Seizing Investment Opportunities Driven by Dual Engines: Technology Sector and Undervalued State-Owned Enterprises | Moomoo Research

At a critical moment for sustained high-quality economic development, a series of policy adjustments released on September 24th came as a timely rain, aiming to inject vitality into the market. However, the initial market reaction has been disappointing—the trend of opening high but closing low has left many investors feeling perplexed. What deeper meanings do these policies hold? How can investors find a clear direction amid this fog? Let us delve deeper together to uncover the logic and opportunities behind this policy transformation.

1. Reserve Requirement Ratio (RRR) and Interest Rate Cuts: The recent RRR cut is set at 50 basis points, slightly higher than market expectations, with potential for further cuts at an appropriate time. Since 2022, the usual RRR cuts have typically been 25 basis points. The central bank has indicated that it may further lower the reserve requirement ratio by 0.25 to 0.5 percentage points depending on market liquidity conditions. Additionally, the recent interest rate cut of 20 basis points exceeded expectations, and subsequent adjustments to deposit rates, MLF rates, and LPR are anticipated. Notably, aside from a 25-basis-point cut in the 5-year LPR in February, other interest rate cuts have generally been in the range of 5 to 15 basis points.

2. Real Estate: Five key policies have been introduced, including lowering existing mortgage rates, reducing the down payment ratio for second homes, central bank-funded reserve loans, extending support policy timelines for real estate companies, and supporting real estate companies in acquiring existing land. The reduction in existing mortgage rates has been implemented as expected, which is projected to lower costs for the real economy by approximately 150 billion yuan annually. The minimum down payment for second homes has also been reduced to 15%, which will help support residents' demand for improved housing.

3. Capital Markets: The goal is to enhance the stability of capital markets, supporting their role in high-quality development and new production. Recent initiatives will include guidelines to encourage medium- and long-term funds to enter the market, guidelines for listed companies on market value management, and six measures for mergers and acquisitions. Notably, the China Securities Regulatory Commission has issued a public consultation on "Regulatory Guidelines for Listed Companies No. 10 – Market Value Management (Draft for Comments)," which includes specific requirements for companies in major indices and long-term undervalued companies, which is something to look forward to.

Therefore, we find that the core logic of this policy is based on a longer-term focus of "promoting consumption" and "valuing valuations." Thus, our main line of reasoning should also focus on the logic of "consumption" and "valuation uplift."

This policy package is expected to help stabilize confidence, markets, real estate, and consumption, benefiting both the stock and bond markets. However, today the market generally displayed a trend of opening high but closing low. We believe this is due to the previous market's low performance, leading to an overall pessimistic market expectation. This reflects "volatility under historical market panic." The market has often seen such trends, creating strong inertia in thinking; hence, when the market begins to decline, investors are more inclined to follow the trend and sell off. However, by focusing on investment opportunities that benefit from the fundamental main line, we can see that in the context of favorable policies, investors should pay close attention to quality internet companies and undervalued SOE sectors.

In this context, investors should closely monitor investment opportunities in quality internet companies and undervalued state-owned enterprises. The internet industry is closely tied to the recovery of domestic demand, and policy stimulation is expected to directly promote performance growth. For instance, it might be beneficial to look for internet leading companies during dips. If selection proves challenging, investors could consider participating through ETFs such as Hang Seng Tech ETF, Chinese Internet Index ETF (KWEB), and YINN.

Undervalued SOEs possess strong investment value due to their robust cash flow and shareholder returns. In choosing investment paradigms, it is essential to focus on the "undervalued + substantial cash reserves + ability to generate good cash flow" integrated logic for investment opportunities.

In summary, the comprehensive policy aims to stimulate the economy through various means, particularly focusing on promoting consumption and stabilizing capital markets. Although the market's initial reaction shows volatility, the long-term policy direction suggests opportunities for consumption recovery and corporate valuation restoration. Investors should seize the value gap in quality internet companies and undervalued state-owned enterprises, paying attention to their growth potential and enhancement of shareholder returns in the new policy environment. In an uncertain market, adhering to fundamental logic will be key to navigating through volatility.