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the september politburo meeting analyzed and studied the economic situation, reflecting the importance of decision-makers to increase macro-control and strengthen counter-cyclical adjustments; on september 24, the state council information office held a press conference, and the central bank, the monetary authority and the china securities regulatory commission announced a number of support policies. the policy signal is clear and boosts market confidence.

for a shares,it is expected that the impact of monetary policy on the improvement of the denominator side will be more obvious in the short term, and the medium and long-term trend of a shares depends on whether fiscal policy can quickly take over;

for the bond market,the loose monetary policy is good for bonds, but interest rates are not expected to fall too fast in the short term;

for products,this round of loose monetary policy has exceeded market expectations and resonates with the federal reserve's interest rate cut cycle. it is expected that my country's monetary policy will accelerate the upward price growth of ferrous and non-ferrous metals. however, in the medium and long term, commodity price trends are expected to still return to fundamentals. .

a-share mid-term results are at a low level. the current a-share profit cycle is highly correlated with the ppi cycle. the structural highlights in the second half of the year may still be manufacturing, technology and medicine with domestic consumption and good supply and demand pattern. it is expected that the year-on-year growth rate of a-share/non-financial earnings in 2024 will rebound from -2%/-3% in 2023 to +1%/0%.

we expect that incremental policies will be stepped up, and the current bottoming process of a-shares with improved pricing efficiency is expected to accelerate.dividends and going overseasthe two main lines are the bottom positions, and we will turn around after the market turning point appears.excellent growth and domestic demandmain line. the price of hong kong stocks has fully reflected the pessimistic expectations, and its rebound is expected to continue to become a monthly level repair market, among whichgrowth styleor continue to outperform.

image source: photo network

implementation of policies boosts market confidence

implement policies and implement multiple measures to support high-quality development

on september 24, the state council information office held a press conference, and the central bank, the hong kong monetary authority, and the china securities regulatory commission announced a number of supportive policies.

in terms of monetary policy,the central bank announced a 20bps rate cut on reverse repurchase, which exceeded market expectations in both timing and magnitude. the 50bps reserve requirement ratio cut was basically in line with expectations. we believe that the policy mix fully reflects the central bank's supportive monetary policy stance and orientation and is conducive to improving investor sentiment.

in terms of real estate policy,at the press conference of the state council information office on september 24, the central bank stated that it expected the lpr to fall by 20-25bps, and proposed to guide the existing mortgage interest rates to fall by an average of 50bps, which will help reduce residents’ home purchase and loan repayment burdens. the central bank also adjusted the national minimum down payment ratio for second homes from 25% to 15%, and increased the refinancing support ratio for affordable housing from 60% to 100%.

on september 26, a meeting of the political bureau of the central committee pointed out that in order to promote the real estate market to stop falling and stabilize, it is necessary to strictly control the increment, preferential stock, and improve the quality of commercial housing construction, increase the intensity of loans for "white list" projects, and support the revitalization of idle stock. land. it is necessary to respond to the concerns of the masses, adjust the housing purchase restriction policy, reduce the interest rate of existing mortgage loans, speed up the improvement of land, taxation, banking and other policies, and promote a new model of real estate development.

the central and local governments have introduced a series of demand release and inventory reduction policies, some of which have yet to be implemented, and there is still potential for the policy to continue to be significantly loosened. from the perspective of the real estate industry chain, the recovery of sales, especially the recovery of sales in the existing housing market in core cities, is relatively certain. whether policies can stabilize housing prices in core cities depends on the speed and combination of policies.

in terms of capital market policies,wu qing, chairman of the china securities regulatory commission, clearly stated at a press conference on september 24 that the china securities regulatory commission will issue three key policies: medium- and long-term capital entry into the market, measures to promote mergers and acquisitions and restructuring, and market value management guidelines for listed companies. the central bank will provide guidance for non-bank institutions and listed companies. corporate and major shareholders participate in the stock market to provide liquidity support.

on september 24, the china securities regulatory commission successively issued the "guidelines for the supervision of listed companies no. 10 - market value management (draft for comments)" (referred to as the "guidelines") and the "opinions on deepening the market reform of the m&a and reorganization of listed companies" (referred to as the "opinions" 》), is the implementation of the policy of the press conference of the state council information office on september 24.

