Lin Weibin

Industrial sector has seen a demand increase recently, driving PPI to rise MoM in May, which has turned positive for the first time in 8 months. This shift backboned industrial companies’ revenue and profit growth. Overall, with fiscal and industry policy continuing to materialize, the real economy is poised to sustain the upward trend, with stable production growth and ongoing demand recovery. For capital markets, quality stocks, dividend stocks and growth stocks that classified as new quality productive forces, remain in the spotlight.

In terms of specific product, we advise an eye on the CSI A50 Index (BBG Ticker: CSIA50) and the CSI Dividend Index (BBG Ticker: SH000922), which are representative indices of top-quality industry leading companies and high-dividend stocks in the A-share market, respectively. The CSI A50 Index, composed of stocks of Top 50 listed companies in terms of market capitalization across various industries, is designed to reflect the overall performance of the most representative leading companies. The CSI Dividend Index, comprising the stocks of 100 listed companies with high cash dividend yield, stable dividend distribution, large size and high liquidity, aims to depicting the overall performance of the stocks of high-dividend-yield listed companies.

Yaping Pang

In June, the SSE Index fell below the 3,000 with less trading volumes, indicating that the market may have fully priced in pessimistic expectations. Large-cap outperformed mid and small caps, and value surpassed growth. The TMT sector led the growth, while dividend stocks demonstrated resilience amidst fluctuations. As of June 30th, the equity risk premium of the SSE Index stood at 6.24%, reaching a historically high percentile of 85.8%, underscoring the attractive valuation of equity assets.

Looking forward, while high-frequency data has yet to reveal a fundamental recovery, investor sentiment is down, and there’s a noticeable inclination to invest in ETFs at the lows, limiting the downward risk of A-shares. Fundamentally, exports are expected to maintain their strong momentum from 24H1, and manufacturing investment, backed by policies for equipment renewal, should remain robust. Policy-wise, with first-tier cities, like Beijing, easing real estate purchasing policies and key meetings in July anticipated to instill confidence through growth ensuring and tech industry support, the market outlook is positive.

Given the current weaker fundamentals and the anticipation of policy stimuli, high-dividend and tech growth styles are poised to lead the market in July. Moreover, July is a peak period for semi-annual report disclosures, and there is a strong correlation between stock prices and earnings. Thus, the CSI A50 Index (BBG Ticker: CSIA50), known for its high-quality companies with stable ROE, merits attention.

Haiyan Yu

Following a slowdown in policy-driven trades in May, the A-share market has shifted back to fundamental-driven trades since June. Recent PMI and industrial performance data suggest that China’s growth recovery still requires a boost from supportive policies. Market indices have been reverting down since June, leading to a subdued investor sentiment, a contrast to the optimism in mid-May.

Looking ahead to July, after June’s adjustments, market valuations and sentiment have once again dipped to lower levels. Some company valuations have retreated to historically low. By June 30th, the CSI 300 Index’s rolling P/E ratio fell to 11.84x, landing in the lowest 30th percentile of the past decade. These valuations may have already factored in the overly pessimistic outlook, implying limited room for further decline. Nonetheless, a market rebound will likely require stronger fundamentals.

On consumption, while overall improvements are modest, there are still some bright spots, such as significant growth in home appliances and furniture sales under policy promotion. The impact of policies encouraging equipment upgrades and replacements remains promising. Moreover, the slower issuance of special-purpose bonds in 24H1 suggests potential economic support from an accelerated issuance pace in 24H2.

On export, the U.S. manufacturing PMI’s unexpected rise in June signals a continued recovery in manufacturing activities both in the U.S. and globally. The U.S. inventory cycle is set to further boost China’s exports in 24H2, lending support to both the economy and the stock market.

In terms of investment strategy, dividend indices that have seen reduced crowding and benefit from a scarcity of assets, such as the CSI Dividend Index (BBG Ticker: SH000922), CSI Dividend Low Volatility Index (BBG Ticker: CSIH0269) and Hang Seng SCHK High Dividend Low Volatility Index (BBG Ticker: HSHYLV), along with high-quality core assets, such as the CSI A50 (BBG Ticker: CSIA50) and CSI 300 (BBG Ticker: SHSZ300), are primed to outperform.

Bing Fan

The stock prices of Chinese internet companies listed in foreign exchanges are primarily affected by the macro economy, corporate fundamentals, global financial environment, global industry developments, and regulatory policies.

Firstly, on the macro level, China’s economic data of May, released by the National Bureau of Statistics, indicates a continued divergence between domestic and international demand, with areas such as real estate and consumer spending needing further improvement.

Secondly, the internet sector outperformed in 24Q1, with earnings surpassing expectations and profit margins hitting record highs, thanks to sector-wide cost reductions and business optimizations.

Thirdly, on the US monetary policies, the Federal Reserve’s June meeting concluded with a decision to keep interest rates steady, amidst persistent inflation. The market consensus points to a single rate cut expected in 2024, reflecting the Fed’s cautious stance on monetary policy.

Lastly, on the policy front, the Hong Kong Stock Exchange will introduce new measures starting September 23, ensuring the securities market operation during severe weather. This change will allow uninterrupted trading of Hong Kong stocks and derivatives, including through the Shanghai-Hong Kong Stock Connect, thereby boosting market liquidity.

Despite the internet sector’s recent notable gains, its current valuation remains relatively low, historically speaking, presenting attractive investment and trading opportunities.

The CSI Overseas China Internet 50 Index (BBG Ticker: CSIH0533) is composed of constituents that are top Chinese internet companies listed in foreign exchanges, in terms of total market value and liquidity and are representative of China’s digital economy and platform economy. Amid the stabilization of China’s economy and the recovery of consumption, Chinese internet companies are expected to experience consistent, positive, and healthy development. Products that are tracking this index are likely to become important tools for sharing investment opportunities in China’s technology and internet industry.

Xi Cheng

Currently, the STAR 50 Index is primarily influenced by factors including the semiconductor market recovery pace, the progress of AI applications, and AI technological advancements.

Since late 2023, China’s semiconductor sales have seen positive growth, driven by consumer demand for products like mobile phones and wearables. 2024H1 has shown a trend where end-user demand is beginning to impact midstream semiconductor performance. We will keep close track on the semiconductor industrial demand recovery in 2024H2.

Semiconductor profit is anticipated to improve in 2024H2, thanks to stabilized chip price, rising price expectations, and increased capacity efficiency due to sales growth.

Additionally, significant AI technological breakthroughs, such as Apple’s AI system launched in June, indicate a potential new wave of innovation in the smartphone and consumer electronics, which could encourage the investors to embrace more aggressive risk stances in anticipation of surging growth.

The STAR 50 Index (BBG Ticker: STAR50) swung lower in June. The STAR 50 Index, which focuses on semiconductors and includes sectors like information technology, new energy, and medical devices, stands to benefit from the semiconductor cycle’s upswing, growing domestic production, and technology advancements in the long term. Given the high entry barrier for tech industry analysis and the risks of individual stock selection, investors might consider systematic investments in corresponding index funds at lower valuations. This approach simplifies stock selection and timing, allowing investors to partake in the growth of China’s tech industry more conveniently.