Foreign capital is buying China's assets, and industrial capital is also pouring in!
On the evening of April 29, a number of leading companies in the A-share industry released good news and will use real money to repurchase shares. Among them, Yili Co., Ltd. plans to repurchase shares of 1 billion to 2 billion yuan, which will be cancelled in full; Tongwei Co., Ltd. plans to repurchase shares of 2 billion to 4 billion yuan; SF Holding Co., Ltd. plans to repurchase shares of 500 million to 1 billion yuan; and XCMG Machinery plans to repurchase shares of 300 million to 600 million yuan.
It is worth noting that the market atmosphere of A-shares and Hong Kong stocks has quietly changed, and in recent trading days, Chinese assets have continued to rise, with the Hang Seng Index of Hong Kong stocks achieving six consecutive rises and entering a technical bull market, and the Shanghai Composite Index and the Shenzhen Component Index have also recorded four consecutive gains.
During this period, northbound funds increased their buying efforts, and after breaking a record of 22.4 billion yuan last Friday, they increased their positions by nearly 10.9 billion yuan on Monday. In the past four trading days, northbound funds have accumulated a net purchase of 38.3 billion yuan. So, why did foreign investors suddenly target Chinese assets, and how sustainable is this round of market?
A-share industry giants make a move
The A-share market is changing, and some leading companies in the industry are constantly releasing good news to the market, and they are using real money to boost investor confidence.
Dairy giant Yili announced on the evening of the 29th that based on the confidence in the company's future development and the recognition of the company's value, in order to safeguard the interests of investors, enhance investor confidence and improve investor returns, the company intends to implement share repurchase, and the repurchased shares will be used to cancel and reduce the registered capital in accordance with the law.
The amount of shares repurchased by Yili shares shall not be less than 1 billion yuan and not more than 2 billion yuan, and the price of repurchased shares shall not exceed 41.88 yuan per share (not higher than 150% of the average trading price of the company's shares in the 30 trading days before the board of directors passed the resolution to repurchase shares).
On the evening of the same day, Yili disclosed a quarterly report, with a net profit of 5.923 billion yuan in the first quarter, a year-on-year increase of 63.84%. In 2023, Yili shares will achieve revenue of 125.758 billion yuan, a year-on-year increase of 2.49%, and net profit attributable to the parent company of 10.429 billion yuan, a year-on-year increase of 10.58%, the company intends to distribute cash dividends of 12.00 yuan to all shareholders for every 10 shares, and the proposed cash distribution amount will exceed 76 yuan, accounting for 73.25% of the company's net profit attributable to the parent company in 2023.
PV giant Tongwei has also disclosed a huge buyback plan. Tongwei Co., Ltd. announced that based on the huge development space of the two major industries of clean energy and safe food, in order to highlight the company's outstanding leading advantages in many links of the two main businesses, promote the full embodiment of the company's long-term internal development value, boost shareholders' investment confidence, and further improve the company's long-term incentive mechanism at an appropriate time in the future, and fully mobilize the enthusiasm of the company's employees, the company intends to repurchase shares with its own funds.
The amount of shares repurchased by Tongwei Co., Ltd. is between 2 billion yuan and 4 billion yuan, and the price of repurchased shares is not higher than 36 yuan per share. On the evening of the same day, Tongwei Co., Ltd. released its annual report and first quarterly report: in 2023, the company's net profit will be 13.574 billion yuan, a year-on-year decrease of 47.25%, and the company intends to distribute a cash dividend of 9.05 yuan to all shareholders for every 10 shares. In the first quarter of 2024, the company's net profit loss was 787 million yuan.
SF Holdings, a leading express delivery company, disclosed the second phase of the share repurchase plan in 2024 on the evening of the 29th, with a total repurchase of no less than 500 million yuan and no more than 1 billion yuan, and a repurchase price of no more than 53 yuan per share. The repurchased shares will be used for the proposed employee stock ownership plan or equity incentive plan in the future. In the first quarter of 2024, SF Holdings also disclosed that the company's operating income in the first quarter of 2024 was 65.341 billion yuan, a year-on-year increase of 7.03%, and the net profit attributable to the parent company was 1.912 billion yuan, a year-on-year increase of 11.14%.
XCMG, a leading construction machinery enterprise, announced that based on the confidence in the future development and the recognition of the company's value, in order to safeguard the interests of investors and enhance investor confidence, the company intends to repurchase 300 million yuan to 600 million yuan of shares, and the repurchase price does not exceed 8.5 yuan / share. The repurchased shares will be used to reduce the company's registered capital and be cancelled within 10 days from the date of completion of the repurchase. In addition, the first quarterly report shows that XCMG Machinery will achieve a net profit of 1.6 billion yuan in the first quarter of 2024, a year-on-year increase of 5.06%.
On the evening of the same day, the listed companies that disclosed the repurchase plan also included Oriental Biotechnology, Jinlei Shares, Runtu Shares, Sichuan Meifeng, Yongan Pharmaceutical, etc.
