The popular sectors from before have experienced some divergence, but the market has been adjusting with a relatively low amplitude, and "reluctance to sell" often implies that the second phase of a bull market is brewing.
At this time, the layout should either focus on the technology sector, which continuously has thematic catalysts and growth potential, or on high-dividend blue chips with fundamental support, where valuations rise after performance.
There is also a category in between, which, after a round of valuation repair, has not yet fully incorporated the expectation of a fundamental reversal, such as the new energy sector.
Today, the market still maintained a volatile trend, closing up by 0.52%. However, the rotation direction today has shifted to the power generation sectors like wind power and photovoltaics. The combined attack of these two sectors prevented the sci-tech innovation and entrepreneurship sectors from experiencing a significant pullback.
In the second phase of a bull market, investors should focus on the quality of the performance of the targets, which means it is no longer just blind speculation. Even in the technology growth sector, the market will eventually select the best quality leaders that are most recognized.
How should we choose to more steadily enjoy the benefits of technology growth and achieve "steady happiness"?
01
New energy is back!
The market fluctuated slightly in the morning, but the overall trend was upward, with transactions still active at over 1 trillion yuan. In the afternoon, led by sectors such as photovoltaics, wind power, and military industry, the main indices quickly rose, with the Shanghai Composite Index increasing by more than 1%, breaking through 3300 points again; the STAR 100 once rose by nearly 3%.
In terms of sectors, the market rotated to the new energy sector today, with photovoltaics, wind power, batteries, and new energy vehicle wheels taking turns performing, pulling the ChiNext Index from an opening low of -1.32% to nearly 2%. The Photovoltaic ETF (159857) rose by 4.92% today, leading the ETFs.Daqo Energy has harvested a 20cm gain, while Trina Solar and Jinko Energy have seen respective increases of 9.29% and 6.67%. The rise in Sungrow Power Supply has also reached 4.68%. In addition, sectors such as military equipment and commercial aviation have continued their strong performance in recent days.
Specifically, the most dominant sector today is undoubtedly wind power equipment.
In fact, there are already signs of recovery in the fundamentals of the wind power industry. There is a good expectation for offshore wind bidding and installation volume this year. From January to September, the overall new installation of wind power was 39.12GW, a year-on-year increase of 16.8%; in September alone, the new installation was 5.51GW, a growth of 20.8%, achieving accelerated growth.
Moreover, with the European interest rate cut, constraining factors such as raw material costs and financing rates are improving marginally, and overseas wind power investment is returning to normal operation, which is another positive for domestic wind power companies going global. We mentioned this in our May article titled "This Sector, Bottoming Out and Waiting for a Rebound."
Secondly, the price competition among the midstream industry players has also had some positive catalysts. On October 16th, 12 wind power equipment manufacturers signed the "Self-Disciplinary Convention for Maintaining a Fair Competition Environment in the Chinese Wind Power Industry Market," which may help address low-price competition, improve industry profitability, and change the long-term situation of increasing revenue without increasing profits.
The benefits of industry recovery have gradually been reflected in pricing, such as the wind power leader, Goldwind Science and Technology, which has seen a 40% increase since the beginning of the year. Half of its market value has been restored compared to its peak in 2021.
Moreover, the company's sales price of wind power generation equipment increased by 12.5% year-on-year in the first half of the year, and the number of orders on hand has reached a historical high. From a fundamental perspective, the consensus expectation for next year's price-to-earnings ratio is close to 16 times, with the potential to achieve a double play of Davis.
The prosperity of the wind power industry is gradually increasing, and the performance of the sector, especially offshore wind, is expected to recover or even rebound significantly, such as wind turbine, cable, tower, and other component companies. Looking at today's sector performance, several ChiNext companies have seen a significant rebound, with Hailifeng Wind Power gaining 20cm, and Jin Lei Shares, Tongyu Heavy Industry, and Tai Sheng Wind Energy all increasing by more than 10%.
Let's also mention the photovoltaic equipment that saw a significant rise after the afternoon session. The recovery rhythm of this sector is slower than that of wind power, and the resolution of overcapacity is considered the most critical factor for sector adjustment. Last week, the Photovoltaic Industry Association held a symposium to prevent vicious competition within the industry, and leading companies participated and reached a consensus.
However, a meeting is just a gesture; the specifics depend on the actions taken. On October 22nd, the China Energy Conservation 2024 photovoltaic module framework agreement procurement was opened, with a total of 13 companies participating, including leading module companies. The average bid price for the project was 0.694 yuan/W, with the lowest bid at 0.675 yuan/W, which is much better than before!This piece of information may be interpreted by the market as the beginning of a "ceasefire and reconciliation" for photovoltaic (PV) companies, and several rumor versions have been leaked, potentially igniting today's PV market. For instance, there are rumors that next month there will be restrictions on the energy consumption of silicon material production; there are also rumors claiming that upcoming documents may impose restrictions on the output of various segments from an energy consumption perspective.
It can be observed that the segments with relatively high energy consumption in photovoltaics are: silicon material, glass, industrial silicon, and silicon wafers. Therefore, the stock prices of several silicon material companies such as Daqo Energy and Tongwei Shares have reacted significantly today.
These two sectors, which had been lying at the bottom for a long time, naturally have the opportunity to become the leading theme of a differentiated market trend, leveraging the narrative of recovery and reversal.
