In the final stage of A-share trading today, the State Council issued a heavyweight policy regarding the "progressive delay of the statutory retirement age and the increase of the minimum payment period", which has become a hot topic in the entire market.

This news quickly triggered a rapid surge in A-share retirement concept stocks, with multiple medical health and retirement industry related stocks rising against the trend, attracting a large amount of attention from investors.

In fact, in recent times, despite the downward pressure on the A-share market, national institutions such as Central Huijin and social security funds have been continuously increasing their holdings against the trend, appearing in the top ten circulating shareholders list of multiple stocks, becoming an important force to support the market.

01

Among the "national team," the scale of retirement fund holdings is much smaller than that of Central Huijin, China Investment Corporation, and Social Security Fund. However, looking at the performance over the past years, it has performed well, outperforming the market and a large number of investment institutions in the long term. It can be seen that the retirement fund is also part of the regular army, and its holdings are also widely followed in the market.

According to Chocie's statistics, as of the end of the second quarter of this year, the retirement fund appeared among the top ten circulating shares of 188 listed companies, with a total holding of 1.991 billion shares and a market value of 25.159 billion yuan. Compared with the first quarter, the retirement fund has entered 47 new companies and increased its holdings in 39 companies. Among them, there are 10 new companies on the Science and Technology Innovation Board and 7 companies with increased holdings.

From the perspective of market value of holdings, the retirement fund has slightly increased its holdings in recent years, with a small increase of only about 3 billion yuan compared to the same period in 2021.

In the second quarter of this year, the retirement fund increased its holdings by 550 million yuan in Mingtai Aluminum Industry, over 400 million yuan in Weixing Stock, Eoptolink Technology, and Zhejiang CFMoto Power, over 300 million yuan in Yuanxing Energy, Sinocera Functional Material, Woer Heat-Shrinkable Material, and Shenlan Circuit, and over 200 million yuan in National Investment Intelligence, Huafon Aluminum Industry, Rise Information, Dun'an Environment, Guotai Modern, Accelink Technologies, Hefei Meyer Optoelectronic Technology, Baoji Titanium Industry, Anhui Wenergy, Shandong Yulong Gold, Shanghai Bairun Investment Holding Group, and other 18 companies.

From the perspective of holding industries, the retirement fund concentrated in traditional industries such as utilities, electrical equipment, petroleum and petrochemicals, non-ferrous metals, and steel in the second quarter, while there were few positions in growth sectors such as food and beverage, biomedical, and new energy, and it also avoided the sustained brutal sell-off in the latter for many years.

Overall, the current scale of retirement fund holdings is still relatively small, but the potential market entry scale will increase by orders of magnitude in the future.

On the one hand, the pressure on the liability side brought by negative population growth and aging. According to the OECD and the World Bank's predictions, the proportion of the population aged 65 and above in China will exceed 20% by 2035. According to China's aging society forecast, the old-age dependency ratio in China will exceed 50% by 2035.

In this context, the retirement pension gap will continue to grow. According to Professor Lu Jinfei from East China Normal University, the ratio of urban employees' basic retirement insurance to the number of retirees will decrease to 1.11 times by 2050. With other factors unchanged, it is estimated that the urban basic endowment insurance fund will not be able to cover its expenses by 2027, and the accumulated fund balance is expected to be exhausted by 2034.

On the other hand, as the long-term interest rates on government bonds continue to decline, the fixed-income assets heavily invested by the retirement pension are unable to achieve sustained, stable, high returns. In the future, there will inevitably be a demand to enhance the return on investment by allocating risk assets to equity investments, to make up for the widening gap.

In terms of policy, the China Securities Regulatory Commission is also formulating reform plans for the investment side of the capital market, creating favorable conditions for long-term funds such as retirement pensions to enter the market, including the allocation of derivative financial assets, participation in non-public offerings, and optimization of pension assessment systems, and so on.

Several media outlets have indicated that within the next one to two years, the scale of investable and operable retirement funds may exceed 2 trillion yuan. According to the 30% upper limit, the size of funds that can enter the capital market will exceed 600 billion yuan.

Looking at a longer term, with the acceleration of retirement pension reform, the marketized scale of retirement pensions is expected to approach 10 trillion yuan in five years. Among these, the basic retirement pension will be 3 trillion yuan, the national social security fund 3 trillion yuan, enterprise annuities 2 trillion yuan, occupational annuities 1 trillion yuan. If individual tax-deferred retirement pensions can be launched in the next one to two years, the future also may have 500 billion to 1 trillion yuan.

Even if the market entry ratio is far below the 30% upper limit, the amount of funds entering the market will still be at least at the trillion-dollar level.

02

In the second quarter of this year, the top three companies that the retirement pension increased their positions in had a total market cap of 1.387 billion yuan, accounting for 5.5% of the total holding market value. This was quite an aggressive position increase. It's worth noting that the retirement pension comes from people's contributions and is required to ensure current payments, so there are higher requirements for investment liquidity, safety, and steady returns.

Specifically, for Mingtai Aluminium, the pension fund increased its shareholding by 3.86% in the second quarter, ranking it as the third largest shareholder. At the same time, National Social Security Fund Combination 113 and National Social Security Fund Combination 418 ranked as the second largest and sixth largest shareholders respectively, with shareholding ratios of 4.19% and 1.41%. The former made a one-time increase in shareholding while the latter reduced its shareholding by 0.22%.

