Yesterday, the two stock exchanges of Shanghai and Shenzhen fluctuated in a narrow range. Big-cap sectors including securities, insurance and bank were weak. Stock indexes fluctuated with turnover reduced. The market stock index and ChiNext index plummeted after the morning session, but rebounded around the 5-day average line due to strong support, and successfully recovered the 60-day average line at the closing. Based on analyst, after constant rise in previous period, the market trend was around the range of collective turnovers, the uptrend pressure intensified obviously, and the market adjusted and consolidated along with the trend.
Up to the closing, SSE index reported 2,934.29 points, down by 4.39 points and 0.16 percent; SZSE component index reported 10,363.08 points, up by 18.16 points and 0.18 percent; ChiNext index reported 2,199.30 points, down by 5.67 points and 0.26 percent. The turnover of the said two bourses totaled at 527.9 billion yuan, down nearly 20 percent compared to that of previous trading day, showing that investors were not so enthusiastic in transactions.
Hotspots in the market trend divided at 20-to-80 proportion. Periodical stocks, such as securities, insurance, bank, coal and aviation, pulled back. Strong types last week including food and beverage also declined. Theme stocks were relatively active, and sectors of gold, lithium battery, unmanned aircraft, intelligent household, artificial intelligence and cold-chain logistics were top winners. But on the whole, the market did not gain extremely-obvious motivation.
Explosive growth in international gold price last weekend incented strong trend of gold sector. Last Friday, data from U.S. Department of Labor showed that U.S. non-agricultural employment only increased 38,000 in May, much less than the market expectation of 160,000, the lowest level since September 2010. For this, the market rapidly responded, gold price greatly increased 30 U.S. dollars, up by 2.8 percent, and the U.S. dollar set a single-day decline rate since February. However, gold price slightly decreasing on Monday also restricted the gold stocks’ strong rebound.
U.S. non-agricultural employment far less than expectation in May greatly reduces the possibility of the Fed’s rate hike in June, according to Li Huiyong, chief macro analyst at Shenwan Hongyuan Securities. It expects that the Fed is very likely not to raise the interest rate in July, and rate hike may happen in this September.
Sharply reducing rate hike pressure did not enhance the market enthusiasm for long. Based on capital flow of WIND, net outflow of main capital totaled at 2,826 million yuan at the opening on Monday, and the figure was 100 million yuan at the closing, with the total amount of 9,334 million yuan for the whole trading day accumulatively. But overseas funds accurately buying low at the bottom in previous period still constantly flowed into the A-share market. After the net inflow of nearly 10 billion yuan accumulatively last week, the Northbound Trading of the Shanghai-Hong Kong Stock Connect continued to achieve net inflows on June 6, and intraday net inflow actually recorded 200 million yuan, but greatly reduced than that of last week.
Looking into the after-market, along with constant uptrend of market index in previous period, upward pressure became gradually intensified, in line with senior insider of Huatai Securities. SSE index faced pressure test among the collective turnover areas between 3,000 to 3,100 points, and ChiNext index also faced huge pressure around 2,200 to 2,300 points. It is normal for the market to fluctuate under pressure. Hotspots will gradually divide in the following market, and high-quality growth stocks and consumption blue chips are likely to show strong trend during the fluctuation.
Leading themes gradually achieved favorable trend, index trend may initiate
Currently, the market trend has finished the reverse of leading stocks (meaning some bullish ones), and began to copy the core investment themes based trend. New energy automobile, new IT, and consumer goods gradually step into a favorable trend now, going to comprehensively boost the index increase.