Many stocks in the new energy sector are distributed across the ChiNext and STAR Market, as we mentioned in "A Track Quietly Gaining Strength?", any sector with a stable fundamental expectation, after a significant increase, still deserves to be laid out in advance. Once the reversal expectation is formed, the probability of achieving a double whammy of Davis greatly increases.
02
Technology Remains Worthy of Attention
Regarding the current market trend, we maintain our original view:
The stage of a bull market with widespread gains has ended, and what follows is more of a structured market. With the dual stimulation of liquidity and positive performance expectations, technology innovation is likely to lead traditional value sectors.
This is both a need for valuation repair and a recognition of future growth.
In summary, the concept of technological innovation has several important advantages.Firstly, on a broad front, technological innovation aligns with the country's need for high-quality development, with a particular emphasis on new forms of productive forces, which are the latest strategic deployments for national transformation and upgrading. At the same time, the concept of technological innovation is also likely to receive policy support.
This represents the long-term value advantage of technology innovation companies.
Secondly, there is the high growth potential demonstrated by technology innovation companies. Especially from nothing to something, from small to leading, the process is accompanied by rapid growth in performance, and the value of the companies also rises steadily.
This is the advantage of technology companies in terms of investment return rates.
Thirdly, we are currently at the beginning of a new round of technological revolution. New technological concepts such as AI and low-altitude technologies are continuously contributing new growth points to the economy, providing new entrepreneurial opportunities for the industrial sector, and also offering many new investment opportunities for investors.
Chinese and American technology innovation companies are the only two in the world in terms of both quality and quantity.
In addition, with the global interest rate reduction cycle already underway and liquidity being relatively abundant, this situation is particularly favorable for the concept of technological innovation.
From recent market trends, it can be seen that technology stocks are actively traded, with positive rotation, and sectors such as semiconductors, Hongmeng software, new energy, and aerospace have all taken turns being pursued by funds.
From a technical perspective, after the significant rise last Friday, it basically announced the end of the post-National Day correction, and the index has successfully bottomed out, entering a new round of upward trend. The Growth Enterprise Market (GEM) and the Science and Technology Innovation Board, which focus on technological innovation, remain the preferred targets for funds, with ample upward momentum.
In the first half of this year, the barbell strategy was very popular in the market, which means most of the money was in dividend stocks, and a small portion of funds was in high-elasticity, popular technology concepts. Now, we can also see many investors are increasing their allocation to technology innovation companies, which is also the reason why the GEM, the Science and Technology Innovation Board, and the Beijing Stock Exchange 50 have been continuously hot recently.Of course, for ordinary investors, the risks associated with the ChiNext Board, STAR Market, and Beijing Stock Exchange are relatively higher compared to the main board, and they require a higher level of professionalism and experience from investors. Moreover, investing in individual stocks often entails facing high volatility and the psychological impact on individuals.
The barriers to opening accounts and investing are not low. For instance, the ChiNext Board requires a daily average asset balance of no less than 100,000 yuan, maintained for 20 trading days; the STAR Market has even higher requirements, stating that the daily average asset balance must not be lower than 500,000 yuan in the 20 trading days before applying for access.
Therefore, an increasing number of people choose to participate in the market through Exchange Traded Funds (ETFs). The benefits include lower entry barriers and relatively lower volatility compared to individual stocks. They can make profits during the uptrend and effectively control drawdowns during the downtrend, making the entire investment process more stable and reassuring.
For example, the ChiNext ETF Tianhong (159977), which tracks the ChiNext Index, has seen a net inflow of 1.485 billion yuan in funds this year.
The Dual Innovation Leaders ETF (159603) closely tracks the China Securities Sci-Tech Innovation Leaders 50 Index, which is a cross-market composite index. It selects 50 companies with large market value and pure technology attributes from the ChiNext and STAR Markets, including leaders in new energy, biomedicine, and semiconductors, among other representative enterprises. The top ten constituents include companies like Contemporary Amperex Technology Co., Ltd. (CATL), Mindray Medical Equipment Co., Ltd., InnoLight Technology Corporation, Inovance Technology Co., Ltd., SMIC, Sungrow Power Supply Co., Ltd., Higon Information Technology Co., Ltd., Advanced Micro-Fabrication Equipment Inc., Kingsoft Office Software Co., Ltd., and others.
Statistics from Wind show that the Dual Innovation Leaders ETF (159603) has seen a net inflow of 586 million yuan in funds in the last 12 trading days, with an excess return of 1.25% in the last six months, and an excess return of 1.36% in the last year.
Investors without a securities account who wish to invest in A-shares can also purchase over-the-counter linked funds through channels such as Alipay.
03
Conclusion
Since September 24th, when the market entered an uptrend, although it has experienced significant fluctuations, one important market mainline has been technological innovation.In addition to the medium and long-term value of technological innovation and the ease of liquidity, the expectation of good performance in Q3 for technology stocks is also an important factor.
This is equivalent to saying that the market actually recognizes that technology stocks are entering a trend of valuation and performance double hits.
After the decline of the past two years, A-shares have probably bottomed out, and with the continuous intensification of stimulus policies, the market has also probably entered a new round of medium and long-term upward trend.
Under this trend, grasping the main line is very important. As long as the main line is correct, even if there are fluctuations, gains and losses, but in the end, it can also outperform the overall market and achieve better investment returns.
This is also what Graham said, the stock price is a voting machine in the short term and a weighing machine in the long term.
There are many main lines in the market, but technological innovation has always been one of the important main lines.
If you want to win in the long line and harvest the value of the "weighing machine", technological innovation is worth the attention of investors all the way.
- 17 May'24
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