Anatomy of the large cap market.

Yesterday, we discussed that there was no specific news stimulation in the market, which caused the index to fluctuate. Today, good news has arrived, and both markets responded. The Hang Seng Index rose by 1.27% at the close, with trading volume slightly increasing to 192.6 billion. There are two positive developments:

1. On the 22nd, a person in charge of the National Development and Reform Commission was interviewed by Xinhua News Agency, providing in-depth analysis and interpretation of current economic hot issues. The official introduced that in 2025, China will continue to issue ultra-long-term special national bonds and further optimize their allocation. There will continue to be robust arrangements to support the implementation of national major strategies and key area security capacity building. As of now, 700 billion yuan of central budgetary investment has been allocated this year. The 1 trillion yuan of ultra-long-term special national bonds, with 700 billion yuan for 'dual' construction, has been fully implemented in projects. Nearly half of the incremental policies have been launched, with the rest to follow soon. A batch of additional policies will continue to be introduced and implemented. This is expected management that gives everyone confidence.

2. A report from the Academy of Sciences' Institute of Finance recommends issuing 2 trillion yuan of special national bonds to support the establishment of a stock market stabilization fund. Although the Institute of Social Sciences may not seem so authoritative, this could be a way to test the market reaction ahead of time. The results were quite positive with responses from insurance stocks and securities such as China Taiping (00966), China Life Insurance (02628), which saw increases of over 3%, and Shenwan Hongyuan (06806) rising by over 4%. Core assets like Meituan (03690) surged more than 5%.

Asia-Pacific stock markets have performed poorly, with the yield on Japan's 40-year government bonds rising above 2.525%, briefly touching 2.535%, reaching the highest level in 16 years. Speculation about the Bank of Japan continuing to raise interest rates has intensified, leading to a 307-point drop in the Nikkei 225 index. India has had an even tougher time, with its shares experiencing the largest single-day decline in about three weeks. The Mumbai SENSEX index fell by 1.15% to 80220.72. It has suffered a 7% decline in a month, mainly due to shrinking corporate profits. In the second quarter, Indian corporate profit recovery has been slower than expected compared to the first quarter.

Indian stocks are facing competition from the Chinese market. Since the end of September, many overseas investors have chosen to invest in China and withdraw from India following a series of stimulus plans. Goldman Sachs took advantage of this trend with a bearish research report, downgrading its rating on Indian stocks from buy to neutral. As of Monday, foreign investment institutions have been net sellers of Indian stocks for 16 consecutive trading days.

The outcome of the Indian stock market was foreseeable. When the Japanese stock market experienced a sharp drop, I had mentioned before that the next target would be India. Yesterday, the discussion about India taking the initiative to repair relations with China is actually related to the plunge in the stock market. At the same time, Trump's presidency is not good news for India, as Modi's balancing act does not work in front of Trump. Dealing with China in a straightforward manner is the way to go.

Xiaomi (01810), which was mentioned yesterday in relation to investments in India, rose by 4.5% today, which is quite good. Coincidentally, there is new news in the automobile sector. It is reported that Xiaomi (01810) Automotive Phase 2 is working overtime, with workers constructing both day and night. According to insiders, the factory is expected to be capped by the end of this year and planned to be completed by June 15 next year. Xiaomi's car sales are good, and once production capacity increases, the profit potential will open up, further boosting its valuation.

Today, the best sector is the photovoltaic sector that was focused on in yesterday's market sectors discussion, the news will not be repeated here. Some people believe that this news only targets small components of photovoltaic application products. These include crafts, electronic products, toys, and automotive parts. Component-listed companies basically do not produce these items. The logic is indeed correct; however, this does not hinder the significant rise in photovoltaic stocks. In fact, what these experts who are deeply researching lack is market insight. Failure to realize that the industry is currently at its lowest point; the worst time is actually the best time to invest. On the contrary, the peak means the beginning of decline. Investing is that simple and straightforward; fancy things are often superficial. Mentioned targets such as GCL Tech (03800) surged by 25%. Easy buying opportunities, while other individual stocks like Flat Glass Group (06865), Xinyi Solar (00968), and Xinte Energy (01799) all rose by over 11%.

The Ministry of Industry and Information Technology: Taking multiple measures to expand automobile consumption, optimizing automobile production entry management policies. The two car stocks mentioned yesterday once again triggered market enthusiasm. New energy Li Auto Inc. (02015) had the strongest momentum, with impressive data as the major catalyst. As of October 18, 2024, Li Auto Inc. surpassed a cumulative delivery volume of 1 million vehicles, taking 58 months, becoming the first Chinese new energy brand to reach this milestone. The delivery of the 0.1 millionth L6 vehicle in 2024, launched just 5 months ago, set a new record, rising over 6% today. Institutions predict that Geely Auto (00175) Galaxy (including Geometry) brand's shipments in 2025 are expected to double to 0.9 million vehicles or even higher. There is significant room for imagination in overseas markets, and it also rose by 6.6% today. Car dealer Zhongsheng Hldg (00881) should also benefit from this trend, rising nearly 6% today.

Regarding individual stocks, Autostreets (02443), which was mentioned again yesterday, continued its strong rise with a surge of 43.5% today, with a trading volume of 0.847 billion. The logic discussed many times is for those who understand to make money while those who do not, to appreciate slowly. There has been no acceleration at present, closing at the highest price, indicating ongoing momentum. Additionally, the automobile sector is currently hot, as seen in Horizon's stock price rising by 31% in the dark trading of Hong Kong. The initial IPO price set at 3.99 Hong Kong dollars per share, at the upper limit of the guidance range. It is uncertain if there are other topics such as acquisitions.

