Market Review

Last week, the major broad-based indices in the market mostly rose with fewer declines, with mid and small-cap indices and growth styles relatively outperforming.

The Shanghai Composite Index fell by 0.43% for the week, while the Shenzhen Component Index rose by 2.04%, and the ChiNext Index increased by 2.17%.

Data source: Wind, as of August 30, 2024. Past performance of the index does not predict its future performance, and investment should be approached with caution.

From the perspective of the first-level industries of Shenwan, media, power equipment, and comprehensive industries performed relatively well, while banking, architectural decoration, and public utilities performed relatively average.

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Market Information

1. The National Bureau of Statistics announced that due to factors such as recent high temperatures and heavy rainfall, and the off-season production in some industries, in August, China's manufacturing PMI was 49.1%, a decrease of 0.3 percentage points from the previous month, indicating a slight decline in the prosperity of the manufacturing sector. The non-manufacturing PMI was 50.3%, an increase of 0.1 percentage points from the previous month, showing a slight recovery in prosperity; the composite PMI was 50.1%, a slight decrease of 0.1 percentage points from the previous month, and the overall economic prosperity level in China remained stable.

2. Data from the National Bureau of Statistics showed that from January to July, the total profit of industrial enterprises above designated size nationwide was 4099.17 billion yuan, a year-on-year increase of 3.6%, accelerating by 0.1 percentage points compared to the January-June period, continuing a stable recovery trend. In July, the profit of industrial enterprises above designated size grew by 4.1% year-on-year, accelerating by 0.5 percentage points compared to June, and has been accelerating for two consecutive months. Among the 41 major industrial categories, the profit growth rate of 21 industries accelerated or the decline narrowed compared to the previous month, with more than half of the industries showing an upward trend.

3. After the launch of the "Announcement of Central Bank Open Market Treasury Bond Trading Business" column on the official website of the central bank, the first update occurred. On August 30, the central bank's official website issued the No. 1 announcement for the 2024 Treasury bond trading business. In August 2024, the central bank carried out open market Treasury bond trading operations, purchasing short-term Treasury bonds from some primary dealers in the open market business and selling long-term Treasury bonds, with a net purchase of bond face value of 100 billion yuan for the entire month.4. The central bank convened a symposium with experts, scholars, and financial enterprise leaders. The governor of the central bank stated that the bank will continue to adhere to a supportive monetary policy stance, strengthen counter-cyclical adjustments, and comprehensively utilize a variety of monetary policy tools to increase financial support for the real economy. At the same time, they will research and reserve additional policy measures, enhance the coordination and cooperation of macroeconomic policies, and support the consolidation and strengthening of the positive economic recovery trend.

5. The Ministry of Finance issued the "Report on the Implementation of China's Fiscal Policy in the First Half of 2024," clarifying the six key areas of fiscal policy for the next steps. First, it will increase the intensity of fiscal policy implementation, coordinate and utilize long-term special government bond funds, optimize equipment renewal support methods, accelerate the issuance and use of local government special bonds, and create more physical work volume. Second, it will focus financial resources to ensure key expenditures, implement fiscal fund rewards and subsidies and related tax and fee preferential policies, solidly promote the construction of the "three major projects" in real estate, cooperate with the work to ensure housing delivery, and promote high-quality development of the real estate industry. Third, it will strengthen the bottom line of "three guarantees" at the grassroots level (guaranteeing basic livelihoods, wages, and operations). Fourth, it will prevent and resolve local government debt risks, further implement a package of debt resolution plans, with provinces taking overall responsibility and cities and counties doing their utmost to resolve debts, gradually reducing the level of debt risks. Fifth, it will solidly promote scientific fiscal management. Sixth, it will deepen the reform of the fiscal and tax system, and improve the local tax system through measures such as advancing consumption tax reform, reasonably allocating local tax rights, and straightening out the relationship between taxes and fees.

6. The National Development and Reform Commission and others issued the "Notice on Establishing a Mechanism to Promote Private Investment Funds and Factor Security." It proposes to adhere to market-oriented guidance and guide increased financial support for private investment projects. The Financial Regulatory Authority and the National Development and Reform Commission jointly study financing support policies to promote the development of private investment, guide financial institutions such as the banking and insurance industries to innovate financial products and services, reasonably determine the loan interest rate levels for private enterprises, strictly standardize fees at all stages of credit financing, continuously improve the convenience of financing for private investment projects, and promote the resolution of the difficulties and high costs of financing for private enterprises.

7. The Shanghai Stock Exchange and China Securities Index Co., Ltd. decided to adjust the samples of the STAR 50 and other indices, which will take effect after the market closes on September 13, 2024. Among them, Huitai Medical and No. 9 Company will be included in the STAR 50 Index. (The above individual stocks are only for information display and are not recommended as individual stocks. The market has risks, and investment should be cautious.)

8. According to central bank statistics, at the end of the second quarter of 2024, the balance of real estate development loans was 13.77 trillion yuan, a year-on-year increase of 2.8%, which is 1.3 percentage points higher than the end of the previous year, with an increase of 610.5 billion yuan in the first half of the year. The balance of personal housing loans was 37.79 trillion yuan, a year-on-year decrease of 2.1%.