1. in terms of market value management,the "guidelines" focus on making special requirements for major index component companies and long-term net-breaking companies. we estimate that the market value of long-term net-breaking companies currently accounts for more than 20%, and may accelerate the urging of companies to carry out market value management operations.

2. in terms of mergers, acquisitions and restructuring,the "opinions" basically continue the previous thoughts that focus on supporting new productivity, industrial integration and other directions, and emphasize the optimization of payment, pricing inclusiveness and other supporting policies. in combination with the guidance of the state-owned assets supervision and administration commission on optimizing the layout of state-owned capital, it is recommended to focus on the merger and acquisition opportunities of central state-owned enterprises. follow-up suggestions include continuing to pay attention to chairman wu qing's suggestion at the press conference that the china securities regulatory commission and other departments will soon formulate "guiding opinions on promoting medium and long-term capital entry into the market", or from vigorously developing equity public funds, improving the "long-term money and long-term investment" institutional environment, continuously improve the capital market ecology and make efforts in three aspects。

clear policy signals boost market confidence

the policy directly improves market liquidity expectations.the latest policies support the development of the equity market with innovative monetary policies, create swap facilities for securities, funds, and insurance companies, and create special re-lending for stock repurchases and holdings increase, which will help boost market confidence and directly improve market liquidity expectations. changqian changtou's "quasi-equivalent" funds are expected to increase inflow and expand the scope of investment, and investment in the stock market by various medium and long-term funds is expected to accelerate, increasing the market's short-term risk appetite; in addition, the registration of equity fund products will be optimized and indexed products will be vigorously promoted. innovation.

policy signals are clearer,monetary policy easing is expected to be implemented, and other incremental policies are expected to be on the way in the future, reducing the deposit reserve ratio and policy interest rates, and driving the market benchmark interest rate downward. focus on serving new productive forces and encourage equity investment. a press conference held by the state council information office on september 24 proposed that six measures will be released to promote mergers, acquisitions and reorganizations, smooth the cycle of "raising, investment, management and exit" of private equity venture capital funds, appropriately relax restrictions on the amount and proportion of equity investment, and optimize assessments.

the effect of the batch implementation of policies remains to be seen, and the turning point of price signals is expected to be brought forward.the five real estate policies are aimed at stabilizing property market prices. the situation of weak domestic demand and low inflation is expected to improve.

for a shares,it is expected that the impact of monetary policy on the improvement of the denominator side will be more obvious in the short term, and the medium and long-term trend of a shares depends on whether fiscal policy can quickly take over;for the bond market,the loose monetary policy is good for bonds, but interest rates are not expected to fall too fast in the short term;for products,this round of loose monetary policy has exceeded market expectations and resonates with the federal reserve's interest rate cut cycle. it is expected that my country's monetary policy will accelerate the upward price growth of ferrous and non-ferrous metals. however, in the medium and long term, commodity price trends are expected to still return to fundamentals.。

a-share mid-term results hit bottom

the 2024 a-share interim report is generally at the bottom. in the second quarter, the net profit growth rate is relatively good year-on-year, and the roe improvement quarter-on-quarter is concentrated in traditional consumption (breeding, wine, food), upstream resource products (non-ferrous metals, petroleum and petrochemicals) and some industries. export-oriented manufacturing (home appliances, automobiles, electronics).

we believe that the volatility of financial reporting indicators in this profit cycle has significantly reduced. the core reason is the conversion of old and new driving forces, and the industrial sector with high ppi correlation has replaced financial real estate as the main source of profit growth for a-shares.