Mingtai Aluminium is mainly engaged in the production and sales of aluminium plates, strips, and foil. Its products include CTP/PS base plates, electrolytic capacitor aluminium foil, and single-zero foil, which are used in aviation, transportation, automobile manufacturing, and other industries.

From 2016 to 2023, Mingtai Aluminium's overall revenue maintained significant growth, increasing from 7.48 billion yuan to 26.44 billion yuan, and its net income attributable to shareholders increased from 269 million yuan to 1.347 billion yuan. However, in 2023, both the revenue and net income experienced negative growth, with the latter declining for two consecutive years.

Mingtai Aluminium's business clearly has cyclical characteristics and is closely related to aluminium prices. During the years of significant performance growth, aluminium prices continued to rise, while during the period of declining aluminium prices in 2022-2023, the performance was relatively poor.

Reflected in the stock price, Mingtai Aluminium has experienced a roller coaster ride. From June 2020 to early 2022, the stock price once increased by 400%, but afterwards, the stock price fluctuated downward, with a decline of over 60%.

In my opinion, there are two main reasons why the pension fund significantly increased its shareholding in Mingtai Aluminium. First, from a valuation standpoint, after a significant drop in stock price, the PE ratio is less than 10, which is at a multi-year low level and offers a better investment value. Second, from a performance standpoint, it should be a bet on the future upward trend of aluminium prices, which will drive a cyclical improvement in performance. In fact, in the first half of this year, as aluminium prices rose sharply, Mingtai Aluminium's performance also improved significantly, with a 21% increase in revenue and a 33% increase in net income attributable to shareholders.

Turning to Weixing Industrial Development, it is the eighth and ninth largest shareholders for the pension fund, with shareholding ratios of 1.54% and 1.51% respectively. During the same period, National Social Security Fund Combination 115 ranked as the sixth largest shareholder with a shareholding ratio of 2.21%.

Weixing shares mainly operates products such as zippers, buttons, metal products, plastic products, and hangers, and is the largest and most comprehensive auxiliary material enterprise in China.

From 2013 to 2023, Weixing shares has achieved annual revenue growth (except in 2020), increasing from 1.849 billion yuan to 3.9 billion yuan, with a compound annual growth rate of 7.75%. Net profit attributable to shareholders increased from 0.229 billion yuan to 0.558 billion yuan, with a compound annual growth rate of 10.32%. In terms of business breakdown, the proportion of overseas revenue is increasing, reaching 32.5% in Q2 2024, a significant increase of 10.37 percentage points compared to 2020. From this perspective, Weixing shares is still an international company, but it is not well-regarded by the market.

Looking at profitability, as of Q2 2024, the sales gross margin is 41.8%, rising for two consecutive years and approaching the peak in 2016. The latest net margin is 18.27%, a significant increase of 4% compared to the end of 2023, reaching a historical high.

In such a traditional industry, Weixing shares' steady growth and good profitability are commendable, making it a hidden gem in the field. This may also be an important reason for pension funds to significantly increase their holdings even at high stock prices and valuations.

It is worth noting that since April 2020, Weixing shares' stock price has risen by a cumulative 280%, far outperforming the overall market and many so-called blue-chip stocks.

Finally, let's take a look at Xinyisheng, which is also a super bull stock in recent years. Since 2023, the stock price has surged by 460%. At the absolute high stock price, pension funds significantly increased their holdings by 0.57% in the second quarter, ranking among the top ten shareholders.

Xinyisheng's main business is optoelectronic modules. In the ranking of global optoelectronic module manufacturers in 2022, it ranks 7th, following companies such as Zhongji Innolight, Huawei HiSilicon, Accelink Technologies, Hisense Broadband, and other leading domestic companies.

In the first half of this year, Xinyisheng's revenue was 2.728 billion yuan, a year-on-year growth of 109%, and net profit attributable to shareholders was 0.865 billion yuan, a year-on-year growth of 200%. The rapid growth in business is driven by the increased demand for high-speed optoelectronic modules due to the training and inference applications of large AI models in AI data centers, which require higher network bandwidth.

In addition, the latest gross margin is 43.76%, up 18.29% year-on-year, and the net margin is 33.48%, up 7.85% year-on-year. This is mainly due to the significant increase in the proportion of high-speed optical module products, and the company has also made significant technological breakthroughs in high-speed optical modules, silicon optical modules, coherent optical modules, and 800GLPO optical modules.

Overall, Eoptolink belongs to the emerging technology field, and the entry of retirement funds is relatively rare, which shows optimism about its future performance growth.

03

Whether it is Central Huijin or retirement funds, they have never been the "savior". Just like from the end of October last year to July this year, Central Huijin alone increased its holdings by 60 billion yuan through ETFs, but it did not change the market's downward trend.

The biggest variable that determines the market direction is the macroeconomic fundamentals. In recent months, whether it's PMI, CPI/PPI, financial credit data, or the final figures of consumption/investment/imports and exports, they are not optimistic, which is also the core reason for the continuous decline in the market. As long as this major contradiction is not reversed, even if the "national team" continues to increase its holdings significantly, it will only provide support for the market. It is not realistic to hope that it will reverse the current bear market.

However, regardless of anything, the market has been falling for more than 3 years, and many sectors or stocks have already reached their lowest point. The future upside potential is much greater than the downside, and the investment value is increasing. During the sharp decline in the market before, there must be a group of excellent companies that were misjudged by the market. Among them, there is a certain possibility that a certain fund of the "national team" has been selected and laid out against the trend this year, which is worth continuous tracking and research. (End of the article)