On October 10, the spotlight was on high-dividend assets, which demonstrated remarkable resilience in both the A-share and H-share marketsThe Dividend Low Volatility 50 ETF (159547) saw a gain of 2.90%, recovering a significant portion of its previous day's lossesIn Hong Kong, the Hang Seng Dividend ETF (159726) surged by 4.79%, while the China Central State-Owned Enterprises Dividend ETF (513910) also experiencing gains exceeding 4%.

The surge in high-dividend assets coincided with a broader recovery in the A- and H-share marketsThe Shanghai Composite Index climbed by 1.32%, and the Hang Seng Index rose close to 3%, indicating a warming trend amidst market turbulence.

Market Turbulence: Divergence Emerges

According to Huaxia Fund, following an initial period of broad increases, the market is likely entering a phase of prolonged oscillation characterized by "divergence emerging as a main line." Against a backdrop of highly active trading volumes, assets exemplifying the dual characteristics of "China's core assets" and "new productive forces," notably in the semiconductor sector, are anticipated to become the primary focus in the next market stage.

Currently, the Chinese economic cycle is at a stage of marginal improvement, with the semiconductor industry presenting three core logics:

Firstly, the fundamental performance remains robust, with a synchronized upward cycle domestically and internationallyBoth global and Chinese semiconductor sales figures have shown positive year-on-year growth for ten consecutive months, maintaining double-digit growth rates since the beginning of the yearIn August, global semiconductor sales reached a historical peak, attributed largely to the recovery in inventory levels across supply chains in sectors like automotive and industrial control, coupled with a surge in demand driven by AI technologies, keeping the semiconductor industry in a high prosperity phase.

Secondly, domestic demand for semiconductor products is surging, with investments reaching new highs

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The recent advancements in AI have triggered multiple product launches in the electronics domainNotably, Huawei has unveiled its autumn new product lineup, including several popular semiconductors like the V5Max110 and the intelligent R7, demonstrating intense demand for chips.

Lastly, the semiconductor industry is intricately connected to the economy and continues to benefit from timely policy supportAnalyzing past trends, it becomes clear that when policies are proactive, the primary market lines often align with growth sectors closely tied to the economyThe semiconductor market has benefited consistently from such favorable policies, revealing significant resilience during previous cyclical bull markets in 2016-2017, 2020, and the significant reversal in November 2022.

Overall, Huaxia Fund anticipates a shift from broad-based index gains to a more focused and differentiated market behavior as it relates to major lines of investmentIn this scenario, the semiconductor sector is expected to consolidate stronger consensus driven by favorable policies and fundamentals.

The recent influx of new retail investors during the holiday season has significantly increased the demand for financial productsHowever, due to permission constraints, many of these new investors are unable to access the ChiNext and STAR Market (which require a two-year stockholding history), leading them to opt for related index ETFsThe Chip ETF (159995) stands out as the top product in this category, providing exposure to 30 leading A-share companies across the entire semiconductor supply chainInvestors can also consider its Class A: 008887 and Class C: 008888 connection funds.

Additionally, the Semiconductor Materials ETF (562590) and its connection funds (Class A: 020356, Class C: 020357) closely track the CSI Semiconductor Materials and Equipment Index, with a significant portion (53.1%) in semiconductor equipment and 22.6% in semiconductor materials, accumulating over 75% of the index weighting and ensuring a strong thematic focus.

Investment Opportunities in Hong Kong Stocks

After experiencing a substantial short-term uptick, the Hang Seng Technology Index has faced some profit-taking and cooling off this week

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Despite this decline, analysts believe that this is a healthy process of digestion for participants, with average holding costs rising over timeThe recent rise past prior highs indicates that any pullbacks align with the typical performance trendsThe currently overheated market sentiment has begun to ease, with decreasing volatility in the index's movements.

From multiple angles, such as policy, fundamentals, liquidity, and market cycles, the Hang Seng Technology Index is still regarded as having substantial allocation valueOn the liquidity side, the expectation for ongoing rate cuts overseas indicates a reduced influence of external liquidity shocks on Hong Kong stocksRecent employment data shows a rejection of recession expectations, confirming a negative outlook on risk assets.

Notably, since late September, there has been a policy pivot aimed at restoring confidence in "Chinese assets." In response to the "debt-deflation cycle" challenge the Chinese economy faces, a series of measures targeting the stabilization of equity asset prices, the real estate market, and economic growth are being implemented, with further actions anticipated as circumstances evolve.

