Recently, several Hong Kong listed companies have received intensive target price increases from foreign institutions, including Meituan, Nongfu Spring, Tencent Holdings, NetEase, Goldwind Technology, Fuyao Glass, BYD, and others.
In addition, Wall Street funds are investing in A-shares through large call options. On Monday local time, approximately $55 million was invested in a leveraged ETF call option that tracks the Shanghai and Shenzhen 300 Index.
The latest China Purchasing Managers' Index (PMI) for November has been above the boom bust line for two consecutive months, reaching a new high in nearly seven months. In the eyes of foreign investors, the A-share market may maintain a volatile upward trend in the future, with many investment opportunities worth exploring.
Foreign institutions intensively raise target prices
Foreign institutions have recently raised the target prices of several Hong Kong stock companies intensively.
Taking Meituan as an example, JPMorgan Chase said in its report that Meituan is one of the best performing Internet stocks in China in 2024, and it is expected that it will still have the potential to rise in the next 6 to 12 months. JPMorgan Chase predicts that Meituan's adjusted earnings per share will increase by 33% next year, which is 9% higher than the market's general expectation, making it one of the fastest-growing companies in the bank's coverage area. It maintains its "overweight" rating and has raised its target price for Meituan's Hong Kong stock from HKD 140 to HKD 200.
Citigroup has released a research report stating that Meituan's performance in the third quarter of the 2024 fiscal year is stable. Due to Meituan's strong execution and continuous innovation in product and operational strategies, while maintaining macroeconomic regulation and balanced growth, its growth prospects will remain unchanged. Citigroup has raised its target price for Meituan from HKD 192 to HKD 203, maintaining a 'buy' rating.
Bank of America Securities has upgraded Nongfu Spring's investment rating from "neutral" to "buy" and raised its profit forecast for the next two years, raising its target price from HKD 29.5 to HKD 40. Bank of America Securities predicts that Nongfu Spring's sales will increase by 10% and 15% respectively in the next two years, and its market share in aquatic products may return to the level of 2023 in the next one to two years. At the same time, "Oriental Leaf" is leading in the sugar free tea field, and there is huge growth potential for tea beverage products. The bank also predicts that Nongfu Spring's net profit margin for the next two years will reach 27.7% and 27.8% respectively, higher than market expectations.
DBS Bank has raised its target price for Tencent Holdings from HKD 537 to HKD 577, maintaining a 'buy' rating. The bank stated that due to the accelerated profitability of top ranked games and new games such as Dungeon&Fighter, Tencent Holdings' game revenue growth this year may accelerate. From 2023 to 2026, Tencent Holdings' advertising revenue will grow at a compound annual growth rate of 15%.
In addition, JPMorgan Chase raised NetEase's target price from HKD 170 to HKD 185; UBS has raised its Hong Kong stock target price for Goldwind Technology from HKD 6 to HKD 9.5; Morgan Stanley has raised its target price for Fuyao Glass from HKD 40 to HKD 45, maintaining its "synchronized with the market" rating; Dahe has raised its target price for BYD's Hong Kong stock from HKD 376 to HKD 431, maintaining a 'buy' rating.
Wall Street funds bet on Chinese asset ETF call options
Wall Street funds are investing in A-shares through large call options. On Monday local time, approximately $55 million was invested in a leveraged ETF call option that tracks the Shanghai and Shenzhen 300 Index.
According to data from Futu, on December 2nd Eastern Time, the trading volume of double long Shanghai and Shenzhen 300 ETF Direxion (CHAU) options was active, with a total trading volume of 216900 options on the day, of which put options accounted for 0.15% of the total trading volume and call options accounted for 99.85%. This leveraged ETF is twice as strong as the Shanghai and Shenzhen 300 Index.
It is worth noting that the most active option contracts for the day of the 2x long CSI 300 ETF Direxion (CHAU) were sold a total of 210200. The exercise price of this option is $15.00 and the expiration date is May 16, 2025. This option allows holders to purchase the ETF at a price of $15 per share at any time before mid May next year. According to data from Futu, the total transaction amount of the contract exceeded 55 million US dollars.
As of the close of December 2nd local time, the ratio of the total trading volume of the CSI 300 ETF Direxion (CHAU) to its average over the past 30 trading days was as high as 1723.15%; The total number of open interest contracts (i.e. option contracts without buying, selling, or exercising) is approximately 45400, which is 56.4% higher than its average over the past 30 trading days.
Based on historical data, the trading volume of the CSI 300 ETF Direxion (CHAU) option with a 2-fold long position is usually rare, with only a few hundred to a few thousand transactions per day. Therefore, a sudden surge of 200000 large daily transactions attracted a lot of attention from investors.
In addition to CHAU, there have been recent large-scale call option purchases on another ETF that is three times long on Chinese assets. According to data from Futu, over 98000 long FTSE China ETF Direxion (YINN) call options with an exercise price of $27 and expiring in January 2026 were traded last Friday. This ETF is three times larger than the FTSE China Index. And on December 2nd local time, another 38000 YINN call options were traded.
Latest economic data showing warmth
From the perspective of market performance, Chinese assets have risen across the board recently: overall sentiment in Chinese concept stocks is good, and the Nasdaq China Golden Dragon Index has achieved "three consecutive positive" days, closing up 0.98% on December 2nd local time; Both A-shares and Hong Kong stocks rose on Monday, achieving a good start to December; As of Tuesday's close, the Shanghai Composite Index was approaching the 3400 point mark, closing at 3378.81 points, up 0.44%.
From macroeconomic data, the stabilizing effect of stock policies and a package of incremental policies has gradually emerged in recent times, leading to an improvement in manufacturing demand and a sustained rebound in prosperity. According to data released by the National Bureau of Statistics on November 30th, the manufacturing PMI was 50.3% in November, an increase of 0.2 percentage points from October, achieving three consecutive months of increase and operating in the expansion range for two consecutive months.
Zhao Yaoting, Global Market Strategist for Jingshun Asia Pacific (excluding Japan), stated that China's Purchasing Managers' Index (PMI) data for November has improved overall and reached a seven month high, indicating that China's economic growth momentum continues to improve. The data shows that the government's fiscal stimulus measures and strong manufacturing export performance have supported economic growth and are expected to continue to be an important driving force for economic growth next year.
Morgan Asset Management analysis shows that from an industry perspective, the PMI for high-tech manufacturing and consumer goods industries were 51.2% and 50.8%, respectively, up 1.1 and 1.3 percentage points from the previous month. In addition, market expectations continue to improve, with the production and operation activity expectation index at 54.7%, up 0.7 percentage points from the previous month, marking two consecutive months of recovery, indicating that most manufacturing enterprises have increased confidence in the future market.
Cheng Yu, General Manager of Allianz Fund Research Department and Manager of Allianz China Select Hybrid Fund, predicts that in 2025, A-shares will continue to fluctuate upwards with the support of corporate profit growth and strong policy support. The market structure characteristics are expected to present a pattern of "dividends taking the stage, technology playing the role", with a focus on industries and companies that will see significant improvements in future corporate profits and fundamentals.