In 2024, there is only one last Trade left in the A-shares.

But the trend has already been set.

In 2024, A-shares experienced two major market events, especially the epic super bull market of '924', which ignited numerous Concepts in various sectors.

During this time, popular tracks like AI, Robotics, and Internet saw a variety of speculative stocks frequently emerging, resulting in astonishing speculative phenomena.

However, unlike the roller-coaster markets of previous years, many giants in the AI and Semiconductor Industry Chain have indeed stood up this year.

Cambricon Technology has surged more than four times this year, currently with a Market Cap of over 280 billion.

Haiguang Information has increased 1.2 times this year, currently with a Market Cap exceeding 350 billion.

Semiconductor Manufacturing International Corporation has grown 88% this year, currently with a Market Cap close to 800 billion.

CHINA MOBILE has increased by 61% in 2023 and is still climbing 23% this year.

。。。。。

The strong rise of these trillion-yuan giants clearly indicates that it is no longer merely a temporary bandwagon investment hype, but rather a fundamental change in the underlying investment logic, which has been recognized by the market.

In addition to these core industry leaders that have sparked a global capital craze, traditional finance and a range of high-yield dividend assets are also among this year's strongest winners.

This year, both the Banks and Insurance Index have risen by over 45%, with the four major banks even reaching historical highs!

This trend change is very noteworthy.

01

An impressive report card.

For many investors, the years 2021-2022 were practically the darkest for value stocks, as various "Mao" stocks were slashed from their high prices down to their knees, with some experiencing market cap declines of 80% being quite common. This also resulted in a large number of investors being deeply trapped and suffering losses, leading them to no longer believe in the long-term principles of value investing.

However, in 2024, the A-shares provided a report card that was enough to win them back.

From a conceptual perspective, the AI industry chain undoubtedly performed the strongest, with AI applications, computing power, servers, GPUs, and CPO all experiencing increases of over 50%. There are even many individual stocks that have multiplied several times within the year.

However, from the perspective of industry sectors, according to Wind's secondary classification data, the banking sector leads with a growth rate of 45.12% this year, while non-bank financials (mainly Insurance and Brokerage) are in second place with a growth rate of 36.34%. Compared to other sectors, this is indeed a significant lead, even surpassing the overall performance of sectors such as chips and Semiconductors.

On the other hand, among the non-financial large caps, companies like PetroChina, Sinopec, China Shenhua Energy, China Yangtze Power, CHINA MOBILE, CHINA TELECOM, and Midea Group Co., Ltd have shown a bright increase of 30%-50% this year while consistently distributing high dividends.

At the same time, among the top 30 stocks by market cap in A-shares this year, only the former stock king Kweichow Moutai recorded a decline of 8.75%, while the rest have basically all risen significantly with 21 companies seeing an increase of over 40%. Among them, Kweichow Moutai is relatively unfortunate, once regarded as the Imperium Crown of A-shares, an undefeated myth that formed the foundation of the 'Mao' concept, now has become the only drag in the TOP 30.

It can be said that if you had bought shares in these leading A-share companies this year with your eyes closed, as long as they were not in the Consumer and Medical sectors, the probability of making a profit while lying down would be almost 99%, and the returns would be quite good, significantly outperforming the Large Cap.

Many believe that the performance of large finance and high-yield assets is due to the "924" epic policy stimulus, but in fact, the performance of these assets began to strengthen from the start of 2023.

The four major banks started to rise sharply last year, with increases between 18%-35%; PetroChina, Sinopec, and CNOOC rose by 50%, 35%, and 46.6% respectively; energy giants such as China Shenhua Energy, China Yangtze Power, and Zijin Mining Group have also seen increases of 23.6%, 15.4%, and 27.3% respectively.

Additionally, the telecommunications giants of state-owned enterprises, CHINA MOBILE and CHINA TELECOM, have also risen by 53.4%, 34%, and 38.8%, 41% in the past two years.

There are many such examples, sufficiently illustrating a trend - high-quality assets in A-shares, including large finance, high-yield blue chips, and core leaders in the Technology sector, are welcoming a comprehensive, continual, and large-scale influx of capital.

Despite the significant pressure on the domestic macroeconomic situation over the past two years, which failed to provide sufficient confidence support for investors, capital has begun to gradually flow into the core assets of A-shares for allocation under the rare strength of policy stimulus and guidance, yielding enormous returns.

02

The trend is becoming increasingly apparent.

Looking back at the regulatory attitude towards the Capital Markets over the past two years, a significant signal can be observed— the country is increasingly emphasizing the 'steady growth' of the stock market, particularly with the important '724' meeting of 2023 which first proposed the weighty directive to 'activate the capital market and boost investor confidence.'

