On October 10, ah stocks high dividend assets emerged as a dark horse, the china southern s&p china a-share large-cap dividend low volatility 50 etf rose by 2.90%, recovering most of the losses from the previous trading day. As for hong kong stocks, the hang seng dividend etf surged by 4.79%, and the stated-owned enterprises listed on hkex dividend etf (513910) also rose by over 4%.

With the strong rise of high dividend assets, AH stocks all showed signs of a warming and rebounding trend. $SSE Composite Index (000001.SH)$Closing up by 1.32%,$Hang Seng Index (800000.HK)$increased by nearly 3%.

Market experienced a huge shock, with divergences leading the way.

Huaxia Fund believes that after the initial general rise and repair phase, the market is likely to enter a prolonged period of fluctuation, known as the 'divergences leading the way.' Against a backdrop of very active trading volume, sectors represented by semiconductors which combine 'Chinese core assets' and 'new-quality productivity' are expected to become the main theme in the next phase of the market.

Huaxia Fund believes that the current domestic economic cycle is in a phase of marginal strength, with three core logics for semiconductors:

Firstly, solid fundamentals and resonance in domestic and international up cycles. Both global and Chinese semiconductor sales have achieved year-on-year positive growth for 10 consecutive months, maintaining double-digit year-on-year growth since the beginning of this year, with global semiconductor sales reaching a historic high in August. This is mainly due to improvements in inventory for supply chain sectors such as autos and industrial control, as well as increased demand for AI. Semiconductors are still in a relatively high level of prosperity.

Next, there is strong demand for domestication, and the investment amount continues to hit new highs. With the development of AI, a variety of new electronic products have been released in the recent period. Huawei has released many new products such as Huawei Smart Screen V5 Max 110 and Smart Screen R7, leading to strong demand for chips.

Lastly, chips have a very high correlation with the economy and continue to benefit from policy support. Reviewing past market trends, when policies are enforced, the market trend often shifts towards the pro-cyclical direction with high economic correlation in the growth sector. Chips benefit from policy support, showing high market resilience. For example, in the pro-cyclical bull markets of 2016-2017, the pro-cyclical bull market of 2020, and the major pro-cyclical rebound in November 2022, chips have consistently performed well.

Overall, Huaxia Fund predicts that the market will transition from the general rise of indexes to a focus on sector rotation. The chip sector is expected to benefit from the resonance between favorable policies and fundamentals, gathering stronger consensus.

Huaxia Fund stated that during the holiday period, there was a significant increase in new stock market investors. Due to restrictions, new investors cannot buy shares listed on chinext and star market (require 2 years of stock experience). Many new investors may choose to invest in related index ETFs. The chip ETF has the largest scale of similar products in the entire market, with a one-click layout of 30 leading A-share chip stocks across the entire industry chain. Off-exchange investors can pay attention to its linking A share (008887) and linking C share (008888).

The semiconductor materials ETF and its linked funds (A share: 020356, C share: 020357) closely track the CSI Semiconductor Materials and Equipment Index. Semiconductors equipment (53.1%) and semiconductor materials (22.6%) account for a high proportion of the index, with a combined weight of over 75%, fully focusing on the index theme.

港股仍有较高配置价值

After experiencing a sharp rise in the short term, the Hang Seng Tech Index has accumulated a large amount of profit-taking, so there was a retracement this week to digest the profit-taking and complete the turnover, causing investors' average holding cost to continue to rise, overall indicating a healthy trend in the bull market. From a trend perspective, the Hang Seng Tech Index rapidly rose to break through previous highs multiple times, and the retracement also conforms to the trend interpretation process. Currently, the overheated sentiment has eased somewhat, and the index volatility has gradually converged. Huaxia Fund believes that from the perspectives of policy, fundamentals, liquidity, and market cycle, it still has a relatively high allocation value.

