China Merchants Securities: Main Market Lines and Allocation Directions after the US Election

The Zhitong Finance App learned that China Merchants Securities released a research report saying that after the US election, the Democratic Party took back both houses of Congress, but was bound by the presidential veto power, and the policy would be reflected more in increasing restrictions rather than a reversal of direction. AI and data center regulations are getting stricter, and the market is beginning to worry about the return on capital expenses and the downgrade of upstream hardware EPS, but the probability of completely limiting AI expansion is low. The A-share allocation proposal focuses on “key mineral resources, high cash flow, autonomy and control”.

Main market line and allocation direction after selection. After the US midterm elections, the Democratic Party took back both houses of Congress, but was bound by the presidential veto power. Policy changes were reflected more as “increased restraint” rather than a “reversal of direction,” mainly through funding, congressional supervision, and administrative discretion at the state level. At the industrial level, medical services benefit marginally from security expansion, and pharmaceutical companies are under pressure to control fees; data centers have become a bipartisan consensus to bear the cost of additional power grids, and the certainty of power grid investment is higher than clean energy subsidies; technology restrictions on China and the restructuring of key mineral supply chains are still continuous. Furthermore, stricter AI regulations have raised concerns about return on capital expenditure, and the focus of overseas transactions has been reduced from cash flows from cloud vendors to upstream hardware EPS. Strong non-agricultural industries constrain short-term easing expectations, while AI investment cools down long-term interest rates. The A-share allocation proposal focuses on “key mineral resources, high cash flow, autonomy and control”, focusing on semiconductor equipment and materials, domestic computing power and credit innovation, rare earths, copper and small metals, transformers and power grid equipment, as well as innovative pharmaceuticals and high-dividend banks.

The A-share market fluctuated and rebounded last week. The main reasons include: (1) the People's Bank of China, the General Financial Supervisory Authority, and the Securities Regulatory Commission held a symposium on two tools to support the capital market to clarify and further optimize securities, funds, and insurance companies' swap facilitation and stock refinancing policies; 100 billion yuan of swap facilitation operations, shifting repurchase and refinancing to long-term institutional arrangements, and interest rates reduced to 1%, enhancing market stability expectations; (2) The US Democratic Party gained an advantage; the expectation that the new energy support policy in the market will continue to drive chain repair; Betting on easing the war pushed oil prices down and relieved the pressure on downstream costs; (3) Affected by the midterm election results, concerns about stricter overseas AI regulations heated up, compounding restrictions on data center capital expenditure returns. US stocks fell sharply, affecting the A-share hardware chain and risk appetite on Friday.

The year-on-year increase in global semiconductor sales increased in September, and the cement price index rose. The main areas where the economy improved last week were: 1) the price of gold, silver, and cement in resource products rose, and most industrial metal inventories declined; 2) TMT continued its boom, and global semiconductor sales increased year-on-year in September; 3) the real estate economy improved, and commercial housing transaction area in 30 large and medium-sized cities increased sequentially, and the year-on-year decline narrowed. We recommend precious metals, building materials, food and beverages, home appliances, chemicals, pharmaceuticals, media, banks, etc. that are booming or improving.

Large net purchases of ETFs led to a decline in the scale of fund issuance. The total net outflow of financing capital in the first four trading days was 36.76 billion yuan; 11.5 billion new partial equity public funds were established, down 4.02 billion shares from the previous period; and net ETF subscriptions corresponded to a net inflow of 195.5 billion yuan. Last week, financing funds were net purchases of media, coal, banks, etc.; brokerage ETF redemptions were high, and new energy & smart car ETF subscriptions were high. Significant shareholders switched from a net increase in their holdings to a net reduction in their holdings, and the scale of planned holdings reduction declined.

AI media is flourishing more. AI technology is rapidly penetrating into all aspects of the media field. The scope of application covers fields such as AI comics, AI games, AI publishing, advertising and marketing, and content platforms. Among them, AI comics directly participate in content production through video generation technology, reducing production costs and shortening production cycles; AI games are mainly used in code development and art production to promote R&D efficiency improvement and gameplay innovation; and AI publishing covers text creation, editing and processing, intelligent layout, and digital content generation, transforming traditional publishing processes. Overall, AI comics, AI games, and AI publishing have taken the lead in forming relatively clear AI industry application scenarios, and are currently the three directions worth focusing on in the AI media field.

The overall A-share valuation level last week was higher than last week. The Wandequan A Index PE (TTM) rose 0.6 from last week, and is in the 51.9% fraction of the historical valuation level. Index valuations mostly rose last week. Among them, non-banks, media, and computers had the highest gains, while electronics, coal, petroleum and petrochemicals had the highest declines.