Why are Chinese assets soaring?
Recently, China's asset performance has been quite strong, with both the A-share and Hong Kong stock markets rising well, and northbound funds continuing to flow in substantially.
J.P. Morgan Asset Management believes that recent data shows that U.S. inflation has rebounded, the possibility of a delay in the interest rate cut cycle has increased, and the recent market volatility has increased. At the same time, the domestic macro data in the first quarter is bright, and the successive implementation of the previous policies has achieved certain results, the introduction of the new "National Nine Measures" and the further optimization of the Shanghai-Shenzhen-Hong Kong Stock Connect mechanism by the China Securities Regulatory Commission have helped to enhance market sentiment and confidence. Looking ahead, China's economy is expected to continue to grow and provide macro fundamental support, the new "National Nine Measures" will promote the high-quality development of the capital market, the China Securities Regulatory Commission will further optimize the Shanghai-Shenzhen-Hong Kong Stock Connect mechanism, and A-share Hong Kong stocks are expected to attract continued attention from domestic and foreign funds.
China Merchants Securities said that the main reasons are the rebound in China's fundamentals, the strength of the Hong Kong dollar and the renminbi in the accelerated depreciation of Asian currencies, and the easing of market concerns about Sino-US relations. Considering that the valuations of major markets such as the United States, Japan and India are at high levels, and Chinese assets are currently in a valuation depression, it is expected that more foreign capital will return to China, driving A-shares back to the upward trend. At the same time, with the implementation of the new "National Nine Articles" and the improvement of the performance of listed companies in the first quarter, the real returns brought to investors by leading companies with excellent performance in A-shares are expected to increase.
According to a research report released by CICC over the weekend, the recovery of the A-share market since February is still continuing, and there are three main reasons:
1) Recently, investors' attention to policy has further increased. Combined with the possible meeting of the Political Bureau of the CPC Central Committee at the end of April, it is recommended to pay attention to the tone of the policy level on the current economic environment and the expression of relevant policies such as stable growth.
2) Increased interaction between China and the United States. Following US Treasury Secretary Janet Yellen's visit to China in early April, US Secretary of State Antony Blinken's visit to China last week resulted in a five-point consensus on the basis of a comprehensive exchange of views, which has also played a positive role in promoting the return of foreign capital to Chinese assets.
3) The valuation of the A-share market is still at a historically low level, and the cost-effective advantage is obvious. After the market has stabilized since the beginning of February, the current forward P/E ratio of the CSI 300 is 10.4 times, which is still significantly lower than the historical average of 12.6 times.
Changing attitudes of foreign investors
Recently, overseas investment institutions have been bullish on Chinese assets.
On April 23, UBS upgraded A-shares and Hong Kong stocks to "overweight", while UBS upgraded Chinese stocks to overweight, saying that the consumer and internet sectors are highly weighted among the constituents of the MSCI China Index, and their performance is expected to perform better as consumption shows initial signs of recovery.
On the same day, analysts at Goldman Sachs were also bullish on A-shares, and judged that the valuation of A-shares has the potential to rise by 20%-40% under the optimistic scenario of policy promotion. Goldman Sachs analysts said: "We prefer the A-share market to the offshore market. Goldman Sachs has recently increased its holdings in Asian indices and increased its allocation to Hong Kong's MSCI China index products. ”
When talking about their views on A-shares, Goldman Sachs analysts said that in the past month, they visited the United States, Singapore, Tokyo and other places, and after communicating with investors, they found that international investors' sentiment, risk, appetite and interest in China's stock market are improving. The reasons for the above conclusion are the following four aspects: first, China's economic performance in the first quarter has been better than expected, second, the support of the "national team", and third, returning to the corporate fundamentals, the results of the 2023 quarterly reports disclosed by Chinese companies are generally better than expected. From a valuation perspective, both A-shares and Hong Kong stocks are at a low level, and fourth, the current global mutual fund exposure to Chinese equities is not high in total AUM.
On April 25, HSBC's strategists wrote in a note that global emerging market funds had adjusted their views on China equities to neutral from their previous underweight, while Asian funds' holdings reached a seven-month high.
In addition, in the first quarter, China's economy achieved a good start, 5.3% of the economic growth rate exceeded the expectations of the international community, Morgan Stanley, Goldman Sachs, UBS and other international financial institutions have issued reports, raising the annual forecast of China's economic growth, of which Morgan Stanley from 4.2% to 4.8%, Goldman Sachs from 4.8% to 5%, UBS from 4.6% to 4.9%. The macroeconomic team of Goldman Sachs Research said that the upward revision of the full-year forecast is mainly based on the overall better-than-expected Chinese economic data from January to February, as well as the higher-than-market consensus expectation of China's manufacturing purchasing managers' index (PMI) data for March.
Editor-in-charge: Tao Jiyan | Review: Li Zhen | Supervisor: Wan Junwei
(Source: Brokerage China)