According to a research report from Zheshang Securities Co.,Ltd. (ASX: 601878), late October marks the peak of earnings disclosures, with a strong correlation between fundamentals and stock price movements.
In the upstream cyclical sector, the divergence in prosperity is quite evident. Non-ferrous metal prices and coking coal prices moved in opposite directions, steel sector prosperity declined marginally, and petroleum and petrochemicals fluctuated at high levels. Among midstream cyclical goods, cement in the building materials sub-sector showed relatively high prosperity. In midstream manufacturing, the renewable energy sub-directions of solar and wind power saw a rebound in prosperity. In the TMT sector, the semiconductor sales cycle is trending upward, and the prosperity of the computer sub-sector is also rising. In downstream consumption, the PPI for the liquor, beverage, and refined tea manufacturing industry increased year-on-year in the current month, while home appliance exports and pharmaceuticals (traditional Chinese medicine and innovative drugs) displayed high prosperity.
Combining the October sector rotation monthly report, three clues are recommended: first, oversold technology directions such as semiconductors, computers, and new energy (solar and wind power); second, high-prosperity pharmaceuticals (traditional Chinese medicine and innovative drugs); third, specific segments within the consumer cycle, such as cement in building decoration, home appliances benefiting from El Niño, and white liquor in food and beverages.
The main views of Zheshang Securities Co.,Ltd. (ASX: 601878) are as follows:
1. Upstream Cycle
1) Non-ferrous metals: Divergent price trends for metals continue; 2) Coal: Coal mining and washing PPI declined, with coking coal prices showing mixed week-on-week movements; 3) Petroleum and petrochemicals: PPI for oil and natural gas extraction rebounded significantly, while crude oil prices fell week-on-week.
2. Midstream Cycle
1) Steel: PPI for ferrous metal mining and beneficiation declined year-on-year, with sector prosperity edging down; 2) Basic chemicals: PPI year-on-year growth rate remained flat, with mixed price movements among major products; 3) Building materials: Price index slightly rebounded, but sector prosperity remains at a low level; 4) Transportation: Export freight rates remain elevated, while express delivery volume and revenue growth rates declined significantly.
3. Midstream Manufacturing
1) Light industry manufacturing: Prosperity in building materials and home furnishings rebounded month-on-month, with the white cardboard price index flat week-on-week; 2) Automobiles: PPI year-on-year growth rate for the automotive manufacturing industry edged up, while new energy vehicle sales growth slowed; 3) Machinery and equipment: Excavator production growth declined, but sales growth rebounded markedly; 4) Power equipment: Lithium battery prices slightly declined week-on-week, while solar prices rebounded.
4. TMT
1) Electronics: The semiconductor index declined somewhat, but the overall sales cycle remains upward; 2) Computers: Cumulative year-on-year growth rate of total profits in the software industry rebounded; 3) Communications: Cumulative year-on-year growth rate of China's telecom business volume remained broadly flat; 4) Media: The trailing twelve-month cumulative year-on-year growth rate of China's box office revenue edged down.
5. Downstream Consumption
1) Food and beverages: Prosperity in the food and beverage manufacturing industry continues to oscillate in a low range; 2) Agriculture, forestry, animal husbandry, and fisheries: Year-on-year growth rate of China's breeding sow inventory declined further; 3) Home appliances: August home appliance export sales growth rebounded significantly; 4) Commercial retail and social services: August total retail sales declined year-on-year; 5) Beauty and personal care: Trailing twelve-month cumulative sales of color cosmetics, perfumes, and beauty tools edged up year-on-year; 6) Pharmaceuticals and biotechnology: Traditional Chinese medicine CPI rose slightly, with innovative drugs showing high prosperity.
6. Finance and Real Estate
1) Real estate: Cumulative year-on-year figures for China's commercial property sales area and real estate development investment completion both declined; 2) Securities: Margin financing and securities lending balances remain at high levels overall; 3) Insurance: Cumulative year-on-year growth rate of premium income declined slightly.
7. Utilities
NYMEX natural gas prices edged down in the short term and have fallen significantly compared to the beginning of the year.
8. Risk Warnings
Economic recovery may fall short of expectations; the pace of Federal Reserve rate cuts may be slower than anticipated; geopolitical conflicts may intensify.
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