Starting from mid-to-late October, as the peak period for the disclosure of the third-quarter reports begins, the A-share market has also transitioned from a general rise to a structural differentiation, with the fundamentals potentially becoming the focus of trading.
As of October 14th, the proportion of A-share listed companies that have disclosed their third-quarter reports is approximately 2.1%, and the market is still in the stage of expectations fermenting.
Companies and industries with better-than-expected third-quarter reports are expected to become the main theme of the market phase, and investors can pay attention to structural highlights.
1. Top-down approach: The decline in non-financial sectors may widen, while the financial sector may remain stable
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The Central Political Bureau meeting at the end of September emphasized "facing difficulties," and the economic fundamentals momentum slowed down marginally in the third quarter of this year. The Producer Price Index (PPI) decreased for three consecutive months from July to September on a month-over-month basis, and the year-over-year decline in PPI expanded to 1.8% in the third quarter. Against this backdrop, listed companies face periodic challenges in their operations.
CICC calculated through a top-down approach: A-share non-financial revenue in the third quarter may slightly decline year-on-year, and this third-quarter report may represent the lowest single-quarter earnings growth rate for A-shares this year, with the decline in income and profit year-on-year for non-financial enterprises possibly widening.
CICC also estimated that the year-on-year decline in non-financial profits in the third quarter may widen compared to the second quarter, while the financial sector may remain stable year-on-year, with insurance expected to show significant improvement.
The above conclusions are based on the following reference indicators:
1) CICC's incomplete statistics (about 835 companies) on key A-share companies covered, with the overall forecast for covered enterprises/non-financial third-quarter profit growth year-on-year at 13.0%/8.4% (but considering that there may be a downward revision space due to the underrepresentation of poorly performing enterprises among the covered companies);
2) Since August 31st, Wind's statistics show that market analysts have uniformly revised down their earnings expectations for A-shares in 2024 by 2.0 percentage points, with some industries such as non-bank finance, agriculture, forestry, animal husbandry, and banking seeing an upward revision in their profit expectations.3) In July-August 2024, industrial enterprise profits fell by 7.7% year-on-year, while manufacturing profits fell by 9.4% year-on-year, with the profit decline in the same period being wider than in Q2.
II. Bottom-up estimation: Structural highlights may be in resources, exports, and TMT
Structurally, CICC's statistics found that some resource industries, export chains, and the TMT sector are structural highlights.
1. Highlights in the energy and raw materials sector:
Gold prices continue to rise due to the Federal Reserve's monetary easing and the escalation of geopolitical conflicts, and profits are still expected to continue high growth.
2. Highlights in the midstream manufacturing sector:
The downstream demand for new energy vehicles continues to improve, but the midstream of the industry chain is still in the stage of bottoming out performance, with only inverters seeing some performance improvement driven by increased overseas shipments.
The machinery industry as a whole shows that external demand is better than internal demand.
In the transportation industry, ports, container shipping, and dry bulk shipping are expected to grow year-on-year, and cross-border logistics are expected to grow significantly year-on-year, with performance potentially exceeding expectations.
3. Highlights in the downstream consumer sector:Household appliances, passenger cars, and home sales are supported by the policy of trading in old for new, while exports continue to benefit from export growth;
The pig farming sector is expected to see a significant sequential increase in profits due to rising pig prices, and it is expected to achieve a noticeable turnaround from loss to profit;
The domestic same-store sales of trendy toys remain high, overseas store openings are accelerating, and performance is expected to exceed expectations.
4. Highlights in the TMT sector:
The downstream demand for consumer electronics in the semiconductor industry shows high prosperity, the momentum for price increases in memory chips and PCBs is still present, the growth in design-side demand continues, cloud/edge-side AI computing chip suppliers are expected to benefit, among which domestic cloud-side computing chips are expected to usher in the first year of commercialization, and edge-side AIoT, automotive, and other intelligent terminal benefits are favorable for SoC suppliers;
Software services have seen weak initial orders, and further efforts are still needed from fiscal policies, the performance of AI in application is still needed, and the overseas market is expected to exceed expectations.
