According to the Wise Wealth APP, Haitong Securities released a research report stating that the combination of policies focuses on the real economy while also considering the capital markets, combined with the stock market historically at a bottom. Each intermediate market rally has its themes, with real estate and consumption policy support as highlights. Real estate, consumption pharmaceuticals with low valuations and positions are worth noting. According to industry analysts, focus on high-quality real estate enterprises, baijiu and dairy products, Hong Kong-listed internet e-commerce and beauty and skincare retail, the thriving sports industry, and high-quality pharmaceutical targets.

1. Strategy: The warmth of policies favors consumption and real estate recovery.

Since 9/24, policies have actively shifted, greatly boosting investor confidence. The State Council’s press conference on 9/24 released the 'financial support for high-quality economic development' policy package:

1. Regarding monetary policy, the central bank lowered the reserve requirement ratio by 50BP and the 7-day reverse repurchase rate by 20BP.

2. Regarding real estate policies, the central bank reduced interest rates on existing home loans, unified the minimum down payment ratio for mortgages, and expressed support for acquiring land among real estate developers.

3. Regarding stock market policies, the key highlight was the central bank introducing mechanisms for stock repurchase and shareholding refinancing, as well as structural monetary tools for securities funds and insurance swaps, supporting the stock market.

Subsequently, on 9/26, the Central Political Bureau held an unusual meeting on economic work, emphasizing 'in view of some new situations and problems in the current economic operation, facing difficulties, firming confidence, effectively enhancing the sense of responsibility and urgency in performing economic work.' They proposed ensuring 'necessary fiscal expenditures,' promoting market stabilization in the real estate sector, and 'efforts to boost the capital market and vigorously guide medium to long-term funds into the market' for the stock market.

Currently, there are conditions for the start of a medium-level market, waiting for financial policies to be implemented. The bank pointed out in last week's report that the overseas liquidity environment has improved, and domestic policies may be on the way. Combined with the fact that the stock market is already in a large bottom area, the policy combination for this week is gradually being implemented, and we are patiently waiting for the financial policies to bear fruit. Currently, the weak domestic consumption and the downward trend in real estate are the two major drag factors on the macroeconomic fundamentals. Promoting real estate inventory digestion and stabilizing the fundamentals require financial efforts, and the recovery of consumption also relies on financial support.

Currently, there is still room for fiscal expenditure in China. From the perspective of leverage ratio (debt balance/GDP), in 2023, China's government's explicit debt leverage ratio is 56%, and if further considering including the scale of implicit debt, according to the Bank for International Settlements' standards, China's broad government leverage ratio in 23 is 83%, significantly lower than the United States (113%) and other developed economies.

Subsequently, with continuous fiscal efforts, it will help boost fundamental expectations and gradually drive the medium-level market trend in the stock market. Combining the macro forecasts of Haitong, the year-on-year growth rate of China's real GDP in 24 is expected to reach 5%. At the micro level, the bank expects the year-on-year growth rate of net income attributable to shareholders of listed companies in A-share market in 24 to reach 2%.

Under-allocated sectors benefiting from policies such as real estate, consumption, medicine, and healthcare may become the main themes. Referring to the performance of industries in historical medium-level markets, sectors with low stock prices and benefiting from policies or technological catalysts tend to become the main themes, such as new energy from 22/04 to 22/07, AI and medium and special valuations from 22/10 to 23/05, and high dividend and export chains from 24/02 to 24/05.

Currently, the valuations and fund allocations in the real estate, consumption, and medicine industries are at historical lows. In terms of valuations, as of September 27, 24, the PE ratios (TTM, the same below) for medicine are 29.2 times (from low to high in the 23.2nd percentile since 13 years, the same below), for food and beverages are 21.2 times (17.6%), for commercial and retail are 29.3 times (56.2%), and for real estate PB (LF) is 0.71 times (6.8%).

