[Editor's View]

The market downturn came quite suddenly, with the Hong Kong stock market only maintaining its heat for one day last week, followed by continuous adjustments. Main types of stocks have experienced significant pullbacks, with high dividend categories such as coal, electrical utilities, and those beginning with middle letter relatively resilient.

On Sunday, the Ministry of Finance held a press conference, although without specific data, the overall result exceeded expectations. Minister of Finance Lian Weiman stated that a significant increase in the debt ceiling is planned all at once to replace the hidden debt of local governments, intensifying support to local governments in resolving debt risks. This is the largest debt-for-equity support measure in recent years. Special national bonds will be issued to support large state-owned commercial banks in replenishing core tier one capital. In addition to utilizing local government special bonds, special funds, tax policies, and other tools to support and promote the stabilization of the real estate market. It was also emphasized that the central government still has a considerable amount of debt issuance space and deficit increase space.

Hong Kong Chief Executive Carrie Lam will deliver the 2024 Policy Address at 11 a.m. on Wednesday, October 16, introducing a series of new measures to revitalize the Hong Kong economy. Let's see what confidence-boosting aspects will be observed to boost the market.

After a significant adjustment, it is expected that the Hang Seng Index will see a good rebound window this week, as there will be resonance both from the policy side and the technical side.

In terms of hot topics, the focus is on debt-to-equity concept stocks with strong policy catalysis; followed by real estate, after the six major banks, 12 national joint-stock banks and some urban and rural commercial banks have successively issued detailed rules for adjusting existing housing loan interest rates. Next is consumer stocks, with jd.com's 'november 11 shopping festival-related' starting early on the evening of October 14th; directly selling spot goods; while Tmall's 'november 11 shopping festival-related' will also kick off at 8 p.m. on October 14th.

[This week's hot stocks]

Central New Egy (01735)

Recently, according to the National Energy Administration website, the National Energy Administration held a national renewable energy development and construction coordination video conference. The meeting emphasized the need to increase the intensity of development and construction, further implement key construction tasks such as large wind power and photovoltaic bases, transmission channels, and grid access capacity, and address the shortcomings facing the development of new energy. The company achieved revenue of approximately 2.532 billion Hong Kong dollars in the first half of the year, a year-on-year increase of 52.52%; the attributable net profit to owners of the company was approximately 60.057 million Hong Kong dollars, a year-on-year increase of 1.49 times; earnings per share were 0.96 Hong Kong cents.

The spirit of this National Energy Administration meeting has brought significant stimulation to the wind power and photovoltaic industries. With the increased investment from the Ministry of Finance, projects are expected to accelerate in the second half of the year. The increase in net profit in the first half of the year of the company was mainly due to the full capacity production of 6GW N-type solar cells during the reporting period, resulting in revenue and profit growth from the Xinghua Photovoltaic project in Fengtai County. In the first half of the year, the company's new energy business grew across the board. The revenue of the New Energy and EPC division increased by 150% year-on-year to approximately 1.6814 billion Hong Kong dollars, with the revenue share increasing from around 40.5% to 66.4%; the revenue of the Intelligent Energy Management Services division increased by 3218% year-on-year to approximately 36.5 million Hong Kong dollars, becoming the fastest-growing segment.

The company continues to seek new green energy opportunities in Fengtai County and Tongcheng City and develop efficient N-type batteries and advanced photovoltaic component supply business. The construction of 6GW batteries in phase three of Fengtai County is expected to be completed and put into operation in the fourth quarter of 2024. Within a short year and a half, the company has made four significant leaps in the conversion efficiency of N-type TOPCon cells, steadily increasing from 26.06%, 26.31%, 26.66% to today's 26.72%, benefiting from Central New Egy's three major technologies, namely 'Starlight,' 'Starflash,' and 'Stardust,' further expanding its reputation and influence in the photovoltaic industry.

[Industry Observations]

Tools benefit from the Federal Reserve's interest rate cut

In the long run, the U.S. housing market suffers from a severe shortage of supply. After the subprime mortgage crisis, entering a long de-stocking cycle combined with millennials forming a core home-buying group, the residential supply gap continues to widen. By the end of 2023, the cumulative supply gap of detached residences has expanded to 7.24 million units, and the strong support exists due to the robust construction of new homes.

In the short term, high interest rates lead to "interest rate locking", exacerbating the problem of insufficient supply of existing houses, and causing house prices to rise with shrinking volume. The current low vacancy rate of residential houses in the USA, coupled with a substantial increase in rents and a high proportion of full-cash home purchases, validates the strong demand for essential needs that urgently need to be met. It is expected that after the interest rate cut, it will activate the liquidity of the existing home market, enhance residents' purchasing power, and provide strong upward momentum.

The prosperity of the US housing market has a significant positive driving effect on furniture, hardware tools, OPE (outdoor power equipment) and other consumer categories. In terms of category elasticity, OPE > furniture > hardware tools > home appliances.

The tool export chain may embrace the Davis double-click effect: first, the tool industry has an increase in market share. The downstream US supermarket channels have a high concentration, deep binding of core outbound brands, existence of channel and brand barriers, and continuous replacement of international brand shares, creating a good market pattern. Second, the US interest rate cut is expected to bring about existing home transactions; the long prosperous cycle of new home construction directly benefits categories such as hand tools, power tools, OPE, with prominent growth advantages. Third, the channel inventories are at the bottom, orders are expected to synchronize with end demand, and the certainty of performance recovery is strengthened.

Focus on the Hong Kong stock market's leading electric tool company, Techtronic Ind (00669), and the lithium battery OPE leading brand Quanfeng Holdings (02285).

[Data Review]

Data released by the Hong Kong Stock Exchange shows that the total number of open positions in the Hang Seng Index (October) futures was 122,622 contracts, with a net open position of 39,979 contracts. The settlement date for Hang Seng Index Futures is 30th October 2024.

Looking at the distribution of bull and bear certificates in the Hang Seng Index around the 21,252 point level, the concentration of bull and bear certificates has significantly weakened compared to last week. Compared to two months ago, the international market's expectation for a significant rate cut by the Federal Reserve has basically vanished. The Chinese government quickly introduced a series of major stimulus policies, prompting overseas funds to rebuild positions. The Hang Seng Index is expected to rise this week.

Editor's Note:

After experiencing a recent pullback, the market sentiment has cooled down, and valuations have also returned to relatively low levels. Before releasing the "Policy Address" last year, the Hong Kong stock market experienced a rapid surge; this year is also expected to announce multiple measures to consolidate Hong Kong's position as a global financial center. Incremental policies will also be introduced one after another, providing new catalysts for the market.

At a time when bullish and bearish expectations diverge, it most tests the steadfastness of investors' holdings. Choosing correctly will lead to bountiful harvests, while choosing incorrectly will result in missed opportunities. These are not truly dangerous. What is truly dangerous are those who were initially bearish, but turned bullish at the highs, indecision is the most fatal.