there are no signs of the start of a new earnings upward cycle in the short term. however, some clues worth tracking have been unearthed from the a-share mid-term report, including: 1. the internal differentiation of high-dividend assets, 2. the difference in the upstream transmission mechanism of ppi to real enterprises and a-shares, 3. some consumer industries have begun to reduce operations, 4. capital expenditures in the technology manufacturing sector have slowed down, etc.。

a-share interim results have bottomed out as a whole, and the net profit structure has become significantly differentiated

the year-on-year growth rates of all a-share/non-financial 24q1 single-quarter total operating income were 0.2%/0.6% respectively, and the 24q2 growth rate was reduced to -1.3%/-1.7%, turning negative for the first time in this profit cycle. the roe-ttm of the non-financial sector was 8.3%, still slightly lower than the previous month. in terms of other financial indicators, the net interest rate of the all-a non-financial sector remains low and stable, the asset turnover rate continues to decline, and the capital efficiency measured by the number of days of accounts receivable turnover is also at a historically poor level. the overall performance of the a-share interim report is still at a low level. rippled bottom state.

the single-quarter year-on-year growth rates of all a-shares/financial/non-financial 24q1 net profits were -4.2%/-3.3%/-5.0% respectively, and 24q2 were -0.8%/+7.2%/-6.5%. the growth of the financial sector was affected by non-bank china the main increase in insurance contribution. at the level of major industries, the year-on-year growth rates of industrial/consumer/tmt/pharmaceutical/financial real estate in 2024q2 were -4.2%, 8.2%, 3.8%, -4.5%, and 0.0% respectively. the industrial sector was mainly driven by upstream resource products. , the downward trend in year-on-year profit growth has improved significantly, consumption and tmt have maintained positive profit growth, and finance and real estate have experienced zero growth in total. at the citic industry level, the year-on-year growth rate of net profit in 2024q2 is at the top, and the month-on-month improvement in roe is mainly concentrated in traditional consumption (breeding, wine, food), upstream resource products (non-ferrous metals, petroleum and petrochemicals) and some export-oriented manufacturing industries ( home appliances, automobiles, electronics). among the above-mentioned industries, except for food and beverage, petroleum and petrochemicals, other industries have also seen a quarter-on-quarter improvement in gross profit margin and net profit margin in 2024q2. the improvement in corporate operating efficiency is worthy of continued tracking.。

figure 1: the year-on-year growth rate of total a and non-financial single-quarter operating income in 24q2 turned negative

source: wind, citic securities research department

table 1: performance of various indicators of a shares

source: wind, citic securities research department

figure 2: profitability of the industrial sector improved relatively in 24q2, and consumption and tmt maintained positive growth

source: wind, citic securities research department

figure 3: a-share profit performance from different dimensions

source: wind, citic securities research department

the current a-share profit cycle is highly correlated with the ppi cycle, and the structural highlights in the second half of the year may continue the current pattern.

the volatility of a-share financial reporting indicators in this profit cycle (2020 to the present) has significantly reduced. the core reason is that in the process of economic structural transformation, the core driving forces have replaced old and new ones.the all-a profit structure was dominated by financial real estate before 2020, and gradually shifted to industrial products after 2020. the industrial sector has experienced significant profit expansion in the upward phase of each ppi cycle, and has remained relatively stable during the downward ppi cycle. the industrial sector currently accounts for 33% of total a profits.

1. social finance, as a forward-looking signal for pmi and ppi trend forecasts, can guide the profit cycle of a-shares represented by the industrial sector. according to the forecast of the macroeconomic team of the citic securities research department, ppi may be difficult to turn positive within the year. whether subsequent improvements can be achieved mainly depends on the implementation of domestic incremental policies. social finance’s forward guidance on pmi is still conservative. since pmi generally fluctuates in the same direction as ppi, soit is expected that the probability of a-share earnings rising rapidly in the short term driven by the industrial sector is low.

