Since the beginning of this year, foreign capital has begun to accelerate the pace of research at a time when the market is volatile and investor confidence is weak.
According to the data, from the beginning of this year to February 23, 325 listed companies received the research of foreign institutions, which showed a large increase compared with 178 companies visited in the same period last year, with a year-on-year increase of 82.58%. From the perspective of the industries to which the foreign research companies belong, they are mainly concentrated in the high boom track, that is, the four major industries of medicine and biology, electronics, mechanical equipment and computer. In this regard, many overseas investors said that China’s strong economic fundamentals, effective and accurate epidemic prevention and control ability and expanding policy support will provide momentum for China’s capital market, and the investment value of A-Shares is prominent.
What areas do foreign investors focus on investigating and optimistic about the A-share market, and what are the investment opportunities in these areas?
325 companies have been investigated by foreign institutions
Institutional research is usually regarded as the wind vane of institutional layout. According to the data, since this year, 325 companies in the A-share market have received intensive research, including foreign institutions represented by overseas institutions and QFII.
Specifically, 59 companies have received 10 or more foreign institutions for centralized research. Six companies, including Shenzhen Inovance Technology Co.Ltd(300124) (168), Shenzhen Mindray Bio-Medical Electronics Co.Ltd(300760) (107), Shenzhen Transsion Holdings Co.Ltd(688036) (82), Qi An Xin Technology Group Inc(688561) (77), Shanghai Junshi Biosciences Co.Ltd(688180) (66), Thunder Software Technology Co.Ltd(300496) (63), have received more than 60 foreign-funded institutions for research.
The reporter further combed and found that the above 325 listed companies surveyed by foreign institutions mainly showed four characteristics: first, most of the performance increased. As of the closing on February 23, 180 listed companies among the above-mentioned companies have disclosed the performance forecast of 2021, and 132 companies are expected to have good performance, accounting for more than 70%. Among them, the annual net profit of 59 companies is expected to double year-on-year in 2021, Landai Technology Group Corp.Ltd(002765) , Do-Fluoride New Materials Co.Ltd(002407) , Tkd Science And Technology Co.Ltd(603738) , Zhejiang Shuanghuan Driveline Co.Ltd(002472) , Hunan Changyuan Lico Co.Ltd(688779) and other five companies are expected to exceed the upper limit of year-on-year increase of annual net profit in 2021.
Second, the industry concentration is high. In terms of industry, foreign investment research is mainly concentrated in the high boom track. The above companies are mainly concentrated in the four major industries of medicine and biology, electronics, mechanical equipment and computer, with 52, 46, 41 and 32 respectively.
Third, the share price generally adjusted. Since this year, 242 of the above-mentioned stocks have fallen during the period, accounting for more than 70%. Among them, six stocks, including Zhejiang Wanliyang Co.Ltd(002434) , Jenkem Technology Co.Ltd(688356) , Autel Intelligent Technology Corp.Ltd(688208) , Lens Technology Co.Ltd(300433) , torch technology and Perfect World Co.Ltd(002624) , have fallen by more than 32%.
Fourth, more than 50% of the stocks obtained the “optimistic” rating of the agency. In the past 30 days, 174 stocks have received favorable ratings such as “buy” or “overweight” from institutions, accounting for more than 50%. Six stocks, including Chengdu Xgimi Technology Co.Ltd(688696) , Contemporary Amperex Technology Co.Limited(300750) , Marssenger Kitchenware Co.Ltd(300894) , Huali Industrial Group Company Limited(300979) , Glodon Company Limited(002410) , Perfect World Co.Ltd(002624) , have received positive ratings for 10 times or more.
In this regard, Long Hao, chairman of Jinding assets, said in an interview with the reporter of Securities Daily that at present, foreign institutions have a stronger view on A-Shares than Chinese small and medium-sized investors. As foreign institutions advocating value investment, they are optimistic about the potential of China’s long-term economic development.
foreign investors sing more about the “three foundations” of A-Shares
While conducting institutional research, international investment banks such as Credit Suisse, Wall Street investment bank Bernstein, HSBC, Goldman Sachs and UBS all said that “it’s time to buy Chinese stocks”.
According to EPFR global, a research company, the net inflow of overseas Chinese equity funds in January was US $16.6 billion, the fourth monthly inflow of more than US $10 billion since the epidemic, and the net inflow in December last year was close to US $11 billion. Cameron Brandt, research director of EPFR, said that since the fourth quarter of last year, investors’ interest in China has actually increased. The factor driving this trend is a view, especially the view of institutional investors, that China is a safer investment target in emerging markets this year.
Liu Jinjin, chief China stock strategist of Goldman Sachs, Mu Tianhui, chief strategic analyst of Asia Pacific region and his team recently released a research report, saying that thanks to the continuous opening and reform of the capital market, the expansion of investment channels, the continuous enrichment of products and the evolution of market structure, the investability of A-Shares is increasing for overseas investors. In addition, from the perspective of return volatility and differentiation, China’s A-share market provides many special investment opportunities. From a micro perspective, the risk return of many stocks is also attractive.
where is the confidence of foreign investors optimistic about China’s capital market?
Chen Li, chief economist of Chuancai securities and director of the Research Institute, said that first of all, on the whole, China’s economy has strong toughness and relatively good prospects for economic development. The A-share market has been more affected by China’s economic and policy changes. Since this year, the A-share market has fully responded to the Fed’s interest rate hike, and the risks have been released. Secondly, the effect of epidemic prevention and control in China is better. Compared with overseas markets, the impact of the epidemic on the A-share market is expected to be limited. Third, the policy of “steady growth” is awesome. Recently, the state has successively issued a number of measures to support the development of small, medium-sized and micro enterprises and related key industries, and the “steady growth” policy has been strengthened. The central bank’s monetary policy adheres to the principle of “giving priority to me and stability”, so as to ensure reasonable and abundant liquidity, and A-Shares may usher in the repair situation soon.
