China's assets are surging, how to seize the opportunity to increase wealth?

The central bank, along with the Financial Stability and Development Committee and the China Securities Regulatory Commission, held a joint press conference at 9 am this morning, announcing several important policies that have stimulated market vitality.

(1) The reserve requirement ratio (RRR) was reduced by 50 basis points (bps), and there is still a possibility of a further reduction of 25bps to 50bps depending on market liquidity conditions; (2) The policy interest rate was lowered by 20bps, and the Loan Prime Rate (LPR) and deposit rates were guided to be lowered synchronously to maintain a stable net interest margin; (3) The existing housing loan interest rates were reduced, with an average decline of about 50bps; (4) The down payment ratio for the first and second homes was unified, with a corresponding reduction of 10% for the second home down payment ratio. It is now at 15%. (5) The central bank created new monetary policy tools.

This move will release liquidity, enabling banks to use more funds for lending, enhancing market activity, which means that the policy level is relatively strong in promoting credit expansion and the willingness to stabilize growth.

The reduction of existing housing loan interest rates will save residents' interest expenses and stimulate residents' consumption capacity. Combined with the announcement by Governor Pan at the meeting, this reduction in housing loan interest rates will benefit 50 million households and 150 million people, with an annual reduction in total household interest expenses of about 150 billion yuan.

This means that the average interest expense per person will be reduced by about 1,000 yuan. Therefore, the effectiveness of the policy will directly stimulate consumption and release more disposable income. However, whether the reduced interest expenses can be successfully transformed into consumption still needs to be observed.

With the central bank creating new monetary policy tools, the market has shown an optimistic sentiment towards the liquidity of Chinese assets and the recovery of consumption.

Internet companies with healthy balance sheets, strong profitability, and a moat protected by network effects are still worth investors' attention. In this context, Chinese internet index ETFs, such as KraneShares CSI China Internet ETF (KWEB), may be a worthwhile investment option to consider. Next, we will analyze from the perspectives of fundamentals, valuation, and technical analysis:

The top ten holdings of KraneShares CSI China Internet ETF (KWEB) are: Tencent, Alibaba, JD.com, Baidu, Meituan, Kuaishou, Ctrip, KanZhun, NetEase, and Pinduoduo, among other internet giants. In the internet business model, the best category is purely light assets, clean balance sheets, and high operational efficiency. Its fundamentals are directly related to China's consumer environment, and once the macroeconomic recovery occurs, internet companies have great resilience.

Most companies are paying more attention to shareholder returns, and against the premise of expected slowdown in growth rates, they have significantly increased shareholder rewards, which can be considered a reassurance.

Let's take Tencent as an example again: According to current market forecasts for 2024-2026, the Non-IFRS net profit attributable to parents is expected to be between 210 billion and 270 billion yuan, with a basic forecast of compound profit growth of about 15%. Currently, Tencent's valuation is at 3.19 trillion yuan. Looking at past shareholder returns, most of the shareholder returns will be distributed to shareholders, with the current shareholder return at 6-7% ((dividends + buybacks) / total market value). With a future compound growth of 15%, it will reach a new level.

Firstly, the improvement of shareholder returns will greatly help to increase the valuation level. As the shareholder returns of the constituent stocks increase, the valuation of KWEB will also rise accordingly. At the same time, since interest rates are the gravitational force of asset prices, the opening of the interest rate reduction cycle will promote the rise of asset prices.

If you are very optimistic about the Chinese market, especially the internet sector, you might consider directly buying KWEB.

Sell Put Strategy:

When the price of KWEB is low, sell put options to acquire more KWEB at a lower price. At the same time, place the margin required for the Sell Put in Futu's cash management tool to earn additional interest. The Sell Put strategy is suitable for use when the market is approaching the bottom area. By selling put options, investors can buy KWEB at a lower price in the future, reducing the cost of their position.

Option premium income:

By selling put options, investors can regularly earn income from the option premiums. This not only strengthens cash flow but can also be used to further replenish positions. Judging by the current price, assuming an investor is willing to bottom fish at $25, but the price has not yet reached $25, they can sell a put option at $25 and earn a premium of $17.

This way, the funds are not consumed too quickly in holding the ETF, and the capital can continue to earn interest in the cash management tool.

Cash Treasure Returns: By placing the margin in Futu's cash management tool, you can earn additional interest income, ensuring the efficient use of funds.

Risk Management: Do not sell put options beyond your ability to deliver the underlying asset.

Expected returns include: option premium income — the premium received from selling put options; cash treasure returns — the interest income earned during the period the margin is placed in the cash management tool; and future income from purchasing more KWEB.

Strategy Overview: On the basis of holding KWEB and not being in a hurry to sell, wait for the market to rebound through long-term holding. At the same time, sell call options (Covered Call), and sell call options at higher prices before the end of each month or before the release of important economic data and financial reports.

Strategy Analysis:

Market Expectation: As monetary and fiscal policies take effect, and the market's expectation for the improvement of weak consumption strengthens, the ETF price is expected to gradually rise. Continuing to hold KWEB can not only avoid selling at a low point but also enjoy the capital gains brought by future price increases.

Option Premium Income: By selling call options, investors can regularly earn option premium income. This part of the income can offset some of the losses during the holding period and even bring a stable cash flow when the market is sideways.

Taking the options expiring on October 25 as an example, if you are stuck at the position of $26, at this time we carry out a covered call, the call option expiring on October 25 with a strike price of $26, you can receive $180.5, but the sacrificed income is the subsequent price increase.

Risk Management: Do not sell call options in excess of the shares you own, as this would turn into naked short selling.

Expected Returns: Spread Income: With the increase in the stock prices of the underlying companies, the price of KWEB is expected to gradually recover; Option Premium Income: The option premium earned monthly by selling call options.