2. judging from the changing trend of wind’s unanimous forecast of net profit,currently, the consensus forecast for a-share net profit growth for the whole year is still on a downward revision channel.the changing trend and amplitude are relatively consistent with the bottom years of the economic cycle.。

figure 4: social financing (accumulated ttm growth rate of “credit + non-standard + bonds”) leads pmi and ppi for about 12 months

source: wind, citic securities research department

domestic consumption, manufacturing with a good supply pattern, and technology sectors related to new productivity have seen positive year-on-month net profit growth for two consecutive quarters, but black series, manufacturing with a poor supply pattern, and independent boom tracks (pharmaceuticals, military industries, securities) net profit continues to be under pressure.we believe that the highlights of a-share profit structure in the second half of the year will continue the current pattern.

it is expected that the year-on-year growth rate of a-share earnings in 2024 (csi 800 caliber) will rebound from -2% in 2023 to +1%, and the net profit growth rate of the non-financial sector will rebound from -3% in 2023 to 0% in 2024. %.

figure 5: distribution of net profit growth rate of different etfs in 24q1/q2

source: wind, citic securities research department

table 2: forecast of profit growth rate of csi 800 companies in 2024

source: wind, citic securities research department forecast

a shares are experiencing four marginal changes

1. there is internal differentiation among high-dividend assets:interest rate-sensitive dividend stocks represented by banks have relatively stable earnings growth rates and future expectations, and roe and dividend rates are also at very stable levels; commodity price-sensitive stocks have relatively low earnings elasticity and dividend rate elasticity since 2021. high, but the suppression of prices by weak demand may be reflected in the future dividend-paying ability and cash flow quality of listed companies. other dividends are mainly from white horse stocks in various traditional industries. the core influencing factor is still its procyclical nature, and the profit forecast for the year has been revised down the most.

2. the difference in the profit transmission mechanism of ppi to real enterprises and a-shares:considering that copper, gold and silver commodity prices are still supportive in the third quarter (as of the end of august), while midstream and downstream demand is still weak, it is expected that ppi prices and a-share industrial sector profits will continue to be low and stable in the third quarter.

3. some consumer industries have begun to show the characteristics of reduced operations:in the second quarter of 2024, some industries have experienced pressure on year-on-year revenue growth, but maintained positive growth in net profit. at the same time, operating cash flow has been stable and capital expenditures have been reduced, including alcohol, food, hotels and catering, education, e-commerce, brand clothing, animal husbandry, etc., and the price-earnings ratios of most of these industries are within the 10% percentile of the past ten years. among them, the dividend rates of alcohol and brand clothing in the past 12 months have been as high as 3.5% and 5.1%. the above-mentioned industries may still respond in the short term. its pro-cyclical domestic demand attributes, but the changes in long-term investment logic brought about by future volume reduction operations deserve attention.

4. internal and external demand for technology/manufacturing is differentiated, but the growth rate of capital expenditure has slowed down:for technology/manufacturing companies whose overseas business revenue accounted for more than 80% in the first half of the year, their 2024q2 net profit year-on-year growth rate and net profit margin were significantly higher than the a-level average. at the secondary industry level, it is defined that the net profit scale in 2024q2 is above the 80% quantile since 2020 as the "right side" of the profit cycle. the "right side" industries oriented by external demand include white goods, lighting electricians, general equipment, communication equipment, components, new energy power systems, motorcycles and others, commercial vehicles, auto parts, etc., have good profit growth rates and profit margins on average; domestic demand-oriented "right" industries include telecommunications operations, passenger cars, aerospace, for electrical equipment, transportation equipment, metal products, automobile sales and services, etc., the quality of financial reports is relatively weaker than external demand. except for individual industries related to new-quality productivity, trade-in of consumer goods, and large-scale equipment updates, other industries will see a large-scale decline in capital expenditure growth in 2024h1。

table 3: marginal changes a shares are experiencing in the interim report dimension