According to the data released by the National Bureau of statistics, China’s manufacturing PMI was 50.1% in January this year, stable at more than 50% for three consecutive months. The purchase volume index, new export order index and expected index of production and operation activities all rebounded month on month. Zhang Xia, chief strategic analyst of China Merchants Securities Co.Ltd(600999) told reporters that since November 2021, PMI has been in the boom level for three months. Under the condition that the primary goal of monetary policy has been switched to a stable growth environment, and under the policies of accelerating the issuance of special bonds and supporting the virtuous circle of real estate, it may support the PMI data in the first quarter to remain in the expansion range.
data support foreign capital to allocate additional A shares
In recent years, foreign capital has continued to allocate more Chinese assets. According to the domestic RMB financial assets held by overseas institutions and individuals released by the central bank, at the end of 2019, the domestic shares held by overseas institutions and individuals were 2.1 trillion yuan, by the end of 2020, the domestic shares held by overseas institutions and individuals increased to 3.41 trillion yuan, and then by the end of 2021, the domestic shares held by overseas institutions and individuals continued to rise to 3.94 trillion yuan.
In terms of a shares, the proportion of foreign shares represented by QFII continued to rise.
According to the data, according to the closing price at the end of the third quarter of last year, the overall market value of 545 A shares held by QFII exceeded 200 billion yuan in the third quarter, and the market value of positions increased by 37.48% compared with the end of 2020 and nearly three times compared with the end of 2010.
Institutions generally believe that multiple data support the additional allocation of A-Shares by foreign capital. First of all, good performance is the foundation. With the strong recovery of China’s economy, listed companies also showed good performance expectations in 2021. Data show that as of February 23, a total of 2574 A-share listed companies have issued 2021 performance forecasts, and 1489 companies are expected to be happy, accounting for nearly 60%.
Secondly, A-Shares have valuation advantages over other markets. As of February 23, the valuation of NASDAQ index was close to 32 times, the valuation of Dow index was more than 22 times, the valuation of Shanghai index was 13.47 times, only about half of that of Dow index, and the valuation of Shenzhen composite index was 26.30 times. The MSCI China index is expected to rise 16 per cent this year as valuations remain below the bank’s target of 14.5 times earnings.
Third, the high return of investors. The total dividend plan for A-Shares in 2020 exceeded RMB 1.5 trillion for the first time, a record high, an increase of nearly 12% compared with RMB 1.36 trillion in 2019, and the total dividend has exceeded RMB 1 trillion for four consecutive years. With the steady growth of performance, the total dividend in 2021 is expected to rise again.
Recently, Wang Chunying, deputy director of the State Administration of foreign exchange, said that China’s financial market has been opened to the outside world, the attraction of RMB assets has increased, and foreign capital has increased the allocation of RMB assets, which has gradually become an important channel for cross-border capital inflow. There is still much room for foreign capital to allocate RMB assets in the future, because the correlation between RMB assets and asset prices and returns of developed and emerging economies is relatively low; The proportion of foreign capital in China’s stock market and bond market remains at the level of 3% to 5%, with great potential for improvement.
institutions are optimistic about foreign investment research industry
For the investment opportunities in the above four industries favored by foreign institutions, Everbright Securities Company Limited(601788) said that the overall performance of the innovative drug sector in the past year was poor. It is estimated that the factors leading to the decline of the share price of innovative drug enterprises, in addition to the correction pressure on the previous overvalued value, there are also corresponding repressive factors on the fundamentals, such as the risk of price reduction in medical insurance negotiations and the risk of failure of innovative drugs to go to sea, It will cause market investors to worry about the development of the industry. With the release of the valuation pressure of the innovative drug sector, the clearing of bad factors in the medical insurance negotiation and going to sea, high-quality assets have ushered in a good opportunity for layout.
Citic Securities Company Limited(600030) believes that the semiconductor sector has experienced early valuation adjustment. At present, the valuation of the sector is in the lower middle position, and the valuation of some companies is close to the historical low. It is suggested to pay attention to the head design companies with low valuation and relatively high certainty of annual performance. At the same time, the field of wafer manufacturing continues to boom. It is suggested to pay attention to local wafer factories and leading equipment companies.
Galaxy Securities pointed out in its research report that it has long been optimistic about the investment opportunities in the mechanical equipment industry under the background of advanced manufacturing and energy revolution. The key investment directions include several main lines such as hard technology, new energy and specialized and special new. It recommends segments such as photovoltaic equipment, new energy related industrial chain and specialized and special new enterprises.
Liu Youhua, the research director of private placement paipai network interviewed by the reporter, said that on the one hand, with the continuous disclosure of the annual reports of listed companies, the A-share market has entered the annual report market stage. As a representative of value investment, foreign institutions have a very deep foundation in fundamental research, and can always dig out the investment opportunities hidden in the annual report industry in advance for layout; On the other hand, foreign-funded institutions are an important part of the A-share market and can play a pricing role in the A-share market. Therefore, companies that can attract research by foreign-funded institutions often show that they have certain investment value; In addition, the effectiveness of A-share market value investment is getting higher and higher, and companies surveyed by foreign institutions can get more market attention.
