Even Wall Street's Big Eight are coming?

Hong Kong Stock Research Society

2024-06-04 13:36Published in Hunan

In 1923, Livermore, the famous "king of speculation" on Wall Street, wrote this sentence in his memoirs: "There is nothing new on Wall Street, what happens today has happened in the past, and it will happen again in the future." ”

Although this sentence refers to stock market speculation at that time, it is also applicable when used to describe the present 100 years later.

The story of the American Dream will be told again in another place

In 2017, Wall Street first coined the "FAANG", bringing together the five tech giants of the time: Facebook, Apple, Amazon, Netflix, and Google in one abbreviation to capture the collective impact of these companies on the market. Later, with the addition of Microsoft, Tesla, and Nvidia, they jointly formed the US stock "Mag7".

Today, "Mag7" accounts for 31% of the total market capitalization of the S&P 500 index, a record high.

In the second half of 2023, with the new high of the European stock market, the term "11 knights of European stocks" has once again become popular, and ASML, Nestle, L'Oreal, AstraZeneca and other European countries have been selected. In March 2024, Bank of America Merrill Lynch released the Chinese version of "Mag7", covering bancassurance, carriers, telecommunications, and oil and coal, including the four high-yield sectors of China's stock market so far this year.

At this time, Wall Street's eyes are still on the traditional high-dividend companies in various countries, believing that these companies are more representative of local economic development. However, with the popularity of the Nvidia and AI sectors, this attitude has changed.

The U.S. stock market is led by NVIDIA, followed by Google, Tesla, Microsoft, Amazon, and META. China's Baidu, Alibaba, Tencent and other companies are also increasing their deployment of AI. Various signs have formed a consensus: when the wave of AI comes, the group of Internet technology companies that have invested the most in AI will also be the first to enjoy the dividends brought by AI and have potential investment opportunities.

In Wall Street's view, compared to the seven giants of the US stock market, China's giants are still in a state of undervaluation and illiquidity. In the words of Dave Mazza, CEO of Roundhill Investments, a well-known asset management company, "Some Chinese companies have dominated the market in technological innovation, but investors have not had the opportunity to enter." ”

To this end, on May 29, the company plans to launch ETF Lucky 8, homonym "Lucky 8", which bundles 8 Chinese concept stocks to form an ETF package for sale, which is expected to be launched this summer after being approved by the SEC.

Once Lucky 8 is approved, it means that for the first time in the U.S. stock market, ETFs set up for a few Chinese concept stock giants will appear. In this regard, investors' investment in AI-related industries in China and the United States shows two completely different directions: the advantage of the AI industry in the United States lies in the leadership of advanced chips and computing power, so the capital market pays more attention to the advancement between models and the leadership of enterprises in R&D. Chinese companies have the advantage of cheap energy and a huge user market, so the capital market prefers companies with good application prospects and can accelerate the implementation of AI at the application level.

Good Chinese concept stocks, Wall Street has already quietly entered the market

Unlike "don't put all your eggs in one basket", Wall Street's practice of selecting high-quality faucets to represent the entire market trend is more like "picking the best basket and putting all the eggs in".

Wall Street's intention to do so couldn't be more obvious: to use Chinese technology companies to benchmark U.S. technology stocks, and to select the best "basket" for U.S. capital that intends to invest in Chinese concept stocks.

The initial constituents of ETF Lucky 8 include Tencent, Alibaba, Pinduoduo, JD.com, Meituan, BYD, Xiaomi and Baidu, according to the filing. Among these eight companies, except for Pinduoduo, which is listed on the U.S. stock market, the remaining seven have been listed on the Hong Kong stock market for many years.

Looking back at the Hong Kong stock market since the second half of 2021, the Hang Seng Index has fallen by more than 50%, IPOs have plummeted, breakage has become commonplace, and investment bank layoffs have come and gone. Until April 19, 2024, a turning point occurred, and the Hang Seng Index climbed close to 45 degrees for two consecutive weeks, and as of June 3, it rose by more than 12%.

And the reason why Hong Kong stocks can perform such an "epic" counteroffensive and lead the global market is because these companies have made great contributions. In the latest first-quarter financial report, Tencent and Pinduoduo have delivered "report cards" that far exceed market expectations. Driven by these excellent report cards, the Nasdaq China Golden Dragon Index rose more than 14% as of May 31. Four China Internet/Technology ETFs achieved a 15% increase from the beginning of the year.

The market is booming, so the demand for Chinese concept stocks is gradually increasing:

According to the first-quarter position report disclosed by the SEC, Michael Burry, the prototype of "Big Short", increased his holdings in JD.com and Alibaba, and added a new position in Baidu in the first quarter; "Hedge fund legend" David Tepper chose to cash out the Seven Sisters of U.S. stocks at a high level, and instead doubled down on Alibaba, Pinduoduo, Baidu, and at the same time built a position in JD.com.

In addition, a number of international investment institutions such as Greenwoods Assets, Hillhouse Assets, and Gaoyi Assets have also successively held positions in Chinese concept stocks. Among the top 10 heavy stocks of Gaoyi Assets in the first quarter, except for Microsoft, which is the eighth heavy stock, the rest are Chinese stocks, and Chinese concept stocks account for as much as 90%.

