On Monday, the market continued to fluctuate, following a similar trend to Thursday and Friday last week, but with new changes.

The recent consecutive pullback has been mainly targeting technology stocks, with semiconductors, software, and other technology growth sectors experiencing significant declines in the past few trading days, dragging down the overall market performance.

However, today, the breakthrough of low-priced stocks and dividend assets collectively surged, unexpectedly saving the index.

What exactly happened?

01

Who saved the index

On the market, technology stocks continued to decline. Last Friday, the collective rise of AI application end plummeted, with hot stocks falling to the floor; computer software and education saw significant pullbacks. China Greatwall, after a violent rise last Friday, once again hit the limit down during trading.

However, today's outbreak of dividend assets happened to prevent the market from falling in one direction. As of the close, the Shanghai Composite slightly declined by 0.21%, Chinext Price Index fell by 2.35%, and the market's turnover slightly decreased.

However, the dividend index once surged more than 4%, with dividends, high-yield stocks, and beginning with middle letter concepts all surging collectively. Sectors like steel, coal, electrical utilities, transportation, and real estate sparked a big uptrend. Among them, China Red Medical, Masterwork Group surged by 20% limit up, Guangdong Zhongnan Iron & Steel, CMST Development, Shanghai Construction Group, Black Peony, Sansteel Minguang, and nearly 30 other stocks hit the limit up.

On the news front, last Friday evening, the China Securities Regulatory Commission (CSRC) officially released the formal version of 'Listed Company Supervision Guidelines No. 10 – Market Value Management.' After fermenting in various investment and media circles over the weekend, it drew tremendous attention. We provided a detailed analysis in our article on Saturday, 'Major News! CSRC Announcement!'

In simple terms, with the introduction of the policy, under the relaxation of repurchase and dividend requirements for listed companies, strict requirements are still maintained for companies with long-term price-to-book ratios, providing the market with some speculative opportunities.

In the previous articles, there was analysis that in the industries where A-share long-term undervalued stocks are distributed, there are relatively more banks, real estate, steel, and transportation companies, but most of them are in a loss-making situation. The operating conditions already have issues, and the ability of market value management is hard to trust.

After experiencing a round of general increase in September, followed by the release of the third-quarter financial reports, the market should have expectations for specific companies' dividends and share buybacks. Some state-owned enterprises that are deeply undervalued but have stable profitability and dividend distribution capabilities will certainly be more favored by funds.

In other sectors, the lithium-ion battery graphite electrode concept opened with a sharp rise, with Ningbo Shanshan and Tianjin Binhai Energy hitting the limit up. On the news front, on November 15, the National Intellectual Property Administration disclosed that Huawei has publicly released a patent for silicon-based anode materials, titled 'Silicon-Based Anode Materials and Their Preparation Methods, Batteries, and Terminals.' This patent mainly solves the problem of low battery cycle performance due to excessive expansion effects of silicon-based materials, improving the cycling stability of the anode.

The flying car concept originally had a weak performance, dropping nearly 4% intraday, but towards the end of the trading day stimulated by significant news, concept stocks rapidly rose. Zhejiang Wanfeng Auto Wheel, Guangzhou Automobile Group, and Lesinfo turned positive, while Citic Offshore Helicopter and Chongqing Zonsen Power Machinery even quickly hit the limit up after a sharp decline.

On the news front, Sun Weiguo, Director of the General Aviation Business Department of the China Aviation Transportation Association and the Unmanned Aerial Vehicle Working Committee, revealed at the 2024 International Electric Aviation (Kunshan) Forum that the Central Air Traffic Management Commission will soon launch eVTOL pilot projects in six cities. Insiders disclosed that the six pilot cities are preliminarily determined to be Hefei, Hangzhou, Shenzhen, Suzhou, Chengdu, and Chongqing. The pilot documents have relevant planning for routes and regions, authorizing local governments for airspace below 600 meters.

The trading pace of popular stocks is getting faster, with early hot stocks such as Shanghai Electric, Sichuan Changhong, and Guangdong Songfa Ceramics all hitting the limit down. Shanghai Automobile, the leader in the automotive sector, was initially locked up today, but unexpectedly hit the limit down at the closing bell.

In the news, there were previous reports that after Tesla's Full Self-Driving (FSD) entered China, it authorized SAIC to operate Robotaxi. Institutions stated that they have had two rounds of discussions. Although there is no definite news, SAIC has become a target of investor interest, with the stock price hitting the limit up for two consecutive days last week. However, media reports debunked the rumors at the end of today, stating that Tesla responded that the rumors were untrue and may have been a major reason for the late sell-off.

In recent trading days, the market turnover and turnover ratio have shown a clear slowdown. The proportion of the turnover on the Dragon-Tiger List representing retail investors compared to A-share turnover has also significantly decreased. Therefore, policy maneuvering and speculative themes have cooled down.