From the perspective of market liquidity, the overseas interest rate cut cycle is likely to continue, and the external liquidity disturbance in the Hong Kong stock market is gradually decreasing, which is a major trend. From the latest employment data, it refutes the expectation of recession and confirms the direction of a soft landing, which is bullish for risk assets. In addition, the current main pricing factors are the expected efforts of China's fiscal policy + the expectation of a soft landing in the United States with loose monetary policy. The risk of overseas economic slowdown is not prominent for the time being, so it can be observed.

而在政策面上，9月底以来，政策转向催生“中国资产信心重估”，大的序幕刚刚开始。决策层为应对中国经济面临的“债务－通缩循环”陷阱，已经出台的一系列直指提振权益资产价格、稳定房地产市场、刺激经济增长、扩大内需消费的有力措施，并将针对后续情况不断实施相应措施。

从基本面看，2024年上半年，恒生科技指数营业收入累计同比增长8.93%，延续改善态势，归母净利润累计同比自2022年以来已过拐点，整体呈现回暖迹象，2024年上半年大幅增长100.45%，降本增效成果显著，恒生科技指数为代表的科技板块业绩显著占优，微观视角看，指数成分公司亮点频频，其成长性和活力为业绩后续的提升奠定基础。

In addition, $Hang Seng TECH Index (800700.HK)$ （PE: 25.97, PB: 2.79）The valuation level is still a value opportunity compared to global technology stocks, with significant potential for valuation increase in the future. From a cyclical perspective, the Hong Kong stock market hit a bottom at the end of October 2022 and entered a period of consolidation, with the cycle preceding the A-share market. The turnover interpretation in the consolidation range is more thorough, increasing the probability of entering an upward cycle subsequently.

Currently, the first phase of the market's overall valuation recovery rally is coming to an end. In the second phase, there is a high probability of structural differentiation around fundamentals and policies. As the correction approaches, Hang Seng Tech and others are expected to attract more long-term funds driven by liquidity and fundamental advantages. Huaxia Fund suggests focusing on the Hang Seng Internet ETF and the Hang Seng Tech Index ETF.

Trillions of funds may be on the way.

The State Council Information Office announced that a press conference will be held at 10:00 am on Saturday, October 12, 2024 to introduce the 'intensification of counter-cyclical adjustment of fiscal policies and promotion of high-quality economic development.' Minister of Finance Lan Fo'an will present relevant information and answer questions from reporters.

So, how will the fiscal sector strengthen its efforts? Currently, the market generally expects the release of a trillion-level special national debt plan. The scale and utilization of these funds will also influence the subsequent direction of the economy and the market.

China International Capital Corporation released research reports pointing out that in the second half of the financial cycle, there is a prominent contradiction of insufficient demand. At the end of September this year, the State Council Information Office issued several policies, and subsequent high-level meetings further signaled positive policies, with a positive market response. There is still room for monetary policy to be accommodative, but given the significant deleveraging in the private sector, the necessity for fiscal reinforcement has significantly increased.

Strictly regulating new debt while accelerating the substitution of local existing debt, as well as resolving the issue of enterprise debt defaults, is beneficial for alleviating the burden on relevant entities and stimulating economic vitality.

China International Capital Corporation believes that against the backdrop of traditional infrastructure space reduction, shifting the focus of fiscal expenditure from infrastructure investment (hard infrastructure) to people's livelihood (soft infrastructure) is helpful for enhancing the quality and efficiency of finance. People's livelihood covers a wide range, mainly focusing on education, health, and social security. One scenario refers to the situation when other countries reach the period of intermediate development and the so-called 'Wagner acceleration period.' Another scenario refers to the fitting situation of approximately 30 economies with available data. The results of the two scenarios show some differences, but overall, there is still considerable room for 'soft infrastructure' space. Different sectors of people's livelihood expenditure have significant differences in the multiplier effect on economic growth. In the short term, the overall multiplier of the three major people's livelihood areas may be 0.7-0.9, but in the long term, the multiplier is greater than 1. In detail, the short-term multiplier for education is greater than 1, while the short-term multipliers for health and social security are less than 1, possibly due to the greater rigidity of the former's expenditure.