In terms of fund allocations, the allocations of relevant industry funds are at historical lows. In the second quarter of 24, the proportion of traditional Chinese medicine holdings in major fund holdings is 5.0 percentage points higher than that of the Shanghai and Shenzhen 300 Index, ranking in the 15.5th percentile since 13 years, while the over-allocation proportion for food and beverages is -0.6 percentage points (24.4%), for commercial and retail is -0.2 percentage points (51.1%), and for real estate is 0 percentage points (51.1%).

Real estate and consumption are the focus of recent policy efforts. In terms of real estate, both the supply and demand sides of the real estate sector are currently adjusting, with cumulative year-on-year growth rates of -18% for real estate sales area in August and -10.2% for real estate investment. At the press conference of the State Council Information Office on September 24th, the central bank stated that it would reduce the interest rates on existing home loans and unify the minimum down payment ratio for home loans.

The Politburo meeting on September 26 called for promoting the stabilization of the real estate market, proposing strict control of the increment, optimization of the stock, and improvement of quality for commercial housing construction, as well as adjustments to housing purchase restrictions. The bank believes that future real estate acquisitions may increase, and purchase restrictions, including those in major cities, may be adjusted, which is expected to gradually stabilize the real estate fundamentals.

In terms of consumption, the current consumption data is sluggish, with the year-on-year growth rate of social zero in August at 2.1%, a slight decrease from 2.7% in July. First-tier cities such as Shanghai and Beijing have seen negative growth rates for three consecutive months. Recent policy measures have focused on real estate and the stock market, showing signs of repairing residents' balance sheets. With asset prices stabilizing and improving, consumer confidence is expected to recover and demand is likely to gradually improve.

In addition, recent consumption promotion policies have been successively rolled out, such as the support for the 150 billion yuan long-term special national debt funds for trade-in of consumer goods, all of which were allocated to local areas at the beginning of August. Subsequent consumption promotion policies may be further enhanced, which is expected to drive improvement in the fundamentals of the consumption industry. Overall, undervalued sectors such as real estate, consumption, pharmaceuticals, etc., under the backdrop of fiscal efforts, are expected to gradually improve fundamentals, becoming the focus of the medium-term market.

2. What symbols to focus on during the bull market?

3.1 Property Market

Firstly, on September 26th, the Political Bureau of the Communist Party of China held a meeting to analyze and study the current economic situation, clarifying the new positioning of the real estate market. The meeting did not mention "housing is for living, not for speculation", but for the first time proposed to "promote the stabilization of the real estate market", the bank believes that with the opening up of space for fiscal and monetary policies in the later stage, more real estate policies to promote industry repair and stability are expected to be introduced.

Combining the spirit of the meeting and the current industry fundamentals, the bank believes that the policy mix in the later stage will adopt a "strong supply side/strong demand side" model. On the supply side, 1) various purchase restrictions may continue to be lifted, repurchasing new commercial housing from developers and second-hand residential properties from residents to digest existing inventory, 2) provide policy support to revitalize land holdings of real estate enterprises, 3) strictly control land supply to meet market demand, 4) focus on improving demand to promote high-quality residential development, 5) increase the intensity of loans for 'white-listed' projects, with industry funding sources expected to improve in the fourth quarter; On the demand side, 1) easing purchase restrictions in key cities to lead a bottoming-out rebound in the property market, 2) lowering interest rates on existing home loans to curb prepayment and resolve the issue of heavy burden on residents. The bank believes that there may be more relaxation in land transfer systems, taxation, credit control, and other aspects of policy in the future, further easing restrictive policies, accelerating the trough process of the industry, and achieving the faster construction of a new model for real estate development.