On the fundamentals front, the firms within the Hang Seng Technology Index are projected to experience cumulative revenue growth of 8.93% year-on-year in the first half of 2024, indicating ongoing improvementThe net profit attributable to shareholders is expected to show a dramatic increase of 100.45% compared to the previous period, highlighting substantial progress in cost reductions and increased efficiency.

Furthermore, the Hang Seng Technology Index is trading at a price-to-earnings ratio of 25.97 and a price-to-book ratio of 2.79, still under valuation compared to global tech stocksAn upward adjustment in valuations is anticipatedHistorically, the Hong Kong market hit bottom in late October 2022 and has been in a consolidation phase; thus, the likelihood of entering an upward cycle is significantly higher.

Once the broad increase-driven stage is nearing completion, a structural differentiation based on fundamentals and policies is expected

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As price corrections emerge, technology-focused indices like the Hang Seng Technology index are anticipated to attract long-term capital investments influenced by robust fundamentalsThis attention is directed towards related ETFs such as the Hang Seng Internet ETF (513330) and the Hang Seng Technology Index ETF (513180).

Fiscal Policies in Focus: Possible Boost Ahead

On October 12, 2024, at 10 a.m., a press conference will be held by Minister of Finance Lan Fan’an to discuss "Enhancing the Fiscal Policy Counter-Cyclical Regulation and Promoting High-Quality Economic Development." The expectations are high regarding the approach fiscal measures will take to encourage economic growth.

There is widespread anticipation in the market for a massive special treasury bond issuance plan amounting to trillions of yuanThe size of this issuance and how it is allocated will influence the course of the economy and the stock market moving forward.

CICC has indicated that the latter half of the financial cycle reflects stark demand inadequaciesIn September, multiple policies were released by the State Council, accompanied by positive signals from high-level meetings that elicited optimistic market reactionsWhile monetary policy retains flexibility for accommodation, the necessity for an augmented fiscal response intensifies amidst private sector de-leveraging.

Regulating new debt issuance while accelerating the replacement of existing local debt is essential for relieving burdened entities and reigniting economic dynamism.

CICC believes that, with a reduced space for traditional infrastructure financing, fiscal expenditure priorities are shifting from hard infrastructure investments towards improving livelihoods

This approach aims not only to deliver efficiency but also to enrich the scope of public welfare investments in education, healthcare, and social security, akin to benchmarks set by developed economies.

In summary, the cumulated fiscal scale and direction of these increased allocations will be pivotal in shaping market expectations for October.

Citic Securities asserts a crucial shift in policy signals has occurred, reversing previous market sentimentsContinued enhancement of domestic demand policies is projected to usher in a pivotal turning point in market dynamicsWith a reversal in expectations, retail-driven inflows are anticipated to drive rapid short-term price increases as investors await confirmation of the new market trends focused on restoring credit cycles and fostering an annual bullish market.

The market is poised to achieve a second wave of investment momentum buoyed by a multitude of advantages, particularly within small and mid-cap indices which offer greater elasticity and potentialInvestors are encouraged to focus on products like the Growth ETF (159967) and related funds that provide diversified exposure to emerging technologies and growth industries.

Notably, Huaxia Fund has announced a reduction in the management fee of the Growth ETF (159957) from 0.50% to 0.15%, alongside a decrease in the custody fee from 0.10% to 0.05%, presenting one of the most attractive fee structures in the industry.

ETFs: A Shining Asset in Today's Market

In the wake of an extraordinary market rebound, ETFs have surged into focus, drawing significant attention and investment inflowsRecent reports indicate that between September 24 and October 8, the combined net asset value of stock ETFs increased by around 1 trillion yuan within just six trading days, propelling the total value of stock ETFs above 3 trillion yuan for the first time in history.

Compared to traditional investment strategies, ETFs bring a multitude of advantages:

1. ETFs are characterized by lower fee structures; while actively managed equity funds can charge management fees upwards of 1.2%, ETFs generally have fees between 0.15% and 0.5%.

2. They facilitate risk diversification; by participating in A-shares through ETFs, retail investors hold a diversified basket of stocks, ensuring transparency and minimizing the risks associated with individual stock selections.

3. ETFs demonstrate high transaction volumes and liquidity, making it easier for large capital investments to enter or exit the market rapidly.

4. Moreover, ETFs lower the investment threshold for retail investors, bypassing significant barriers such as the 500,000 yuan entry point for Hong Kong Stock Connect or the 100,000 yuan plus two-year requirement for ChiNext.

During market downturns, long-term capital, including state-sponsored funds, has leveraged ETFs to position themselves at lower levels

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