Since this year, leading stocks (only considering medium- and big-cap stocks) have continued to set new highs, with those related lithium battery materials accounting for a large proportion, including Tianqi Lithium Industries, Inc. (002466.SZ), Jiangxi Ganfeng Lithium Co., Ltd. (002460.SZ), Do-fluoride Chemicals Co., Ltd. (002407.SZ), Guangzhou Tinci Materials Technology Co., Ltd. (002709.SZ), Beijing Easpring Material Technology Co., Ltd. (300073.SZ), EVE Energy Co., Ltd. (300014.SZ), ZHONGHE Co., Ltd. (002070.SZ), Jiangmen Kanhoo Industry Co., Ltd. (300340.SZ), Chengdu Galaxy Magnets Co., Ltd. (300127.SZ), Xiamen Faratronic Co., Ltd. (600563.SH) and Zhejiang Vie Science & Technology Co., Ltd. (002590.SZ). Electronic and traditional consumer goods come across similar situation, like Valiant Co., Ltd. (002643.SZ), Sino Wealth Electronic Ltd. (300327.SZ), Leyard Optoelectronic Co., Ltd. (300296.SZ), Wangsu Science & Technology Co., Ltd. (300017.SZ), Kweichow Moutai Co., Ltd. (600519.SH), Wuxi Little Swan Company Limited (000418.SZ), Hangzhou Robam Appliances Co., Ltd. (002508.SZ) and Zhejiang Supor Co., Ltd. (002032.SZ). Especially, a series of weaker growth stocks with medium and large market value started to break through the rebound high at 2016-start, and the number of such stocks greatly increased, such as Hundsun Technologies Inc. (600570.SH), Hithink RoyalFlush Information Network Co., Ltd. (300030.SZ), Wuhu Token Sciences Co., Ltd. (300088.SZ), Advanced Technology & Materials Co., Ltd. (000969.SZ), Beijing Zhong Ke San Huan High-Tech Co., Ltd. (000970.SZ), Wuliangye Yibin Co., Ltd. (000858.SZ) and Midea Group Co., Ltd. (000333.SZ). It is a significant signal of trend reverse, laying foundation for continuous trend development. The most important is that situation of this wave of leading stocks is not alone, and each leading stock is supported by its industrial prosperity with very clear copy effect. Up to now, three core investment lines have formed: industrial chain of new energy automobile (lithium battery materials –permanent magnet materials of electrical motor – automotive electronics – automatic drive); industrial chain of new IT (cloud service – OLED intelligent device) & block chain (financial IT); consumer goods (wine – food – household appliances). New technology commercialization or supply side reform is the factor to boost stock price hike. The core is profit growth or related inflection point. The trend incented by profits is certainly not just a slight uptrend.
External factors are gathering stream. There are expectations for A shares’ inclusion into the MSCI emerging markets index, Shenzhen-Hong Kong Stock Connect, Shanghai-London Stock Connect, and policies on pension fund, occupational annuity, QFII and RQFII. From the perspective of market performance, motivation for short selling is decreasing notably. The stock market in the U.S. and Europe went stronger again. The major three U.S. stock indexes are going to hit new high. Leading information technology stocks have continued to go up, and are likely to get out of the long-term weak trade. For example, Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG), are continuously hitting new high. Advanced Micro Devices, Inc. (NASDAQ:AMD), Applied Materials, Inc. (NASDAQ:AMAT), NVIDIA Corporation (NASDAQ:NVDA) and Micron Technology, Inc. (NASDAQ:MU) are moving higher, and gradually broke the long-term resistance line. Finally, the commodity market also began to fluctuate in a range after bottoming out at the beginning of this year. The overall environment is in favor of the recovery of the A-share market.
Currently, the SSE Composite Index and ChiNext Board Index are in a critical zone transforming from decline to rise. Specifically, the ChiNext Board Index last week broke the resistance line that has formed after last year’s peak. The SSE composite index and SSE 50 Index have entered the long-term (120 to 250-day) moving average. Although the moving average is being pulling down, leading stocks are still moving higher. Investment themes led by leading stocks are expanding, and large-cap blue chips still remain where they are. In other words, factors that could push stock indexes higher in the short and medium term are still not released. Considering that all leading stocks aim to hit historical high, those after its hell have also rebounded to the highs they have reached at the beginning of the year. Based on this, the index will easily climb up to 3,097 points (a high reached in mid-April) in this around, and is likely to touch the 250-day moving average (3,370 points).
It is more appropriate to determine investment strategy based on the assumption that the stock index will rise about 10 percent in pulses. But the key does not lie in the stock index, but investment opportunities. Investors should focus on three core investment fields: new energy vehicle, new generation of information technology and consumer goods. They can select stocks in these three fields, and trade with the assistance of their stock prices and the medium and long-term moving average. Currently, lithium battery material stocks have turned to trend trading. Investors can continue to focus on ternary lithium battery material stocks, including EVE Energy Co., Ltd. (300014.SZ), Shenzhen Capchem Technology Co., Ltd. (300037.SZ), Ningbo Shanshan Co., Ltd. (600884.SH), Jiangsu Aucksun Co., Ltd. (002245.SZ), Wuhan Huazhong Numerical Control Co., Ltd. (300141.SZ). Consumer goods stocks are also largely turning to trend trading. Investors focus on Wuliangye Yibin Co., Ltd. (000858.SZ) and Midea Group Co., Ltd. (000333.SZ). The new generation of information technology industry chain is the most diversified. Apart from OLED and 3D glass, there is voice interaction. The sector is still in an initial stage for reversion. The sector deserves the utmost attention among medium-term potential stocks.
(Translated by Jelly, Coral)
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