Zhitong Decision Reference | Market Develops Deeply

The Hang Seng Index broke through 23,241 points last week as expected. This means that the market will develop further.

Last Friday, U.S. stocks performed poorly, and the U.S. Consumer Confidence Index for February fell from 71.7 in January to 64.7, a month-on-month decrease of 9.8%, far below market expectations. The services PMI was only 49.7, below the expected 53.0, marking the first contraction in over two years.

Looking at Warren Buffett's letter to shareholders: Berkshire still hopes to increase its holdings in Japanese stocks. He also stated that if a country's fiscal situation is poor, the currency it issues will quickly depreciate. The U.S. is currently on the edge of danger. He strongly advises U.S. authorities to maintain the stability of the dollar.

In the past month, not only has southbound capital actively entered the market, but foreign investors' views on the Chinese stock market have also been rapidly warming, mainly buying Hong Kong tech stocks. It is expected that the Hang Seng Index will continue to expand upward this week. Pay attention to Nvidia's latest earnings report to observe the growth of AI data center revenue, as its earnings report will impact the entire AI industry. The second round of talks between Russia and the U.S. is imminent, and the results of the talks will also influence the stock market.

In terms of hot topics, AI continues to ferment. On February 22, news reported that Tencent's Yuanbao surpassed Doubao, rising to second place in the free APP download rankings in China; Jieyue Xingchen officially announced its focus on intelligent terminal Agent direction; the Qinghai Provincial Data Bureau spoke on the news broadcast: by 2025, the province's standard racks will achieve a doubling of computing power compared to last year. Robotics is also intensively stimulated, with the Vice Minister of Industry and Information Technology, Xin Guobin, holding a symposium for manufacturing enterprises: solidly promoting high-quality development of the robotics industry. Shenzhen: A special policy for humanoid robots will be released soon. Norway's 1X company launched the household humanoid robot Neo Gamma: capable of doing laundry and vacuuming. Overall, the market will repeatedly operate around AI cloud, computing power, and robotics.

[This Week's Golden Stock]

CHINASOFT INT'L (00354)

Huawei's official WeChat account announced that the Huawei China Partner Conference 2025 will be held from March 20 to 21 at the Shenzhen International Convention and Exhibition Center (Baoan). Chinasoft International's JointPilot AI application platform has successfully integrated the DeepSeek-R1 model, providing enterprises with richer and more efficient large model application scenario implementation services.

As a leading player in the Huawei ecosystem, Chinasoft International established the AIGC Research Institute in May 2023, beginning to focus on the AI Agent field, and currently possesses the core capabilities to build AI Agent applications. Chinasoft International announced this month the launch of an upgraded one-stop artificial intelligence service solution supported by the DeepSeek-R1 671B base model and Huawei Cloud, which helps enterprise clients quickly deploy the DeepSeek base model, customize exclusive models, and rapidly connect business via API, accelerating clients' use of generative AI in business operations.

Recently, the HarmonyOS apps for several financial clients that the company is responsible for constructing have completed internal testing and have successfully been listed on the Huawei App Market. On February 5, Huawei announced that the Xiaoyi Assistant App, based on the native HarmonyOS, has integrated DeepSeek In terms of emerging businesses, since its launch in 2019, it has covered areas such as digitalization and cloud services. In 2023, a cloud HPC center was established in collaboration with Huawei, with a gross margin of 20-30% for emerging businesses. However, due to being in the early stages, there are significant sales and marketing investments, leading to high operating costs. Harmony OS brings new opportunities, with the app store development and the Internet of Things field, as well as HIMA in scenario applications and software/OS development, creating more business expansion space for the company. With multiple business cooperation lines and deep binding with Huawei, the company has been awarded the top Huawei Cloud ecosystem partner, precisely targeting core industries such as energy, steel, and pharmaceuticals, successfully landing over 40 CTSP projects, while cloud intelligence and automotive businesses are also developing steadily.

【Industry Observation】

The release of domestic AI models such as DeepSeek has triggered a revaluation of Chinese tech stocks by global investors. With the rise of the Hong Kong stock tech sector, the biotechnology sector has seen a significant increase in attention, while the current market capitalization of the Hong Kong healthcare sector accounts for only 4%. Previously, southbound funds were the main purchasing power, while overseas fund positions remain relatively low.

Chinese innovative drugs are also expected to welcome the DeepSeek moment, and it is recommended to pay attention to overseas expansion and clinical competitiveness.

First, quantity as the foundation, establishing breadth: As of August 2024, from a patent perspective, China's share in the global innovative drug pipeline reaches 36%. We believe that MNCs' purchases of innovative drug pipelines cannot be separated from the Chinese market;

Second, quality as king, establishing height: Fast follow helps Chinese innovative drug companies accumulate technology and enhance innovation capabilities, with Chinese quality gradually being recognized. Third, turning losses into profits, profit cycle: Companies such as BeiGene, Innovent, Hutchison China MediTech, and Zai Lab are expected to turn losses into profits within 1-3 years, entering the profit release stage.

Key stocks to focus on in the Hong Kong market include Kelun-Biotech, BeiGene, Innovent, Hutchison China MediTech, and Zai Lab.

【Data Monitoring】

The Hong Kong Stock Exchange announced that the total number of open contracts for the Hang Seng Index futures (February) is 114,681, with a net open interest of 32,677. The settlement date for the Hang Seng Index futures is February 27, 2024. This period's index settlement.

From the distribution of bullish and bearish positions on the Hang Seng Index, at the 23,478-point level, the concentrated area for bullish certificates is close to the central axis, indicating that the Hang Seng Index has the momentum for a high adjustment. Although the value of Chinese tech assets is being re-evaluated by global investors, a significant decline in the US stock market may dampen investor sentiment. From the bullish and bearish data, the Hang Seng Index faces adjustment pressure this week.

【Editor's Remarks】

The enthusiasm for southbound trading remains high. Although holdings account for only about 14% of the total shares in the Hong Kong stock market, the contribution to the total trading volume in the past five trading days has approached 48%, reaching a historical 99th percentile level. After the Spring Festival, in addition to dividends represented by banks, there has also been a significant inflow into internet + operators related to AI computing power. Since February, foreign capital has mainly been passive funds (such as ETFs, $1.7 billion) flowing into A-shares + H-shares + ADRs, or mainly individual investors. In terms of sentiment, the current short selling transaction ratio has risen to 15.6%, about the 49th percentile since 2018, indicating that bullish sentiment may slightly cool in the short term