Cathay Pacific Haitong: A-share layout transformation, emerging technology is the main cycle, finance is a dark horse

The Zhitong Finance App learned that Cathay Pacific Haitong Securities released a research report saying that after the sharp market fluctuation on April 7, Cathay Pacific Haitong Securities determined that “the Chinese stock market is entering the batting zone and suggests gradually increasing its allocation to the Chinese market.” Currently, after the impact of uncertainty, the stock market will have investment value under many deterministic supports: 1) After three years of clearance adjustments, the main contradiction between changes in investors' expectations has changed from fluctuations in the economic cycle to changes in discount rates. In 2025, when interest rates on treasury bonds broke 2%, the reduction in the risk-free interest rate in the discount rate will drive the entry of incremental capital into the market, which is one of the key drivers for the upward valuation of the Chinese stock market.

2) Since 924, decision makers have been clear about their determination to reverse the situation and support the capital market. The government stated that it has a sufficient toolbox, clearly stating that it “stabilizes the property market and stock market.” Uncertainty at the level of expectations is bottomed out, and policy expectations may heat up again.

3) Competition between China and the US has moved from economic and trade competition to competition in technology and productivity. China's progress in the field of new AI productivity is driving investors to begin to re-evaluate economic growth. To lay out the “transformation bull” market, it is recommended to lay out investment opportunities in terms of external demand desensitization, economic structural transformation (domestic demand+technology), and falling risk-free interest rates.

Cathay Pacific Haitong Securities's main views are as follows:

Investment direction 1: Technology and new consumption benefit economic structural transformation is advancing at an accelerated pace, and there is certainty of long-term growth. Tariff friction is impacting the global trading system, and external uncertainty will further increase, which will accelerate the structural transformation of the domestic economy. On the one hand, domestic demand stimulus policies are expected to increase. Consumption is expected to be the key direction. Considering changes in population structure and consumer consumption tendencies, new consumption represented by service consumption and self-pleasing consumption will be the highlight of this round. On the other hand, competition between China and the US has expanded from the economic and trade fields to the field of scientific and technological productivity. Under America's “small courtyard high wall” science and technology strategy, further improving domestic substitution in key areas and advancing breakthroughs in advanced technology fields is the key for China to promote economic transformation and maintain international competitiveness. In this context, we recommend technology (Hong Kong stock internet/semiconductor/military industry/AI computing power/gaming) and new consumption (retail/cosmetics) with little downside risk in short-term performance and considerable room for long-term growth.

Investment direction 2: After the supply of cyclical resources continues to shrink, it is expected that supply and demand will improve. Domestic aggregate demand has been under pressure in the past few years, and the cyclical industry is generally under pressure from overcapacity. At this stage, after continuous adjustments, the supply and demand pattern of some industries is expected to improve. On the supply side, as profit and cash flow pressure continues to increase in recent years, the share of loss-making companies in the petrochemical, chemical fiber, building materials, steel, non-ferrous and other industries has increased markedly. Since 2024, the average value has exceeded 30%, which will force small and medium-sized enterprises to exit at an accelerated pace, and existing production capacity will shrink. At the same time, fixed asset investment in the petrochemical, chemical, building materials, electrical machinery and other industries continued to decline, effectively controlling the release of new production capacity. On the demand side, the stage where real estate is the biggest drag on the economy is probably over. Subsequent domestic demand policies will take the lead in stabilizing real estate in some cities, which will effectively support the gradual stabilization of demand for cyclical products. Overall, the improvement in supply and demand for some cyclical products is worth looking forward to, and industry profits are recovering.

Investment direction 3: The financial sector and dividend assets benefit from a decline in risk-free interest rates, and residents' assets are skewed towards the stock market. Under the combined influence of declining risk-free interest rates and pressure on foreign trade, residents' asset allocation is expected to be skewed towards the stock market. Some low-risk preferences have strong demand for capital preservation and appreciation, and dividend assets have allocation value. Considering that there is still great uncertainty after the tariff policy is suspended, it is recommended to choose those that are sensitive to external demand, have strong business stability, and high dividend rates: electric/telecom operators/highways. Financial stocks benefit from incremental capital to drive active transactions, and the valuation center will improve.