However, there are as many as 50 index constituents of the existing China concept ETF, which covers a wide range of stocks and is too diversified. This is one of the reasons why Wall Street proposed Lucky 8: "If you only want to buy shares of these 8 companies, it is difficult for traditional Chinese concept stock ETFs to do, but Lucky 8 can." ”

From the perspective of composition, although Lucky8 has only 8 companies, from the Internet to manufacturing, from communications, consumption to local life, new energy vehicles, Chinese's clothing, food, housing and transportation are included.

Taking BYD as an example, although BYD is a manufacturing car company, it is also included in the ETF of the technology and Internet industry. Roundhill's explanation for this is that "Lucky8" is aimed at investors looking for precise exposure to China's consumption potential, as they found in MAG7.

As the hottest exposure of China's current consumer side, new energy vehicles are also a key part of autonomous driving and intelligence, Tesla's CEO Elon Musk has previously said, "Compared with car companies, Tesla is more like an AI company." From this point of view, it is not surprising that BYD is regarded as a technological innovation company against Tesla.

The inflection point has arrived, and the future is not only bright

In fact, in the eyes of institutions, not only BYD, but also the entire Chinese concept stocks in the first quarter of this year have seen an inflection point. China Merchants Securities and Huachuang Securities pointed out that China's Internet and technology industry enterprises have gradually stabilized and rebounded from the bottom. Goldman Sachs expects consumer technology and services-related sectors to stand out and favor large companies with high-quality qualifications and their ability to return on cash. From this point of view, the above judgment is mainly based on the following three points:

1. Supported by industry data, the valuation continues to repair

Looking back at the stock price since March this year, the valuation of most of the companies in Lucky8 has been repaired to varying degrees, and with the arrival of the 618 consumption wave in June, the improvement in performance will be more obvious in the second quarter of this year. According to the CITIC Securities research report, consumption is expected to continue to pick up, driving market expectations to improve and continue to promote valuation repair.

In addition, with the rebound of macroeconomic prosperity, in the first quarter of 2024, the total retail sales of consumer goods in mainland China 120327 billion yuan, a year-on-year increase of 4.7%; From January to April, the software business revenue was 3.8 trillion yuan, a year-on-year increase of 11.6%. Among them, cloud computing and big data services achieved a total revenue of 410.7 billion yuan, a year-on-year increase of 14.3%. On May 29, the IMF raised its forecast for China's economic growth this year to 5%.

2. The fundamentals are good, and the valuation is still low

Judging from the financial report:

Pinduoduo's Q1 revenue increased by 131% year-on-year to 86.81 billion yuan, and net profit soared by 202% year-on-year to 30.60 billion yuan;

Tencent's Q1 revenue increased by 6% year-on-year to 159.5 billion yuan, and net profit increased by 54%;

Meituan's Q4 revenue increased by 22.6% year-on-year to 73.70 billion yuan, and the annual revenue turned into a profit.

Xiaomi's Q1 revenue increased by 27% year-on-year to 75.51 billion yuan, and its net profit increased by more than 100% year-on-year;

Alibaba's Q4 revenue increased by 6.6% year-on-year to 221.87 billion yuan, and overseas e-commerce revenue increased by 45%;

BYD's Q1 revenue increased by 3.97% year-on-year to 124.944 billion yuan, and net profit increased by 11% year-on-year to 4.57 billion yuan.

Baidu's Q1 revenue increased by 1% year-on-year to 31.5 billion yuan, and net profit increased by 22% year-on-year.

JD.com's Q1 net revenue increased by 7% year-on-year to 260.05 billion yuan, and net profit increased by 18.8% year-on-year to 7.37 billion yuan.

Among them, the revenue and profit data of Pinduoduo, Tencent, JD.com, and Meituan far exceeded market expectations, setting a good impression for the market. Judging from the data of the 10-year PE/PB band, the low valuation of these companies will be more obvious.

3. The company began to pay dividends and repurchase high-quality assets

Taking the U.S. stock "Mag7" as an example, Apple announced a buyback of $110 billion in the first quarter and Meta announced a buyback of $50 billion, showing the confidence of the U.S. technology giants in their own business. In contrast, Alibaba expects to pay out about $4 billion in cash dividends in 2024, with $29 billion still available for future share buybacks. Tencent paid dividends of about HK$32 billion in '23 and spent about HK$1.003 billion to buy back 2.68 million shares on June 3, 2024, driving the stock price up more than 4% on the day.

As the saying goes, "with great power comes great responsibility", Wall Street's requirement for Mag7 has always been to have both AI and profits, as well as buybacks and dividends. Now that Chinese concept stocks have also shown such characteristics, they will naturally begin to attract the attention and pursuit of capital.

The launch of Lucky8 will have a huge impact on three levels in the foreseeable future: first, foreign institutions will become more focused on the high-quality assets of Chinese concept stocks; Second, strengthen the liquidity of Chinese concept stocks, so that more overseas investors can participate in China's AI wave; Third, to improve the overall valuation of Hong Kong stocks, in any stock market, the leading role in the index is huge.

China has the world's most complete and complete industrial chain, with rich consumption scenarios and data. For Wall Street investors, China's AI story may be just as sexy, and Lucky8 is the best target of the moment.

Source: Hong Kong Stock Research Society

View original image 212K

• 

• 

• 

• 

•