Guoxin Securities: What are the ways to increase profits in technology stocks?

The Zhitong Finance App learned that Guoxin Securities released a research report saying that technology-based enterprises, as the main subjects of scientific and technological innovation, focus on the development of hard technology and play an important role in promoting the development of new quality productivity. In the comparison of technology stocks between China and the US, we can see some obvious differences and trends. US technology stocks, especially large technology stocks, occupy a leading position in terms of market capitalization and global influence, while Chinese technology stocks are on the catch-up path with their latecomer advantage. As China's position in the global technology industry chain rises, the medium- to long-term return potential of Chinese technology stocks is increasing, showing strong growth momentum and investment appeal.

The following are the core ideas of the research report:

As the main body of scientific and technological innovation, technology-based enterprises focus on the development of hard technology and play an important role in promoting the development of new quality productivity. In the comparison of technology stocks between China and the US, we can see some obvious differences and trends. US technology stocks, especially large technology stocks, occupy a leading position in terms of market capitalization and global influence, while Chinese technology stocks are on the catch-up path with their latecomer advantage. As China's position in the global technology industry chain rises, the medium- to long-term return potential of Chinese technology stocks is increasing, showing strong growth momentum and investment appeal.

Chinese technology stocks are catching up at an accelerated pace, policies continue to be cared for, profit sustainability has increased significantly, and valuations are expected to be reshaped. (1) As of August 2024, the top 100 technology stocks with the largest market capitalization in the US accounted for 56.3% of the total market value of SPX constituent stocks. The top 100 technology stocks with the largest market capitalization in China account for 19.3% of the total market value of China Securities A500 constituent stocks. (2) In terms of net profit and net asset size, the share of US technology stocks in SPX has reached 3-40%, while Chinese technology stocks account for less than 10%, and there is plenty of room for growth. (3) In the past 10 years, the ROE of Chinese technology stocks has continued to grow, and their profitability has gradually surpassed that of traditional enterprises. As of 2023, the ROE of technology stocks was 2.1 percentage points higher than other stocks. (4) The net profit and net asset share of China's technology stocks showed an upward trend, rising from 2.9% and 4.1% in 2014 at the beginning of the period to 9.7% and 8.1% at the end of the period in 2023.

The development achievements of US technology stocks are the result of a combination of factors, among which the leading role of industrial policy is critical. An effective industrial policy should have the following characteristics: In a market economy, the government should act actively to make up for market failures and provide support to market players. First, inclusiveness. Industrial policies should treat all enterprises in the industry equally and provide equal support and opportunities; second, competition; policies should tend to support highly competitive industries rather than industries that have already formed a monopoly; third, moderation. The strength of industrial policy should be moderate to avoid overdoing it. At the same time, when industrial policies are implemented, industrial policies should be precise and efficient, synchronize with the evolution of the industrial life cycle, and shift from direct support to creating a high-quality market environment.

Industrial policy layout direction - Industrial policy should focus on collaborative development on the supply side and demand side, and the two must not be abandoned. The first is based on the “supply side” path of scientific discovery, that is, creating new supply through innovation and technological progress, and creating new demand driven by new supply. Most of these industries are future industries and are in the technology development and verification stage. Industrial policies provide key support for the nascent stage of the industry to help the industry overcome the challenges in the early stages. Second, it focuses on the “demand side” path on the demand side of the market. This type of industrial policy mainly supports emerging industries, has the main purpose of increasing the total factor productivity of the industry, and is the main driving force for supporting short-term economic growth.

The development of new quality productivity is expected to boost the profits of technology stocks. On the one hand, accurate and moderate industrial policies can boost market confidence and reduce the level of risk premiums; on the other hand, industrial policies play a supporting role, enhance the profitability and market expectations of enterprises, and resonance on the molecular side and denominator side promote a steady increase in technology stock valuations. In the context of the development of new quality productivity, it is recommended to focus on the following areas: (1) future industries - focused on thematic investment opportunities in industries with technological breakthroughs; (2) emerging industries - industries focusing on rapid increase in penetration rate and overseas layout; (3) traditional industries - digital transformation of traditional industries.