source: wind, citic securities research department forecast

table 4: list of views on the technology industry

source: wind, citic securities research department forecast

table 5: list of manufacturing industry perspectives

source: wind, citic securities research department forecast

table 6: list of perspectives on infrastructure and modern service industries

source: wind, citic securities research department forecast

table 7: list of consumer industry perspectives

source: wind, citic securities research department forecast

table 8: list of energy and materials industry viewpoints

source: wind, citic securities research department forecast

table 9: list of views on the medical and health industry

source: wind, citic securities research department forecast

table 10: list of financial industry viewpoints

source: wind, citic securities research department forecast

a-share bottoming process expected to speed up

waiting for market turning point

taken together, as the u.s. dollar enters an interest rate cut cycle, the flexibility of domestic monetary policy increases; with weak macro price signals, the need for domestic policy intensification increases; the rmb exchange rate is expected to improve significantly, and we expect incremental policies to be stepped up , the a-share bottoming process is expected to speed up. it is still recommended to focus ondividends and going overseasthe two main lines are the bottom positions, which will turn after the market turning point appears.excellent growth and domestic demandmain line.

in terms of specific products, 1. it is expected that dividend strategies will continue to diverge. for low-volatility dividend assets, it is recommended to continue to focus on assets with stable free cash returns.hydropower, nuclear power, with premiums growing steadilyproperty insurance. in addition, we believe that subsequent domestic exports will not deteriorate as quickly as market expectations, and the risks of overseas recession and trade frictions have been fully reflected.excellent companies in the overseas sectorregain allocation value, these companies are relatively concentrated inmachinery, home appliancesandcommercial vehicleplate. 2. as policies, prices and external signals continue to be gradually verified, it is expected that the focus of allocation will once again shift to high-quality growth and domestic demand. it is recommended to focus onelectronics (intelligent driving and semiconductor autonomous control), machinery (equipment renewal and overseas competition)for leading manufacturing companies, the impact of anti-corruption will be fully priced inmedicine (industrial integration, overseas expansion)）. 3. suggest attentionhong kong stocks internet, biotechnology, education and trainingandconsumer electronicsindustry.

hong kong stocks: looking forward to monthly market recovery

the new round of interest rate cut cycles launched by the federal reserve and the domestic policy package launched on september 24 have significantly boosted investor confidence in the hong kong stock market. on the one hand, hong kong stocks are more sensitive to real estate and consumer policies than a shares. on the other hand, it also helps foreign capital and local funds in hong kong returned to hong kong stocks.

since early august, indicators such as valuation, trading and capital flow of hong kong stocks have shown that the historical market bottom characteristics since 2022 have reappeared. although the hong kong stock market interim report shows that the revenue side is still under pressure, the promotion of corporate cost reduction and efficiency improvement still helped hong kong stocks to increase net profit by 0.8% year-on-year in 2024h1, while the net profit margin and roe during the same period also increased by 0.3 and 0.7 percentage points month-on-month respectively. to 11.7% and 4.7%; especially internet companies led by tencent and alibaba have repurchased a large amount this year, and we expect it to significantly boost shareholder cash returns. at the same time, the 2024 net profit growth expectations of the hang seng index and hang seng technology (consensus expectations from bloomberg) have also continued to be revised upward since the mid-august reporting period began, and are currently 7.1% and 17.7% respectively.

figure 6: screening hong kong stocks’ 24h1 performance growth rate declined compared with the previous half year

source: bloomberg, citic securities research

figure 7: the trend of improving operating efficiency continues

source: bloomberg, citic securities research

from the perspective of valuation, the pe of major indexes (except the state-owned enterprise index) is still at a historical low close to two standard deviations below the historical average. catalyzed by the start of the u.s. dollar interest rate cut cycle, combined with the analysis of fundamentals, valuation and liquidity, we believe that the current price/performance ratio of hong kong stocks is still significant, and the rebound since mid-september is expected to continue to become a monthly level repair market, in which the growth style will continue to run win.

it is recommended to pay attention to two main lines: 1. the financial sector that benefits from the continued introduction of policies and the reversal of pessimism, especially insurance in non-bank finance; 2. the consumer and technology industries where valuation repair is expected to continue, including the internet, biotechnology, education and training , consumer electronics.

figure 8: a-shares focus on dividends and overseas expansion, and the growth style of hong kong stocks may continue to outperform

source: citic securities research department