Transferred from: Financial Investment News

Financial Investment News reporter Lin Ke

After a round of soaring market, the market has fluctuated significantly at a high level, and differentiation has begun to intensify. Although the market's money-making effect has rebounded rapidly, it can be seen from the disk that it is difficult to maintain the general rise pattern after differentiation.

Some analysts pointed out that in the context of excessive short-term market gains and significantly increased profit-taking pressure, investors have correspondingly higher requirements for stock selection. In the current process of the overall trading volume surge, investors can focus on the leading sectors such as semiconductors and diversified finance from the perspective of capital flow. Considering that some companies have risen significantly in the short term, investors can choose the opportunity to deploy in the pullback.

1. Semiconductor: The operating conditions continued to improve

As one of the leaders of the market counteroffensive, although the semiconductor sector has been significantly differentiated after continuous surges, some analysts believe that semiconductors are actively picking up and the industrial chain is actively benefiting.      Leading companies with low valuation advantages are favored and are expected to usher in multiple drivers of cyclical recovery, performance improvement and valuation repair. With the industry cycle up, the sector as a whole is bullish in the medium to long term. However, considering that after a large increase in the short term, the differentiation began to intensify significantly, and it is recommended that investors choose the best stocks to intervene in the dip.

In terms of industry data, data recently released by the United States Semiconductor Industry Association showed that global semiconductor sales reached $53.1 billion in August 2024, an increase of 20.6% compared with $44 billion in August 2023 and a month-on-month increase of 3.5% from $51.3 billion in July 2024. Among them, China's semiconductor sales in August increased by 19.2% year-on-year. In addition, according to SIA data, both global and Chinese semiconductor sales have achieved positive year-on-year growth for 10 consecutive months.

Looking ahead, some analysts say that the global semiconductor market will grow significantly, and is expected to reach $673.1 billion in 2024, with a compound annual growth rate of 8.8% from 2023 to 2032; The semiconductor market is expected to grow to $1.3 trillion by 2032, while China's semiconductor market is expected to grow at an average annual rate of more than 10%.

As the industry continues to recover, performance growth is expected to accelerate.      Pan Hui, an analyst at Tianfeng Securities, pointed out that some companies in the semiconductor industry disclosed recent operating data announcements, judging that the industry inventory has returned to normal in the first half of 2024, and factors such as demand-side recovery and new products have brought some companies back to high growth. Looking forward to the second half of the year, the release of new consumer electronics machines and the arrival of the consumer festival, the semiconductor industry is expected to enter the traditional peak season, the second half of the industry is better than the first half of the year, and the operating conditions of the sector continue to improve month-on-month.

Hu Jian, an analyst at Guosen Securities, said that semiconductors are still in a relatively prosperous stage, and continue to recommend IC design/IDM companies that are competitive in the subdivided field, such as Shengbang Co., Ltd., Montage Technology, Hengxuan Technology, Jiehuate, Siruipu, New Clean Energy, Yangjie Technology, Silan Micro, Tiandeyu, GigaDevice Innovation, etc., as well as IC manufacturing and packaging and testing companies with rebounding utilization rate, SMIC, Hua Hong Semiconductor, Changdian Technology, Tongfu Microelectronics, etc. In addition, according to SEMI's projections, from 2025 to 2027, the global 300mm wafer fab equipment expenditure will exceed 400 billion US dollars for the first time, of which China will maintain its first position, with an investment of more than 100 billion US dollars, and continue to recommend equipment companies such as North Huachuang, China Micro Corporation, and Tuojing Technology.

A selection of potential stocks

Shengbang shares (300661).

Montage Technology (688008).

Changdian Technology (600584).

North Huachuang (002371).

AMEC (688012).

2. Diversified finance: focus on three main lines

With the continuous development of China's economy and society and the continuous improvement of the capital market, China continues to expand the opening up of the financial sector to the outside world, and gradually relaxes the market access requirements for foreign-funded institutions in many industries and related fields such as banks, insurance, securities firms, public funds, etc., and more and more foreign-funded financial institutions participate in China's financial market in various forms such as joint ventures and wholly-owned companies, bringing more diversified products and services and business philosophy to related industries, and effectively promoting the maturity of China's capital market and the development of the financial industry. Some industry insiders pointed out that although the short-term valuation of diversified finance has risen to a certain extent, on the whole, the current valuation of the sector is still in the bottom area. With the improvement of economic fundamentals, the orderly progress of institutional transformation and rectification, and the emergence of positive factors in the supervision of overseas capital markets and platform economy, the sector market is expected to continue to recover in the medium term.

Du Penghui, an analyst at Tianfeng Securities, pointed out that two changes led to the rise of the sector. First, the swap facilitation will drive non-bank institutions to participate in deepening the reform and construction of the capital market, and the status of non-bank institutions is expected to be enhanced. The central bank proposed to "create new monetary policy tools to support the stable development of the stock market", providing swap facilities for securities, funds and insurance companies to enhance their ability to increase their stock holdings. The swap facilitation will lead to the improvement of the liquidity and leverage capacity of non-bank institutions, and the systemic importance and status of non-bank institutions in the financial system are expected to increase. Second, there is room for valuation improvement of net-breaking enterprises driven by market value management policies. The China Securities Regulatory Commission (CSRC) solicited opinions on the Guidelines for the Supervision of Listed Companies No. 10 – Market Value Management (Consultation Paper), which clarifies that companies that have broken the net for a long time are required to disclose valuation enhancement plans and make clear requirements for them. There are a large number of broken companies in the non-bank financial sector, and there is room for valuation repair driven by policies.

It can be seen that the opening up of the financial system is rich in connotation, and it is of far-reaching significance to promote high-level financial opening: "Finance is an important part of the country's core competitiveness, and financial openness is the inherent requirement and distinctive feature of accelerating the construction of a financial power." At the Central Financial Work Conference earlier, it was proposed to "focus on promoting high-level financial opening-up, steadily expand the institutional opening up of the financial sector, improve cross-border investment and financing facilitation, and attract more foreign-funded financial institutions and long-term capital to do business in China". In recent years, China has continued to promote the institutional opening up of the financial sector, continued to relax the market access requirements for foreign-funded institutions, and enhanced the transparency, stability and predictability of the financial system and policies, injecting new impetus and vitality into the high-quality development of the financial sector.

Under the market deduction at the denominator end, we can pay attention to the dilemma reversal logic of the plate. Du Penghui suggested that investors should pay attention to the three main lines of broken net valuation repair + financial technology + state-owned enterprise brokerage insurance. First, it is recommended to pay attention to AVIC Industry and Finance, PetroChina Capital, COFCO Capital, and Aijian Group; the second is the financial technology sector, it is recommended to pay attention to Compass, Yinzhijie, ISHARES information, and wealth trends; The third is to recommend large state-owned enterprise securities companies and insurance, and it is recommended to pay attention to China Galaxy, Guotai Junan, Everbright Securities, Chinese Life, and Xinhua Insurance.

A selection of potential stocks

COFCO Capital (002423).

Compass (300803).

Wealth Trends (688318).

China Galaxy (601881).

Chinese Shou (601628).