In 2024, there is only one trading day left for A-shares.

But the trend is already set.

In 2024, A-shares experienced two major market trends, especially the epic super bull market on "September 24," which ignited countless Concept sectors.

During this period, various trending stocks emerged in hot tracks like AI, Siasun Robot&Automation, and Internet Plus-Related, creating astonishing speculative chaos.

However, unlike the roller coaster markets of previous years, this year many domestic AI and chip Industry Chain giants have truly emerged.

Cambricon has skyrocketed more than four times this year, with a current market cap exceeding 280 billion.

Haiguang Information has surged 1.2 times this year, with a current market cap exceeding 350 billion.

Semiconductor Manufacturing International Corporation has risen 88% this year, with a current market cap close to 800 billion.

CHINA MOBILE has surged 61% in 2023 and continues to rise 23% this year.

。。。。。

The strong rise of these trillion-yuan giants clearly indicates that it is no longer merely a case of temporary speculations driven by funds, but rather a fundamental change in the investment logic behind them, which has gained market recognition.

In addition to these leading core players who have sparked a global capital frenzy, traditional large financial institutions and various high-yield dividend assets are also among this year's strongest winners.

This year, the Banks and Insurance Indexes have both risen over 45%, with the four major banks even reaching historical new highs!

This trend change is very worthy of attention.

01

An impressive report card.

For many stock investors, the years 2021-2022 were simply the darkest for value stocks, with various 'Moutai' stocks being cut down to knee levels from their highs, and it was common to see a market cap drop of 80%, which led to a large number of investors being deeply trapped and suffering significant losses, no longer believing in the long-termism of value investing.

But in 2024, the A-shares provided a report card that could make them reconsider.

From a conceptual perspective, the AI Industry Chain is undoubtedly the strongest performer, with AI applications, computing power, servers, GPUs, CPOs, etc., all seeing increases of over 50%. At the individual stock level, there are many instances of stocks multiplying several times within the year.

However, looking from the perspective of industry sectors, according to Wind's secondary classification data, the Banking Sector led with a year-to-date increase of 45.12%, followed by Non-Bank Financials (primarily Insurance and Brokerage) with a rise of 36.34%, far ahead of other sectors, even surpassing the overall performance of the chip and Semiconductors sectors.

On the other hand, among non-financial blue chips, super industry "Mao" companies like PetroChina, Sinopec, China Shenhua Energy, China Yangtze Power, CHINA MOBILE, CHINA TELECOM, and Midea Group Co., Ltd have also seen impressive gains of over 30%-50% this year.

At the same time, among the top 30 stocks by market cap this year in the A-shares, only Kweichow Moutai, which was once the king of stocks, recorded a decline of 8.75%, while the rest have all significantly risen, with 21 companies increasing by more than 40%. Among them, Kweichow Moutai is relatively unfortunate, once regarded as the Imperium Crown of A-shares and an undefeated myth that established the foundation of the "Mao" concept, has now become the only drag in the TOP 30.

It can be said that if purchases were made blindly in these leading A-share companies this year, as long as it is not in the Consumer and Medical industries, the probability of making money easily is almost 99%, and the returns are quite good, significantly outperforming the Large Cap.

Many believe that the performance of large financial institutions and high-yield assets is due to the "924" epic policy stimulus, but in fact, the strong performance of these assets began in 2023.

The four major banks began to rise sharply last year, with increases ranging from 18% to 35%; PetroChina, Sinopec, and CNOOC rose by 50%, 35%, and 46.6%; Energy giants like China Shenhua Energy, China Yangtze Power, and Zijin Mining Group saw increases of 23.6%, 15.4%, and 27.3%, respectively.

Moreover, the telecom giants in the central state-owned enterprises, CHINA MOBILE and CHINA TELECOM, have also increased by 53.4%, 34% and 38.8%, 41% over the past two years.

There are many more such examples, which sufficiently illustrate a trend—high-quality assets in A-shares, including large financial institutions, high-yield blue chips, and core leaders in the Technology industry, are encountering comprehensive, continuous, and large-scale capital inflows.

Despite the significant pressure on the domestic macroeconomic situation over the past two years, which failed to provide sufficient confidence support to investors, funds have started to gradually flow into core assets of A-shares under rare policy stimulus and guidance, yielding substantial ROI.

02

The trend is becoming increasingly evident.

Looking back at the regulatory authorities' policy attitude towards the Capital Markets over the past two years, a significant signal is apparent— the country is placing greater emphasis on "stabilizing growth" in the stock market, particularly highlighted by the important "724" meeting in 2023 which first proposed the heavy directive to "activate the capital market and boost investor confidence."

