs. The previously declining copper prices which impacted profit elasticity have also stopped falling and rebounded. However, the only concern is that while gold prices rose significantly before, A/H golden industrial concept stocks didn't rise much. If gold experiences a correction in the near future, gold stocks may follow suit and decline.

Editor/Rocky