9. The Ministry of Commerce and other five departments jointly introduced the "Implementation Plan for Promoting the Replacement of Electric Bicycles with Old Ones," which mentions that consumers who return old lithium-ion battery electric bicycles and purchase lead-acid battery electric bicycles may receive increased subsidies.

10. Since the beginning of this year, there has been a surge in share buybacks and significant shareholder increases by A-share listed companies. Wind data shows that from January 1 to August 29 of this year, 1,888 A-share listed companies have implemented share buybacks, a year-on-year increase of 105.89%; the total amount of share buybacks was 129.377 billion yuan, a year-on-year increase of 175.99%. The number and total amount of listed companies implementing share buybacks this year have far exceeded the level of the whole year last year. From January 1 to August 29 of this year, 866 A-share listed companies' significant shareholders increased their holdings in the secondary market, a year-on-year increase of 148.85%; the total amount of increases was 54.811 billion yuan, a year-on-year increase of 56.84%.

11. The central bank and eight other departments issued the "Guiding Opinions on Further Doing a Good Job in Financially Supporting the Green and Low-Carbon High-Quality Development of the Yangtze River Economic Belt," proposing 16 key tasks from four aspects: vigorously developing green finance, promoting the coordinated development of green finance with technology finance and digital finance, promoting the coordinated development of green finance with inclusive finance and pension finance, and solidly doing a good job in financial risk assessment and prevention and control.

12. City commercial banks, rural commercial banks, and rural banks in places such as Guangxi, Henan, and Shanxi will lower deposit interest rates at the end of August or the beginning of September, with adjustments ranging from 10 to 35 basis points, with the largest adjustments in medium and long-term deposit interest rates. It is worth noting that many small and medium-sized banks, such as Zhumadian Rural Commercial Bank and Taiqian Rural Commercial Bank, have made multiple adjustments to deposit interest rates this year. Many banks have stated that they will continue to reduce high-cost deposits in the second half of the year, lower the benchmark interest rates for RMB deposits, and lower the self-discipline mechanism limits.

13. The Ministry of Finance and four other departments jointly issued a notice to improve the policy of duty-free shops within the city. The existing 13 foreign exchange commodity duty-free shops in Beijing, Shanghai, Harbin, and others will be transformed into city duty-free shops within three months from the date of implementation of the "Notice," and will start business after passing the customs inspection. At the same time, one city duty-free shop will be established in each of the eight cities of Guangzhou, Chengdu, etc. City duty-free shops mainly sell portable consumer goods and encourage the sale of domestic "trendy products." They will include products with independent brands and those that help spread the excellent traditional culture of China in their business scope.14. The National Medical Products Administration is soliciting public opinions on the "Draft of the People's Republic of China Medical Device Administration Law (Draft for Comments)". The draft proposes that the state formulates medical device industry plans and policies, prioritizes the research and innovation of medical devices in development, and provides support in aspects such as scientific and technological project establishment, financing, credit, bidding and procurement, and medical insurance.

15. The Shanghai Housing Administration Bureau issued a notice on the "Several Provisions on the Standardization of Residential Maintenance Fund Management in This City", which will come into effect on October 1, 2024, and will be valid until June 30, 2029. The provisions clarify that the collection standard for the maintenance fund of commercial residential buildings shall be priced based on the cost price per square meter of the building area. The collection standard for the maintenance fund of publicly-owned housing after sale shall be implemented in accordance with the relevant provisions in the Shanghai public housing sale policy (including the maintenance fund for housing, the major repair and renewal fund for elevators and water pumps, and the management and maintenance fund for neighborhood public facilities), and the three funds shall be used in combination.

16. The United States' second quarter real GDP annualized revised value increased by 3.0% quarter-on-quarter, expected to rise by 2.8%, the preliminary value increased by 2.8%, and the first quarter final value increased by 1.3%. The core PCE price index annualized revised value increased by 2.8% quarter-on-quarter, expected to rise by 2.9%, the preliminary value increased by 2.9%, and the first quarter final value increased by 3.6%.

17. The Japanese Cabinet Office released the August economic monthly report, raising the economic outlook for the first time in 15 months. The Japanese government stated that the economy is recovering moderately, but some areas still seem to be stagnant. In addition, the Japanese government raised consumption expectations for the first time since May 2023, and housing construction expectations for the first time since June 2022.

18. The Korea Chamber of Commerce and Industry released a report predicting that after the formal implementation of the EU Carbon Border Adjustment Mechanism (CBAM), the related costs borne by the Korean steel industry will gradually increase from 8.51 billion won in 2026 to 55 billion won in 2034, with a cumulative amount exceeding 3 trillion won over 10 years. This may lead to the contraction of the domestic steel industry in South Korea and will also have a negative impact on other related manufacturing and service industries.

