The SSE Composite Index closed at 3,292.64 points on the first trading day of August. It also nearly reached 3,300 points in end-November last year and early-April. It has been a key barrier in the fluctuation of the SSE Composite Index in recent years.
Compared with the above two surges, there are new changes in the core drivers and the overall operation structure of this round of hiking. On the one hand, cyclical resources stocks led this round of surging. On the other hand, different sectors and individual stocks saw differentiated performances.
Resources stocks led the surging
Based on the Choice data of East Money Information Co., Ltd., cyclical resources stocks have been leading the surging since the SSE Composite Index hit a new low of 3,016.53 points on May 11. According to the industrial classification of Shenwan Hongyuan Securities, the non-ferrous metal sector has surged 29.09 percent since May 11, ranking the first in all sectors. The iron & steel sector ranked the second with an increase of 24.42 percent. The mining and chemical engineering sectors also hiked over 10 percent.
After deducting new shares, eight of the top ten individual stocks in terms of total increases are cyclical stocks. Fangda Carbon New Material Co., Ltd. (600516.SH) leads all A shares with a total increase of 228 percent. Cangzhou Dahua Co., Ltd. (600230.SH) and Xishui Strong Year Co., Ltd. Inner Mongolia (600291.SH) recorded an increase of over 100 percent while Baotailong New Materials Co., Ltd. (601011.SH), Fangda Special Steel Technology Co., Ltd. (600507.SH) and Henan Shenhuo Coal & Power Co., Ltd. (000933.SZ) witnessed a growth of over 80 percent.
As a popular investment object in the A-share market, resources stocks are favored by various capitals thanks to their huge capitals and relatively active trading. The symbolic booming coal and non-ferrous stocks have been active in various bullish runs in recent years.
During the above two surges, the prices of relevant individual infrastructure stocks hit the ceiling after the regulatory authorities curbed the shareholding increases by insurance funds as a result of the speculation by institutes through investing in infrastructure stocks in the fourth quarter of last year.
During the surge from January to April, almost all individual stocks hiked at the beginning. Liquor, household appliance and other consumer stocks saw outstanding performance. However, the situation changed on April 13. Xiong’an concept with booming turnovers suffered trading suspension and the plunging stock prices after trading resumption drove huge active capitals out. The SSE Composite Index has been declining after that and failed to pass 3,300 points again.
It is noteworthy that the trading conditions on Aug. 1 are similar with that of April 13. As leaders in this round of surging, Fangda Carbon New Material and Baotailong New Materials suspended trading for review for two trading days. The resources sector saw no individual stocks with outstanding performance. The prices of relevant individual stocks in the graphene, lanthanon permanent magnet, coal and titanium dioxide sectors plunged. Financial stocks represented by banks maintained the surging trend, driving the SSE Composite Index advancing towards 3,300 points.
Increasingly intensified differentiated performance
“Differentiation” has been the key word in the market since the beginning of the year. The market has become increasingly differentiated in the second half. Different sectors and individual stocks saw different performances in short term in this round of surging, which has not appeared in the above two surges.
The SSE Composite Index hiked from 2,969.13 points to around 3,300 points from Sept. 27 to Nov. 29. All level-I industries of Shenwan Hongyuan Securities hiked and about 82 percent of individual stocks increased.
The SSE Composite Index hiked from 3,044.29 points to around 3,300 points from Jan. 16 to April 7. Only media, non-banking finance and business trade sectors recorded a decrease of about 1 percent. About 58 percent of individual stocks increased.
The SSE Composite Index has been surging from 3,016.53 points on May 11. Six industries saw decreases. The textile, media and media sectors saw a decrease of over 2 percent. About 49 percent of individual stocks increased during the period.
The increasingly differentiated performances are driving capitals to fewer stocks. The market has been focusing on stocks with big size and outstanding performance. Capitals have flown out of individual stocks with less satisfactory performance, worse fundamentals and concept speculations.
Institutes hold different views
Looking into the future, different institutes hold different views. Ren Zeping and Jiang Chao, two well-known insiders, hold different views.
Ren from Founder Securities is optimistic about the macro economy in the second half. Ren believes that the PMI, PPI, construction orders, exports, land acquisition, power generation and manufacturing investment will continue to improve and the profits of enterprises will boom. The economic data for the third quarter may beat the expectation.
Ren believes that the new cycle is the key to understand the future macro economy and market. The new cycle is not a H-shaped recovery of demands but an L-shaped clearing of supplies. It has to pay more attention to the supply-side reform. The core of the new cycle is to clear supplies, enhance the industrial concentration and improve the balance sheet of industrial leaders.
Jiang Chao from Haitong Securities believes that this round of economic growth is not a new cycle driven by demands as various demands have no drivers for continuous recovery. The exports growth beat the expectation in the first half, but the European and U.S. economic indicators weakened in July. The property investment surpassed the expectation, but the housing price and land trading in tier-1 cities shrank and the booming property market in tier-3 and -4 cities are unlikely to continue. The durable goods consumption in the first half beat the expectation, but it was mainly driven by the wealth effect and the property sales. In terms of the inventory cycle, the growth of industrial goods inventory has been declining for two straight months, which means that the inventory cycle is coming to an end.
Translated by Star Zhang
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