Heavy position Oriental Selection, are these funds okay?

Source: Brokerage China

On the evening of July 25, Dongfang Selection announced that Dong Yuhui "flew solo", and the next day Dongfang Selection closed with a heavy fall, falling 23.39% in a single day to close at HK$9.5, and the market value evaporated by about HK$3 billion in one day. In addition, the stock has retraced more than eighty percent since the all-time high hit last year, and the stock price has been nearly halved in the third quarter of this year.

Some institutions believe that since the live broadcast room of "Walking with Hui" only sells third-party goods, and the revenue recognition method is the commission income corresponding to the flow of goods, so although the GMV has declined sharply, the impact on Dongfang Selection's income is relatively limited.

The stock price was nearly halved in the third quarter

On the evening of July 25, Dongfang Selection announced that Dong Yuhui "decided to leave the company's employees and the senior management of one of the company's merged affiliated entities". At the same time, Dong Yuhui plans to acquire 100% of the shares of Hehui for 76.5855 million yuan.

According to the data, the company was established in December 2023 and achieved a net profit of 141 million yuan from December 22, 2023 to June 30, 2024, while the net profit of Dongfang Selection from June to November last year was 249 million yuan. Therefore, the news of Dong Yuhui's solo flight is undoubtedly a big negative for Dongfang Selection's stock price. In early trading on July 26, Dongfang Selection's share price opened sharply lower, and the decline quickly expanded to more than 28%, hitting a new low since June 2022. As of the close, it fell 23.39% to close at HK$9.5, and the market value evaporated by about HK$3 billion in one day. In addition, New Oriental's U.S. stocks also fell by 5.46%.

Previously, the name was still "New Oriental Online" at that time, affected by the new regulations on education and training, and the stock price once retreated more than ninety percent, but with the birth of "Oriental Selection" and Dong Yuhui, the company's share price began to take off in June 2022, and the stock price soared from a low of HK$2.84 per share to a high of HK$75.55 per share in January 2023, and the stock price increased by 26.6 times in just half a year. Funds such as Yongying Hong Kong Stock Connect Quality Life Wise Selection have also been boosted by their heavy positions in the stock. However, the company's share price then fell quarter by quarter, and as of the end of June this year, the shareholding ratio of public funds was only 2.1%, and two products under China Europe Fund, Bosera Fund and Yongying Fund each had a heavy position in the stock.

However, according to the net value of the fund disclosed after the market, the two products of China Europe Fund rose slightly on the 26th, with Bosera CSI Global China Education ETF falling 1.35%, and Yongying Hong Kong Stock Connect Quality Growth One-year holding falling slightly by 0.59%.

Since entering the third quarter, in the past month or so, the share price of Oriental Selection has fallen from about HK$18.5 all the way, and as of July 26, it has fallen by more than 48%, close to halving, and has retraced more than 85% from the historical high set in January last year.

According to the data, since Dong Yuhui launched the broadcast on January 9, as of July 19, the GMV of the live broadcast room with Hui has accumulated 4.38 billion yuan, accounting for 54% of the total GMV of Dongfang Selection in the same period. Shenwan Hongyuan Research Report believes that since the live broadcast room with Hui only sells third-party goods, and the revenue recognition method is the commission income corresponding to the flow of goods, so although the GMV has declined sharply, the impact on Dongfang Selection's income is relatively limited. "We expect the sales of Dongfang Selection's self-operated products to continue to grow, with GMV increasing by 5% year-on-year, corresponding to sales revenue of 5.44 billion yuan, accounting for 49.5 percentage points of revenue year-on-year to 87%." The research report said.

Hong Kong stocks continued to increase their positions in the second quarter

Although the stock price of Oriental Selection has fluctuated sharply in recent years, making public funds stay away from it, with the gradual consolidation of the bottom of Hong Kong stocks, many fund managers decisively increased their positions in Hong Kong stocks in the second quarter. According to statistics, at the end of the second quarter of this year, the public offering industry had a total of 313 Hong Kong stocks, with a total market value of more than HK $237.7 billion, an increase of HK $38.814 billion from the previous quarter.

There is also no shortage of star fund managers who have added to their positions. For example, the Hong Kong stock position of Ruiyuan Growth Value managed by Fu Pengbo in the second quarter was further increased to 23.63%, and the top ten heavy stocks included China Mobile, Tencent Holdings, and Hygeia Medical 3 Hong Kong stocks, and the proportion of Hong Kong stocks in the second quarter of Ruiyuan Balanced Value of the same company Zhao Feng reached 43% of the fund's net asset value, and its heavy Hong Kong stocks include Tencent, China Mobile, China Pacific Insurance, Meituan, China Property Insurance, etc.; Top fund manager Zhang Kun has also continued to increase his position in Hong Kong stocks, and the three-year holding of E Fund high-quality enterprises under his management has increased his position in Hong Kong stocks from 38.98% at the end of last year to 46.71%.

Qiu Dongrong, who recently resigned, said in the second quarter report that the overall valuation level of Hong Kong stocks is basically at the historical 20% percentile, and it is still very cost-effective; And some companies are scarce, making them the most dynamic and innovative assets in China's economy.

"Hong Kong stock assets show the characteristics of systematic undervaluation, and the implied return level of equity assets is high, which corresponds to strategic opportunities and should be actively allocated." Qiu Dongrong said.

In the quarterly report, the Yongying Hong Kong Stock Connect Quality Growth One Year Mixed managed by Yan Qing, a Yongying fund selected by the above-mentioned heavy position Oriental, believes in the power of the stock market cycle. Domestic defensive dividend assets have come out of a steady upward trend, while core growth assets have been adjusted for many years and their valuations are at historically low levels, so we need to wait patiently for more stabilization signals.

Looking forward to the second half of 2024, Guohai Franklin Fund said that it is cautiously optimistic about the Hong Kong stock market, mainly based on the following considerations: First, the overall market valuation is low, and many companies have high investment value, considering that the probability of a sharp decline is small, these values will be recognized by the market in the medium and long term. Second, overseas liquidity has changed, Canada and Europe have begun to cut interest rates, the United States consumer price index year-on-year growth rate has also begun to decline, and the Federal Reserve may cut interest rates in 2024, but considering the United States election, United States inflation in 2025 is still uncertain. Third, the domestic economy is expected to be stable and improving, the annual GDP is expected to maintain a healthy growth rate, monetary policy may remain loose, and fiscal policy is also expected to be strengthened; Semiconductors, new energy, electric vehicles, high-end manufacturing and other industries will still be supported by policies, and more favorable policies are expected to be introduced. Fourth, given the low profit base in the second half of 2023, it is expected that the year-on-year growth rate of corporate earnings will improve in 2024.

Editor-in-charge: Chen Lixiang

Proofreading: Wang Jincheng