Secondly, the central bank initiated the eighth comprehensive reserve requirement ratio cut since July 2021, releasing liquidity. From a historical perspective, the comprehensive reserve requirement ratio has a certain positive effect on industry sales. Comparing the sales recovery after the two rounds of comprehensive reserve requirement ratio cuts in 2008 and 2015, it can be seen that sales rebounded for around 1 year after both rounds of cuts. The reserve reduction cycle in 2018 mainly targeted reductions, while the 2011 reserve reduction cycle overlapped with regulatory adjustments and had limited benefits for the industry. The reserve reduction cycle initiated in July 2021 has now reached the eighth time, and the upcoming eighth reduction on September 27, 2024, not only belongs to the comprehensive reduction, but also marks the gradual entry of the industry policy into a comprehensive loose phase, therefore the bank believes that this reduction will positively impact the future industry funding and sales, aiming to quickly stabilize them. In terms of benefiting enterprises, the current industry policy environment continues to warm up, and another comprehensive reserve reduction will help further improve the financing environment for real estate companies and contribute to the performance of high-quality companies in the industry.

Representative companies include:$POLY PROPERTY (00119.HK)$,$CHINA RES LAND (01109.HK)$,$CHINA OVERSEAS (00688.HK)$,$CHINA VANKE (02202.HK)$,$ONEWO (02602.HK)$,$CHINA OVS PPT (02669.HK)$,$POLY PPT SER (06049.HK)$,$CHINA RES MIXC (01209.HK)$.

CSI SWS Food & Beverage Index 2.2

Recently, a series of significant bullish policies have been introduced. For the food and beverage sector, on the one hand, the improvement in short-term sentiment and the influx of incremental funds into the market are expected to enhance market risk preference, repair the sector's valuation. On the other hand, measures such as reserve requirement ratio cuts, interest rate reductions, adjustment of existing housing loan rates, and distribution of consumption vouchers are expected to further unleash the potential for resident consumption, accelerate the demand improvement for baijiu and mass-market products.

Baijiu is a typical pro-cyclical sector. During significant shifts in macro policies and rapid increases in capital market risk preference, it generally exhibits superior market performance. For example, from the end of 2018 to the beginning of 2019, and the end of 2022 to the beginning of 2023, the sector consistently outperformed the benchmark index. Currently, sales of baijiu during the Mid-Autumn Festival peak season are somewhat flat, and there are certain disturbances in the prices of specific products. However, valuations are at historical lows, with expectations of macro policy adjustments. Subsequent attention is needed on the progress of recent channel destocking and improvements in sales during the Spring Festival peak season. The recommendation is to focus on the demand for rigid and steady growth, especially in the high-end baijiu segment that is expected to benefit from the recovery of business activities and increased consumer willingness in the medium to long term.

Attention is advised towards the dairy product sector. On September 26, 2024, seven departments including the Ministry of Agriculture and Rural Affairs jointly issued the "Notice on Promoting the Stable Development of Beef Cattle and Dairy Cow Production", which aims to promote the consumption of beef and milk, scientifically promote and showcase the quality and nutritional value of fresh beef and fresh milk, promote "student milk consumption", and encourage regions with conditions to stimulate milk consumption through the distribution of consumption vouchers. The bank believes that with the downstream demand rebound brought about by policy promotion coupled with the upstream supply tending to balance, the industry is poised to emerge from the trough and resume good growth. It is recommended to focus on relevant leading companies.$MENGNIU DAIRY (02319.HK)$.

CSI SWS Bulk & Retail Social Services Sector 2.3

Recently, a series of significant bullish policy combinations have been introduced, with many regions issuing consumption vouchers to promote service-oriented consumption. The bank believes that sub-sectors of consumption with short policy transmission chains and high marginal improvements in performance will more fully benefit. From a valuation perspective, Hong Kong stocks are more favorable than A-shares.

（1）餐饮酒店：上海0.5 billion元服务消费券中，餐饮部分0.36 billion元占比超70%、住宿90 million元占比18%。餐饮酒店行业年初以来业绩承压，估值均有回调（龙头目前PE约20x），该行认为作为出行的刚需服务性行业，餐饮酒店板块有望充分受益消费券政策的杠杆撬动效应，其中具备差异化、高服务品质的优质龙头竞争力更强。

（2）港股互联网电商：基本面稳健+顺周期下业绩修复弹性高+持续加大股东回报，港股互联网有较优的估值业绩双升弹性，推荐竞争格局清晰&业务渗透率仍在快速提升期的$MEITUAN-W (03690.HK)$，竞争格局边际改善的 $BABA-W (09988.HK)$.