During this period, various positive stimulus measures were not only introduced but also strong policy guidance was provided from the funding side, such as directing long-term funds from banks, Insurance, Brokerage, social security, and Funds to enter the market, and even significantly loosening their configuration limits for equity assets (mainly targeting stock allocations).

Although many investors at that time believed these were merely temporary measures to rescue the market, the stock market continued to decline afterward. In reality, various long-term funds had already begun to flow significantly into these core assets since then, pushing them to emerge with an independent trend.

Moreover, this year the regulatory authorities have also given the green light for a large number of new issuances of broad-based products by public funds, even developing a special index, the CSI A500, encompassing more industry giants. Wind data shows that the market value scale of public funds has increased by 4.63 trillion yuan compared to the beginning of the year, reaching 31.9 trillion yuan. Among them, from September this year to now, the scale of stock ETFs has increased by more than 1.72 trillion yuan.

These funds provide extremely important financial support for the rise of quality large-cap assets in the A-shares market, represented by 'Large Finance', 'Central State-Owned Enterprises Evaluation', and 'High Dividends'.

Here are some data:

So far this year, the year-to-date gains of major banks such as ICBC, ABC, BOC, CCB, Bank of Communications, CMB, and Everbright Bank have all exceeded 40%. The life insurance companies, including China Life, PICC, Taibao, and New China Life Insurance, have increased by 54.58%, 66.1%, 51%, and 73.9% respectively.

The total market cap of the Large Finance sector in 2023 is 15.89 trillion yuan, while it is currently 21.16 trillion yuan this year, an increase of 5.27 trillion yuan. The total market cap of A-shares in Shanghai and Shenzhen this year is 87.56 trillion yuan, which has increased by 9.94 trillion yuan since the beginning of the year. This means that the contribution of the Large Finance sector to the market cap increase of A-shares this year has reached 53%!

Additionally, energy giants such as petrochemicals, electrical utilities, and coal, along with the major telecommunications operators, have also made a considerable contribution to the market cap increase.

In contrast, although there are various concept stocks that are actively speculated every day in the A-share market, which seem very attractive, most are just short-term roller-coaster trends. Over time, the assets that have truly gained support and have inflows are primarily concentrated in the few core asset areas mentioned above.

For these assets, many people tend to believe that their price increases over the past two years have been high enough, potentially exhausting their future growth potential, and they no longer seem undervalued. However, in reality, through the expression of the country's intention to support the stock market, the proactive measures taken by the policy level for the stock market, along with the current extremely loose capital situation, the growth ceiling of these core assets may not have been reached.

This perspective has been analyzed many times in my previous articles, with three main supporting core logics as follows:

1. From the perspective of 'Central Enterprise Valuation', there are still a large number of central state-owned enterprises in the A-shares with a PB below 1, and a PE below ten times. There is still a considerable distance from the 'market value management targets' expected by regulators.

2. From the perspective of capital cost and ROI, current long-term bond rates and deposit rates have fallen below 2%. Therefore, if listed companies can sustainably and steadily provide dividend returns exceeding 3%, or a bit more stringent at 4%, they would still remain attractive. At present, there are still quite a few A-share companies that can maintain a dividend yield above 3% in recent years, primarily concentrated in key areas such as banks, insurance, energy (oil, coal, electrical utilities), and telecommunications, many of which are precisely central state-owned enterprises or controlled enterprises, as well as many quality core private enterprises. These companies are even regarded by the market as 'quasi-debt assets', and they are still attracting funds.

In 'The Four Major Banks Haven't Risen Enough Yet!', we also mentioned that after a significant increase, several major state-owned banks in the A-shares still have a dividend yield of about 4.5%, which is significantly higher and more stable than most sectors in the market. However, in reality, their dividend payout ratio has long been maintained at 30%.

Now, regulators have clearly called for an increase in dividend returns. If these banks increase their dividend payout ratio from 30% to 40% or 50%, their dividend yield could rise significantly, continuing to attract fund enthusiasm.

3. Currently, the complex and ever-changing internal and external political and economic environment brings many uncertainties to the external circulation of China's economy. Without strong counter-cyclical intervention, it will suppress the capital markets. In this context, funds looking for safe havens will be more inclined to choose high-quality assets that combine stable growth and high dividends, as well as the 'Central Enterprise Valuation' assets suggested by policies, or highly certain technology growth tracks. The former is the more prudent main direction.

Therefore, overall, the substantial outperformance of large-cap stocks this year is supported by strong logic. Do not assume that after a significant increase, they have become weak; perhaps next year they can continue to occupy the C position in the market. (End of text)