19. The final value of the University of Michigan Consumer Confidence Index in August was 67.9, expected to be 68, the preliminary value was 67.8, and the final value in July was 66.4. The final value of the University of Michigan's one-year inflation rate expectation in August was 2.8%, the lowest since 2020, expected to be 2.9%, the preliminary value was 2.9%, and the final value in July was 2.9%.

20. The United States' core PCE price index in July increased by 2.6% year-on-year, expected to rise by 2.7%, the previous value increased by 2.6%; it increased by 0.2% month-on-month, expected to rise by 0.2%, the previous value increased by 0.2%. The PCE price index increased by 2.5% year-on-year, expected to rise by 2.6%, the previous value increased by 2.5%; it increased by 0.2% month-on-month, expected to rise by 0.2%, the previous value increased by 0.1%. Personal spending increased by 0.5% month-on-month, expected to rise by 0.5%, the previous value increased by 0.3%.

Market Outlook

Guosheng Securities

Looking forward to September, external disturbances may arise again, and industry catalysis and policy games may amplify market volatility.Firstly, looking from the top down, peripheral disturbances are expected to increase again in September.

Firstly, there is still uncertainty regarding the magnitude of the Federal Reserve's interest rate cut, which will continue to trigger fluctuations in expectations of a "soft landing" or a "hard landing", with a subsequent focus on employment data for guidance.

Secondly, a new round of U.S. election debates is approaching, and the "Trump"/"Harris" trade will also attract global attention, with the pricing of assets such as the export chain and gold potentially facing reassessment.

Thirdly, recent escalations in conflicts between Ukraine and Russia, as well as in the Middle East, have increased uncertainties regarding geopolitical conflicts and the direction of international relations, which also require a certain level of risk response.

Secondly, industry catalysts in September remain relatively concentrated, with AI glasses, folding screens, AIGC Apple chain, and Huawei chain all facing expectation verification, and the attention to the consumer electronics industry is expected to remain high.

Lastly, market volatility at the end of August has already increased, essentially stemming from the market's game of policy expectations, which may continue to amplify market fluctuations.

Objectively speaking, the market's pricing center revolves around the real center, and looking ahead, both the introduction and implementation of policies require time to be tested. The current reality and the pace of policy advancement may lead to pressure on the market center, and trend improvement still awaits the emergence of substantial benefits, with repeated policy expectation games contributing more to short-term fluctuations.

In terms of industry allocation, focus on industry prosperity in the short term and dividend allocation in the medium term.

In the short term, there is still a lack of substantial guidance at the macro level, with a focus on industry prosperity layout. Current performance guidance and future industry catalysts are more concentrated in the field of technology manufacturing, with attention to consumer electronics, information creation, chips, military industry, and other directions.

In the medium term, the dividend style faces short-term adjustments, but the long-term logic has not been broken. Continue to focus on the medium-term allocation of dividend assets, with current attention to relatively weak cyclical and high dividend cost-effective directions such as high-speed and operators.Ping An Securities

Domestic policies are stepping up to expand domestic demand, with mid-year earnings reports showing that industries such as automotive and electronics have relatively high profit growth rates.

In terms of macroeconomics, in July, exports grew by 7.0% year-on-year, a decrease of 1.6 percentage points from the previous value. However, the expected slowdown in global growth may drag on future export growth, as the global manufacturing PMI fell below the boom-or-bust line for the first time this year in July. On the consumption front, retail sales in July increased by 2.7% year-on-year, a rise of 0.7 percentage points from the previous value. Investment continues to be affected by adjustments in the real estate sector.

On the domestic policy front, first, policies to promote service consumption, car replacement, and energy equipment renewal are being intensively implemented in August. Second, the State Council has issued documents to accelerate a comprehensive green transformation, with local governments such as Shanghai supporting the implementation of low-altitude economy development plans.

Regarding the performance of listed companies, as of 8/28, a total of 3165 A-share listed companies have announced mid-year earnings or quick reports (a disclosure rate of 59%). In the first half of 2024, the net profit attributable to the parent company of the entire A-share market grew by 4.6% year-on-year, an increase of 1.6 percentage points compared to Q1 on a comparable basis. Structurally, industries such as automotive, electronics, non-ferrous metals, and public utilities have seen the fastest profit growth rates. Looking at changes in expectations, as of 8/28, the 2024 profit expectations for the entire A-share market have been revised down by 0.5% compared to the end of July, with industries such as agriculture, forestry, animal husbandry, non-ferrous metals, environmental protection, and public utilities seeing an upward adjustment in profit expectations.

Equity allocation strategy: Focus on the direction of performance prosperity and reform, with an increased focus on structural opportunities related to new quality productivity/advanced manufacturing/SOE reform in the medium term. Overseas, the probability of the Federal Reserve cutting interest rates in September has increased, while domestic policies are accelerating the deployment of deepening reforms and developing new quality productivity, while also increasing efforts to expand domestic demand, with the technology industry also building momentum. In the medium term, there is an increase in structural opportunities in sectors representing growth styles (TMT/low-altitude economy, etc.), advanced manufacturing, and SOE reform.