As for Semiconductor Manufacturing International Corporation (00981)'s announcement, E Fund Star50 ETF is reducing its holdings of 1.2465 million shares of A-share stocks of the company. This is not a major bearish signal, essentially falls under tactical adjustments.

In the past few days, I also commented on two unique stocks, one being Pop Mart (09992), which suddenly surged by 18.52% today. Interested individuals can review the mentioned logic provided earlier. The other is CTIHK (06055), although it only rose by 3.46% today, its stable and steadily upwards trend is exceptional, constantly hitting new highs.

Regarding the announcement from Semiconductor Manufacturing International Corporation (00981), E Fund Star50 ETF is divesting 1.2465 million shares of the company's A-share stocks. This is not a significant bearish signal and falls essentially under tactical adjustments.

Strange incidents frequently happen in the USA, just after Trump finished selling French fries at McDonald's, immediately an incident occurred. E. coli infection incidents related to McDonald's happened in 10 states in the USA, causing McDonald's stock price to plummet over 9% after hours. This incident is indeed quite suspicious, besides striking Trump a bit, it also tarnished McDonald's image. It is worth noting that China CITIC Capital, the largest shareholder of McDonald's currently, is negotiating the sale of the remaining equity of McDonald's in mainland China and Hong Kong. Lowering the price may be one of the reasons. In response, McDonald's China stated: McDonald's China does not sell the products mentioned in the news and does not use relevant ingredients.

This wave of market trend is undoubtedly driven by ETFs. On October 18th, 25 funds related to the CSI A500 Index were approved, including 10 connected funds, 11 index fundsindex-enhanced funds. On October 22nd, 20 funds related to the CSI A500 Index announced that they will all be issued on the 25th.

Sector Focus

On October 23, Dr. Li Zhikao from the Monash Science and Technology Research Institute in Suzhou Industrial Park, together with Professor Zhang Xiwang, a fellow of the Australian Academy of Technological Sciences and Engineering, successfully developed a loose nanofiltration membrane process assisted by ethylenediaminetetraacetic acid (EDTA) for the efficient extraction of lithium resources from salt lake and the value-added utilization of magnesium resources from salt lakes.

On October 22, this groundbreaking achievement was published in the journal Nature Sustainability. The traditional brine lithium extraction process has many problems, with an evaporation-precipitation cycle lasting up to two years, which cannot meet the rapidly growing market demand. The research team developed the EDTA-assisted loose nanofiltration (EALNF) process, significantly amplifying the differences in electrical properties and sizes between lithium and magnesium ions through the selective chelation of EDTA with magnesium ions, achieving efficient extraction of lithium resources and effective value-added utilization of magnesium resources. Through two-stage filtration, the lithium ion recovery rate reaches as high as 90%, far exceeding the traditional evaporation-precipitation method (30–50%).

Compared to traditional evaporation-precipitation processes, this technology eliminates the time-consuming salt field drying step, reducing the production cycle from 1-2 years to 1-2 months. The logic of lithium batteries is somewhat similar to photovoltaics, as every new technology breakthrough stimulates the sector's strength.

Main companies: Tianqi Lithium Corporation (09696), Ganfeng Lithium Co., Ltd. (01772).

CRRC Corporation (01766): Inclusion in the FTSE China A50 Index, New signings maintain steady growth trend

Flat Glass (06865): Tender prices have significantly increased for the first time, with accelerated release of new production capacity at home and abroad.

It is understood that the capacity of the photovoltaic module centralized procurement project publicized last week (October 12 to October 18) is about 15GW. The component types of the publicized projects are mainly N-type components, and the bidding unit prices range from 0.66 to 0.94 yuan/watt. The overall price range has moved up from last week, marking the first significant increase since the wave-like downward movement of bidding unit prices in early September.

Review: The rise in bidding prices indicates that the industry's fundamentals are gradually recovering from the bottom. With the company's leading scale and accelerated release of new production capacity at home and abroad, it is expected that the company's Anhui Phase IV and Nantong projects will be ignited successively within the year 2024, totaling a daily melting capacity of 9600 tons. Among them, the first 1200 tons in Fengyang was ignited at the end of March, and it is expected that the company's production capacity will reach 30,200 tons per day in 2024. The company expects the capacity in Vietnam and Indonesia to be ignited successively in 2026. Meanwhile, the company also plans to invest in Indonesia to build a 1 million-ton annual photovoltaic glass project to meet the demand for photovoltaic glass in different countries and regions.

As of the end of 24H1, the company's total production capacity is 23,000 tons per day, including 2600 tons per day that have been cold-repaired. In addition, the domestic Anhui, Nantong projects, and overseas projects are all progressing normally. Looking to 24Q4, with the arrival of the traditional peak season in October and November and the accelerated cold-repair in the industry, the supply and demand pressure in the photovoltaic glass industry is expected to ease, and the company's profitability is expected to stabilize and rebound. The company has adopted two strategies at the raw material end: first, using a large kiln with a daily melting capacity of 1600 tons to reduce the production cost and energy consumption per ton of photovoltaic glass; second, taking measures such as purchasing quartz sand mines and using directly supplied natural gas to reduce raw material costs. With the recent stabilization of soda ash prices, the company's costs and operations may become more stable in the near future. In the fierce competition in the photovoltaic glass industry, Flat Glass's cost advantage remains a key factor for future success.