Overall, the current market maintains a cautious stance on the domestic economic recovery, still anticipating more significant domestic demand policies to be unveiled in December. The market style in the mid-term resembles the pattern of the second quarter of this year, returning to a seesaw trading between dividend stocks and technology.

Today, dividend stocks and stocks trading below net asset value (NAV) are seeing a significant rally again, indicating that this style has indeed transitioned and can likely be sustained for some time.

02

The speculation logic of low-priced stocks.

Today's low-priced stocks have clearly risen across the board.

Looking at individual stocks, the most aggressive increases, the most inflow of funds, and the most enthusiastic participation by speculative capital are undoubtedly low-priced stocks + low-priced stocks (below 5 yuan), such as Wintime Energy, Risesun Real Estate Development, Bank of Zhengzhou, Baotailong New Materials, Yang Guang Co., Ltd., Shanghai Construction Group, Guangdong Zhongnan Iron & Steel, Oriental Group, Hunan Friendship & Apollo Commercial, Red Star Macalline Group Corporation, and at least a dozen more have all hit the daily limit, with even more stocks rising significantly but not hitting the limit.

Next is the combination of low-priced stocks + central state-owned enterprise concept. Here, besides many low-priced stocks that are below par value, there are also a large number of stocks such as Shanghai Datun Energy Resources, Xiandai Investment, Black Peony, Beijing Electronic Zone High-tech Group, China Railway Construction Corporation, Xiamen C&D Inc., China Merchants Port Group, and Beijing North Star, with increases of over 7%.

Another combination involves low-priced stocks + high-dividend stocks / high-performance stocks and other sectors, such as major banks, insurance companies, highways and ports, natural resources and energy, as well as some leading companies in the real estate industry, all showing significant increases, with many even hitting the daily limit.

This is thanks to the large number of low-priced stocks still existing in A-shares, providing ample choices for fund speculation.

Wind data shows that as of November 15, there are still over 430 A-share stocks with a price-to-earnings ratio (PE) of less than 1, including nearly one hundred with less than 0.6. Prior to the '924' major trend, there were even more than 800 stocks trading below net asset value.

Regarding the logic of stocks trading below net asset value, in fact, ever since the rise of the 'valuation differentiation' concept and the release of the 'market value management' consultation draft in September, funds have often been paying attention to and lurking in this sector. However, the speculative nature of this sector is like a 'wool party' in e-commerce, seizing the opportunity to profit and then leaving immediately, making it difficult to sustain.

The fundamental reasons are related to the industry attributes and internal issues of the companies trading below net asset value.

For example, in the banking sector, the business model is the most mature and transparent, performance growth data can be calculated to the decimal point without deviation. The high leverage ratio and long-term low ROE status make it suitable for trading below net asset value, attracting investors with relatively high dividend yields for long-term investment.

This situation is unlikely to be disrupted in the current economic environment, and the 'long-term undervalued stocks' targeted by policies are not these stocks. Therefore, their gains have little actual impact from the concept catalyst of stocks trading below net asset value.

The logic applies to sectors such as construction materials, infrastructure, and chemicals, where the businesses are mature and the cyclicality is very obvious. These industries are not in their golden growth periods now and are relatively less likely to gain recognition from investors compared to other growth industries.

Many companies in these sectors are facing significant pressure from losses in their operations. Their performance has been fluctuating between half-profit and half-loss for many years. For these companies to be recognized by the market and increase their market cap, they either need to demonstrate better growth momentum and performance data to investors, or wait for the next major trend like '924' to bring in indiscriminate funding inflow and collective revaluation benefits.

The former cannot be achieved solely through a 'market value management plan'; the latter has already experienced a wave, and waiting for the next collective major trend also involves significant uncertainties.

Relatively speaking, stocks with low stock price combined with good performance are the direction where long-term funds are more willing to bet, especially some of them are high-dividend good-performing stocks. However, most of these individual stocks have seen their valuations significantly increase in this round of strong market, with net asset value already rising to more than 1 time.

Currently, there are not many good-performing stocks still in a low stock price status. For example, China Merchants Port Group, which combines low stock price, good performance, and central state-owned enterprises, surged to the daily limit at one point today, finally closing up 7.79%. The latest PB ratio is 0.91 times, with only one board away from repairing the net asset value.

However, objectively speaking, although the low stock price abnormal stocks have temporarily become a sensation, what needs to be cautious is that the arrival of a policy does not mean all low stock price stocks will soar. Even among the current stocks with significant increases, the vast majority of them are just being manipulated by speculative funds, collecting some easy profits and pulling the wool over the eyes of investors before reverting back to their original state.

If investors still want to focus on the direction of 'low stock price stocks,' it is best to control the risks well, or select sectors that relatively have security safeguards, such as the banking sector with high stability in operations, asset quality guarantee, and high dividend returns; sectors like highways, coal, and hydropower with stable long-term revenue cash flow, and high dividends.

As for other low stock price stocks without conceptual and performance support, perhaps it is most appropriate to just watch from the sidelines. (End of full text)