Since late September, Incremental monetary policies and real estate policies have been intensively released. As a key measure to expand total demand countercyclically, incremental fiscal policies have become the market's focus. Local fiscal revenue and expenditure in the first eight months of the year have all been below 0.5% year-on-year. Increasing the scale of national bonds could be used for transferring payments to local governments or supporting expenditures on people's livelihood and social security, easing the tight fiscal pressure on local governments. Assuming a general budget revenue execution rate of 96%, an additional funding of approximately 82.86 billion yuan is needed to reach the initial year's budget level on the expenditure side. Assuming a government fund revenue budget execution rate of around 80%, another approximately 1.4 trillion yuan is required to match the initial year's budget level on the expenditure side. To bring fiscal expenditure back to pre-pandemic levels, the required funding would be even higher. The scale and direction of incremental fiscal measures will be critical factors affecting market expectations in October.

CITIC Securities stated that significant changes in policy signals have led to a major shift in market expectations, with a potential dramatic turnaround in the future. Continued reinforcement of domestic demand policies could accelerate the arrival of pricing signals, and the market is poised for a significant turning point; after the expected turnaround, the featured characteristic of incremental funds, primarily from retail investors, entering the market heralds a pulsating short-term uptrend. Currently, in the transition phase from anticipating a major reversal to a significant market turning point, with a focus on low P/B and domestic demand recovery, once pricing signals are confirmed, the market is expected to experience a major turning point, initiating an annual-level bull market characterized by the upswing of the credit cycle, providing investors with a better entry point.

Huaxia Fund stated that under multiple favorable factors, the market is expected to form a second wave of relay, and the elasticity and space of GEM and science and technology innovation fund products are expected to be better. It is recommended to focus on Huaxia GEM 100ETF (159957, linked funds: Class A: 006248, Class C: 006249), Science and Technology Innovation CSI A100ETF Fund Huaxia (588800, linked funds: Class A: 020291, Class C: 020292), and GEM Composite Growth ETF (159967, linked funds: Class A: 007475, Class C: 007474).

It is worth mentioning that Huaxia Fund has announced that the management fee of the GEM CSI A100ETF Fund Huaxia (159957) has been reduced from 0.50% to 0.15%, and the custody fee has been adjusted from 0.10% to 0.05%. The related fees will be reduced to the lowest industry standard.

ETFs are expected to become sharp spears

After this epic rebound, ETFs have become the focus of the market's attention. Funds rushing into the market via ETFs, Wind data shows that in just 6 trading days from September 24 to October 8, the net asset value of stock ETFs increased by about 1 trillion yuan. The total scale of stock ETFs has also surpassed the 3 trillion yuan mark, setting a new historical record.

Huaxia Fund stated that compared to traditional investment methods, ETFs have significant advantages:

1. ETFs have low fees, with management fees generally ranging from 0.15% to 0.5%, compared to active equity funds which often have a management fee of 1.2%.

2. ETFs help to diversify risks. Participating in A-shares through ETFs is like quickly holding a basket of stocks for retail investors. The holdings are transparent and clear, avoiding style drift issues, effectively avoiding individual stock 'black swan' risks, and the corresponding dilemma of stock selection.

3. ETFs have active trading and good liquidity, facilitating rapid layout and entry and exit of large funds. Overseas, commodity and other varieties can achieve T+0.

4. Furthermore, participating in the market through ETFs can lower the threshold for many retail investors. For example, the 0.5 million yuan threshold for Hong Kong stock connect and the 0.1 million yuan + 2 years threshold for ChiNext.

During market downturns, long-term funds such as state-owned teams take advantage of ETFs to position at low levels. When the market rises, active funds also swiftly enter through ETFs. ETFs have risen rapidly in China, with the total scale expanding from 2 trillion yuan at the end of last year to the current 3 trillion yuan scale in just 9 months, becoming an important channel for incremental funds in the market.

Editor/rice