The day before yesterday, I published an article criticizing the institutions for grouping together in bank stocks, leading to a highly fragmented market, and that merely boosting bank stocks would not save the A-share market. Then, yesterday, the banking sector corrected, with over 3,400 stocks rising, and today, the banking sector plummeted while nearly 4,200 stocks rose. This is what is referred to as "when banks fall, everything else thrives."
Last night, the Daily Economic News directly stated: Institutional investors are grouping together in large-cap, high-performing stocks such as the four major banks and Sinopec, using the name of grouping to engage in speculation.
My previous article provided a good explanation of the capital grouping in banks, and here I will simply list the points:
Firstly, I hope everyone understands a fundamental truth - balance represents stability, while extremes will eventually collapse. The same applies to the stock market; if one style keeps rising continuously and another style keeps falling, the stock market will become extremely fragmented. Trees cannot grow to the sky; the higher they grow, the more expectations will be over-consumed, the greater the risk will be, and the more sensitive they will be to negative news. On the other side, due to continuous declines, their chip structure and cost-effectiveness will become better, and eventually, there will always be funds that switch from high to low. When the rising sectors run out of incremental funds, they will fall.
There is nothing new under the sun in the stock market; over time, it's all about cyclical rotation and switching between high and low valuations, especially in a market like A-shares that loves to gamble.
Incremental funds determine the direction of the market. The banking sector can keep rising because there are incremental funds continuously buying. So, what kind of funds are buying?
If it's the national team and insurance funds, although the national team mainly buys the CSI 300 and SSE 50 ETFs, since these include consumer goods, pharmaceuticals, new energy, and electronics, which are heavily invested in by public and private institutions and foreign capital, and foreign capital has been selling all along, and public and private institutions have been continuously redeemed, the national team's purchases in these sectors cannot completely offset the sales. On the contrary, high dividend sectors like banks and public utilities, which are underweighted by public and private institutions and foreign capital, have less chip pressure, so the national team's continuous buying can lead to continuous rises.Insurance capital is another significant buying force. For investors, property insurance and life insurance are financial products, while for insurance companies, they represent the liability side. Although the yield has continuously dropped from 3.5% to 2.5%, all sold products must provide a 2.5% return, making the liability side essentially a guaranteed redemption. Therefore, insurance capital needs to find assets to generate returns, and high-dividend sectors like banks are the main direction for insurance capital to invest in.
Finally, I gave a reminder that high dividends are no different from the initial slogan "Baijiu forever," which are narratives that emerge after significant market movements. The current high-dividend style is essentially a defensive style combined with the company's own performance growth, presenting a common characteristic. If performance declines, the narrative of high dividends will be weakened. For example, the earliest was coal, but after the coal industry's performance bombshell, it plummeted. Recently, with the trading recession and the collapse of international oil prices, the three major oil companies also saw a significant drop. Then yesterday, ICBC's second-quarter performance declined, leading to a sharp drop today.
The reason everyone is still talking about high dividends is that the upward trend is still in place. If it turns into a downward trend, who would still talk about high dividends? Years of dividends are not enough to offset a single day's drop. When a sector is at its peak, one must not be brainwashed by slogans into a belief. The bloodstained examples of 2021's baijiu, pharmaceuticals, and new energy are a testament to this. Speaking of brainwashing, high dividends can't compare to baijiu, and now even baijiu has plummeted.
Yesterday, in my article, I pointed out that the valuations of core assets pursued by the market in 2020, such as baijiu, pharmaceuticals, new energy, and electronics, are basically within 20 times. Even the most prosperous sectors like CPO and PCB in the Nvidia industry chain have a dynamic price-to-earnings ratio of around 20 times for 2024, and high-dividend stocks also have price-to-earnings ratios in the teens. This indicates that the market has infinitely elevated the importance of dividends while completely ignoring the growth potential of growth stocks.
The core of equity investment is the pursuit of growth, and the national level also needs the continuous emergence of high-growth emerging industries. If everyone goes into banking, what future is there to speak of? The current institutions have turned the stock market into a bond market, completely ignoring the growth potential of companies, which represents an extreme for the stock market, and extremes will inevitably reverse.
Do you remember my advice? All trends are group hugs, and all group hugs will eventually collapse. Everything is cyclical, and fortunes change with time.