（3）美护：顺周期优质品种，估值底部、把握龙头性价比。美护板块前期估值回调充分，但基本面仍有较强韧性。医美低渗透&强粘性长期逻辑不变，化妆品国货崛起主线明确，强势能&高性价比的品牌增速领先。

（4）零售：随着消费预期向好，居民消费力提振，商品消费也有望跟随服务消费上行，看好两条主线：一是中期业绩确定性较强且估值仍在绝对底部的新消费企业，推荐$MINISO (MNSO.US)$Secondly, the traditional channels with solid asset value and significant marginal changes focus on the leading companies' demonstration and driving effect on the sector.

Core Recommendation:$MNSO (09896.HK)$,$Yum China (YUMC.US)$,$GIANT BIOGENE (02367.HK)$Meituan-W.

2.4 Textile and Clothing

Favorable policies are expected to build a valuation bottom, bullish on the repair of high-quality brand market trends. This week, a series of heavy favorable policies have been successively introduced in China, covering various aspects such as monetary policy, capital markets, and consumer policies. The bank believes that while consumer fundamentals still need to be observed, favorable policies are expected to provide support for sector valuation and investors' risk appetite has increased. From July 1 to September 20, the Shenwan Textile and Clothing Index has cumulatively fallen by 10.7%, ranking 22nd out of 31 industries. The bank judges that this is mainly due to weak domestic demand confidence, coupled with expectations of performance adjustments after mid-year reports. Comparing the valuation levels of A-share/H-share brands and manufacturers in the textile and apparel industry, the current Shenwan Textile Manufacturing/Shenwan Clothing and Home Textiles PE (TTM) are 19.5X/15.7X, with median values in the past 5 years at 18.9X/18.6X; PB (LF) are 1.5X/1.4X, with median values in the past 5 years at 1.6X/1.8X. Selecting 18 representative key companies from the Hong Kong textile and apparel industry to assess valuation levels, the current Hong Kong Manufacturing/Hong Kong Brand PE (TTM) are 8.4X/9.0X, with median values in the past 5 years at 11.9X/15.6X; PB (LF) are 0.8X/1.8X, with median values in the past 5 years at 0.8X/2.9X. Current brand valuations are lower than historical average levels, still with significant room for valuation repair.

Select sports prosperity track and industry leaders, share buyback & high dividends provide stable returns. Looking ahead, if various favorable policies are implemented and domestic demand confidence begins to recover, high-quality brand companies are expected to release profit flexibility. Benefiting from the improvement of domestic sports brand technology & brand strength and the popular trend of national fitness, the sports prosperity track is recommended as the first choice. From January to August 2024, the retail sales of sports and entertainment goods have increased by 10.1% year-on-year. In H1 2024, domestic sports brand revenues are all achieving year-on-year positive growth, with the recovery of consumption expected to sustain prosperity, and high-quality sports channel distributors will also benefit. It is recommended to pay attention to.$ANTA SPORTS (02020.HK)$,$XTEP INT'L (01368.HK)$,$LI NING (02331.HK)$The bank believes that the current brand sector dividend yield level and the repurchase policies introduced by some companies are expected to support stable returns. Thirteen/twelve representative high-quality brand companies are selected from the textile and apparel A/H shares respectively to estimate their dividend yield in 2024. The median dividend yield of brand A/H shares in 2024 is expected to be 5.6%/5.9%, with a higher dividend yield level and repurchase policies expected to support stable returns. Recommend paying attention.$SAMSONITE (01910.HK)$,$BOSIDENG (03998.HK)$.

Editor/ping