During this period, not only were various positive stimulus measures introduced, but strong policy guidance was also provided in terms of capital support, such as guiding Banks, Insurance, Brokerage, social security, and Funds into long-term capital investment, even significantly relaxing their configuration limits for equity assets (which primarily targets stock allocation).

Although at the time, most investors believed these were merely temporary measures to rescue the market, the stock market continued to decline afterward. In reality, various long-term funds began to continuously flow into these core assets since then, driving them to establish an independent market trend.

Furthermore, this year the regulatory authority has also opened the floodgates for a large number of new issuances of broad-based products by public funds, even developing the CSI A500 Index that includes more industry giants. According to Wind data, the market capitalization of public funds has increased by 4.63 trillion yuan since the beginning of the year, reaching 31.9 trillion yuan. Among them, from September this year to now, the scale of stock ETFs has grown by over 1.72 trillion yuan.

These funds provide extremely important financial support for the rise of high-quality large blue-chip assets in the A-shares, represented by "Large Financial", "China Special Valuation" and "High Dividend".

Here are some data:

This year, the annual increase of major banks such as ICBC, ABC, BOCOG, CCB, BOC, CMB, and EGB has exceeded 40%. Life Insurance, PICC, Taiping, and New China Life Insurance have increased by 54.58%, 66.1%, 51%, and 73.9% respectively.

In 2023, the total Market Cap of the Large Financial Sector is 15.89 trillion yuan, currently at 21.16 trillion yuan, an increase of 5.27 trillion yuan. The total Market Cap of A-shares in Shanghai and Shenzhen this year is 87.56 trillion yuan, an increase of 9.94 trillion yuan since the beginning of the year. This means that the contribution of the Large Financial Sector to the increase in Market Cap of A-shares this year reaches 53%!

Additionally, major energy giants such as petrochemicals, Electrical Utilities, and Coal, as well as several telecommunications giants, have also contributed significant Market Cap increases.

In contrast, although the A-share market sees a large number of various concepts being speculated on smaller stocks every day, seemingly attracting attention, most are just extremely short-term roller coaster trends. Over time, the real assets that can gain financial inflow support for growth are mainly concentrated in the core asset areas mentioned above.

For these assets, many tend to believe that their gains over the past two years have been sufficient, perhaps exhausting future growth potential, and they no longer appear undervalued. However, in reality, through the expression of the government's will to support the stock market, proactive measures at the policy level, and the current extremely loose financial conditions, the growth ceiling of these core assets may not have been reached yet.

This viewpoint has been analyzed many times in my previous articles, and the main supporting core logic includes the following three points:

1. From the perspective of 'Central State-Owned Enterprise Valuation', there are still a large number of central state-owned enterprises in the A-share market with a PB below 1 time, and the PE is below ten times. They are still quite far from the 'market value management target' expected by regulatory authorities.

2. From the perspective of cost of capital ROI, the current long-term bond interest rate and deposit interest rate have dropped below 2%. Therefore, if listed companies can continuously and stably provide a dividend ROI of over 3% or, more stringently, about 4%, they will still have attractiveness. Currently, there are still many A-share companies that can maintain a dividend yield of over 3% in recent years, and they are concentrated in key areas such as Banks, Insurance, Energy (Oil, Coal, Electrical Utilities), and Telecommunications. Many of these happen to be state-owned enterprises or companies controlled by them, as well as many high-quality core private enterprises. These companies are even regarded by the market as 'quasi-debt assets', and they are still attracting funds.

In our article 'The Four Major Banks Have Not Risen Enough Yet!', we mentioned that several major state-owned banks in the A-share market, after a significant rise, still have a dividend yield of about 4.5%, which is much higher than the vast majority of industries in the market. However, in reality, their long-term dividend payout ratio has only been maintained at about 30%.

Now, regulatory authorities have clearly called for an increase in dividend returns. If these banks' dividend payout ratios are increased from 30% to 40% or 50%, their dividend yields could increase significantly, further attracting funds.

3. Currently, the internal and external political and economic environment is complex and variable, bringing many uncertainties to our economic external circulation, which will suppress the capital market without strong counter-cyclical interventions. In this context, funds, driven by risk aversion needs, are more inclined to choose high-quality assets with stable growth and high dividends, as well as the 'Central State-Owned Enterprise Valuation' assets identified by policies or highly certain technology growth tracks. The former is a more prudent main direction.

Therefore, in summary, the significant outperformance of large stocks this year is backed by solid logic. Do not assume that they have become weak after a big rise; perhaps they can continue to hold the center stage of the market next year. (End of the full text)