5. Highlights in the financial and real estate sector:
The pressure on bank interest spreads still exists, and the profit performance in the third quarter is basically the same as in the second quarter;
The non-bank sector benefits from the market's rise in performance, and the performance of internet brokers and life insurance may exceed expectations;
The core enterprises in property management are expected to see an improvement in profits in the third quarter compared to the first half of the year.III. Investment Themes for the Third Quarter Report: Fundamental Inflection Points and Recovery Elasticity
In conjunction with the预判 of the aforementioned structural highlights, CICC suggests focusing on the following three investment themes during the earnings disclosure period:
1) Prosperous sectors where third-quarter earnings may exceed expectations or show sequential improvement (Note: Internet securities firms, insurance, breeding, etc.);
2) Sub-sectors where performance gradually recovers from the cyclical bottom and industry trends are clear (such as semiconductors, consumer electronics, communication equipment, and other TMT-related industries);
3) Industries that have achieved supply-side clearance ahead of time in a mild recovery environment (such as some upstream resources and traditional manufacturing sectors, gold, machinery, etc.).
Attached are relevant ETFs:
Hong Kong Stock Connect Financial ETF (513190.SH)
Tracks the adjusted valuation and exchange rate Hang Seng China Hong Kong Stock Connect Mainland Financial Index (Index Code: H11146.CSI), with major weighted industries including mainland state-owned large banks (49%) and insurance (28%), among which the top ten weighted stocks include ICBC (13.87%), CCB (13.73%), Ping An (12.93%), BOC (10.62%), China Merchants Bank (6.12%), China Life (4.88%), etc. (Not as individual stock recommendations, as of 2024.10.14).
Consumer Electronics ETF (159732.SZ)
Tracks the National Index of Consumer Electronics Theme (Index Code: 980030.CNI), indirectly holding 50 high-quality listed companies in the consumer electronics industry in the A-share market, including Luxshare Precision, BOE Technology Group Co., Ltd., Will Semiconductor Co., Ltd., TCL Technology Group Corporation, GigaDevice, etc. (Not as individual stock recommendations, as of 2024.10.14).Financial Technology ETF Huaxia (516100.SH)
Tracks the CSI Financial Technology Theme Index (Index Code: 930986.CSI), indirectly holding nearly 60 listed companies in the A-share market whose products and services are related to the field of financial technology. The related fields include but are not limited to payment and settlement, online lending financing, wealth management, retail banking, insurance, trading settlement, and other sectors that utilize information technologies such as big data, cloud computing, artificial intelligence, and blockchain to participate in the value chain of financial products and services. The index constituents include East Money (11.39%), Tonghuashun (9.04%), Hengsheng Electronics (7.53%), Runhe Software (6.47%), and Zhinanzhen (4.08%), etc. (Not as individual stock recommendations, as of 2024.10.14).
5G Communication ETF (515050.SH)
Tracks the CSI 5G Communication Theme Index (Index Code: 931079.CSI), indirectly holding 50 listed companies in the A-share market whose products and business are related to 5G communication technology, including Luxshare Precision (11.34%), Zhongji Xu Chuang (9.13%), Foxconn Industrial Internet (6.58%), ZTE Corporation (6.52%), and Xinyisheng (6.06%), etc. (Not as individual stock recommendations, as of 2024.10.14).
Machine Tool ETF (159663.SZ)
Tracks the CSI Machine Tool Index (Index Code: 931866.CSI), indirectly holding 50 listed companies in the Shanghai and Shenzhen markets whose business involves the manufacturing and service of machine tool complete machines and their key components, including Hua Gong Technology (11.82%), HAN'S Laser (6.67%), Haomiao Technology (5.48%), Inovance Technology (5.19%), and Xiamen Tungsten (5.17%), etc. (Not as individual stock recommendations, as of 2024.10.14).
Agriculture ETF (516810.SH)
Tracks the CSI Agriculture Theme Index (Index Code: 000949.CSI), selecting 50 listed companies in the Shanghai and Shenzhen A-shares whose business involves agricultural machinery, fertilizers and pesticides, animal drugs, agricultural products, meat and dairy products, etc., including Muyuan Foodstuff (14.51%), Wens Foodstuff (14.01%), Hai Da Group (7.80%), Yankuang Group (5.40%), and New Hope Liuhe (4.62%), etc. (Not as individual stock recommendations, as of 2024.10.14).
Gold Stocks ETF (159562.SZ)
[Translation of the last sentence was not provided in the original text, so it cannot be translated into English.]The index being tracked is the CSI China A-shares, Shanghai and Shenzhen, and Hong Kong Gold Industry Stock Index (index code: 931238.CSI), with major industries including gold (53%) and copper (31%), among others. The top ten weighted stocks include Shandong Gold (12.05%), Zijin Mining (11.77%), and China National Gold Group Corporation (10.40%) listed on the A-shares market, as well as Zhaojin Mining Industry Company Limited (4.81%), Zijin Mining (3.60%), and Shandong Gold (3.09%) listed on the Hong Kong stock market (not as individual stock recommendations, as of October 14, 2024).