Once again, I've written so much. Let's look at today's big news:
Last night, after the US stock market closed, the much-anticipated Nvidia announced its second-quarter financial report. Nvidia's adjusted earnings per share for the second fiscal quarter were $0.68, exceeding expectations of $0.64; revenue was $30 billion, exceeding expectations of $28.61 billion; net profit was $16.599 billion, exceeding expectations of $14.64 billion. Data center revenue for the second fiscal quarter was $26.3 billion, exceeding expectations of $25.08 billion. The company expects third-quarter revenue to be $32.5 billion +/- 2%, with analysts expecting $31.9 billion, but the high end of the expectation range reaches $37.9 billion. The board of directors approved an additional $50 billion stock buyback. At the same time, the quarterly dividend per share remains unchanged at 1 cent. Blackwell plans to start mass production in the fourth quarter. It is expected that Blackwell's sales in the fourth quarter will reach several billion dollars.Nvidia's second-quarter results and third-quarter guidance were actually pretty good, but market expectations were too high, and it fell nearly 8% after the market closed. This also brought down the AI computing power of A-shares, and Zhongji InnoLight hit a new stage low. When NVIDIA rebounded before, it didn't rise with it. When it fell, it fell even harder. The market's short-term concern is mainly GB200, and the medium- and long-term concern is the commercialization of AI. Now Nvidia relies heavily on the capital expenditures of giants such as Google and Meta, but the capital expenditures of these giants do not have a sufficient input-output ratio. Although giants such as Google Capital expenditures exceed expectations, but as long as there are no hit apps, the market will always feel that capital expenditures are unsustainable. Regarding the commercialization of AI, there are answers to Nvidia’s conference call and Huang Renxun’s interview. I will take screenshots and you can see for yourself. Personally, I feel that AI is comparable to the steam engine revolution and the electrical revolution. It requires a lot of initial infrastructure construction to significantly improve productivity. For example, popular apps such as WeChat and Douyin are used to increase the penetration rate of smartphones and 3G and 4G communications after the release of the Iphone. On the basis of construction, the current AI is more in the previous Internet ecosystem. It has only been two years since Chatgpt4 shocked the world. If it is really a new industrial revolution, it is just the beginning. If you want to change the world just now, you would be too anxious. For investment, if it spreads all over the world at once, it will be the end. On the contrary, rapid growth in penetration rate is a big opportunity. Multi-modality, intelligent driving, intelligent robots, ChatGPT5, and AGI are all major directions. Today’s artificial intelligence is mainly text-based, and multi-modality has not become popular. Talk to me about the peak. Multi-modality should be the penetration rate of artificial intelligence. A key step to rapid improvement. Media reported during the session today that Apple is betting that its first iPhone equipped with artificial intelligence will be a success and has told suppliers to prepare parts for approximately 88 million to 90 million smartphones. The oversold rebound was stimulated by the news, and the fruit chain and consumer electronics sectors set off a daily limit wave, and many stocks such as Changxin Technology, Lingyi Intelligent Manufacturing, and Shengli Precision hit their daily limit. Today, Huawei released its results. In the first half of 2024, sales revenue was 417.5 billion yuan, a year-on-year increase of 34.3%, and the net profit margin was 13.2%. Xi Jinping presided over the sixth meeting of the Central Committee for Comprehensively Deepening Reforms and emphasized that we should emancipate our minds, seek truth from facts, keep pace with the times, seek truth and be pragmatic, and make every effort to organize and implement reform tasks. The proponent of the "Dollar Smile Theory" predicts that the U.S. interest rate cut may trigger the return of US$1 trillion of Chinese capital and promote a 10% appreciation of the RMB. The peak of corporate foreign exchange settlement is approaching at the end of the year, and CICC expects that the foreign exchange settlement of US$10 billion will support the appreciation of the RMB by about 10%. Today the offshore RMB exchange rate rose more than 300 points, rising to the 7.1 mark Finally, a brief look at the market. As of the close, the Shanghai Composite Index fell by 0.50%, the GEM Index rose by 0.65%, the Hong Kong Hang Seng Index rose by 0.53%, the Hang Seng Technology Index rose by 0.46%, and the turnover of the two cities increased significantly to 0.6 trillion. . Based on the sharp decline in Chinese concept stocks last night, Hong Kong stocks opened lower and moved higher today, which represents a kind of resilience. In fact, Hong Kong stocks have been stronger than A-shares recently and have begun to reflect the benefits of the Federal Reserve's interest rate cut.To conclude, I would like to highlight that currently, the market sentiment towards consumption is quite pessimistic. However, this pessimism is largely due to the impact of economic downturn, real estate crackdown, and the regulation of internet and education sectors on the balance sheets of middle-class individuals in first and second-tier cities. Financial professionals and media workers, who are mostly based in these cities, tend to be more pessimistic due to their personal experiences, which is a form of self-deception. In reality, the lower-tier markets still exhibit resilience, as evidenced by the strong performance of companies like Haidilao, Meituan, and Laobaigan Liquor. This indicates a divergence in consumption patterns, and such market biases also present opportunities.
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