<i>CITIC Securities Warrants & CBBCs Special - Continuous Discussion on Warrants and CBBCs</i> Has the AI correction bottomed out? | Is a rebound opportunity for Hang Seng Tech here? | Hua Hong | Tencent | Xiaomi | Alibaba

$PHARMARON(03759.HK) $WUXI APPTEC(02359.HK) $Z.AI(02513.HK) $SMIC(00981.HK) $TENCENT(00700.HK) $MEITUAN(03690.HK) $XIAOMI-W(01810.HK) $BABA-W(09988.HK)

Core Theme Opening: Three Key Points of This Round of AI Adjustment, Korean Stocks, and De-leveraging

Olga: Over the past three weeks, we have produced a series of content. Previous rounds of market adjustments were caused by geopolitical conflicts and policy changes, but this round of adjustment was triggered by the AI sector's own market dynamics. Today, we will focus on a core question: Has this round of adjustment bottomed out? Several major US AI companies are releasing earnings this week, and everyone is closely watching their capital expenditure; meanwhile, China has launched Kimi K3. Does this mean that things are turning around for the memory sector and the recently rebounding internet and semiconductor tech stocks? Let's switch back to the web interface and start with semiconductors.

Sam: In the coming one, two, or even four weeks, there are three core keywords for the market: semiconductors, Korean stocks, and leverage.

I have shared many leading indicators with everyone before. In the first half of the year, Hong Kong stock market funds were heavily absorbed by the semiconductor sector. The biggest momentum for the HK stock rebound came from the reversal of this absorption effect. You can treat US tech stocks led by Microsoft as a leading signal.

The company previously released a research report, analogizing the lithium battery sector's market at that time, and predicted various signals before the semiconductor peak in advance, all of which have now come true.

A new indicator that people rarely pay attention to has been added: the Korea Kospi Volatility Index, corresponding to the HK VHSI and US VIX panic index, used to measure market volatility and the demand for volatility-related options products. When the market crashes significantly, this index surges dramatically.

Olga: Recently, Korean stocks have rebounded, but the volatility index has not fallen for a long time. Many viewers have questions. Are there two reasons behind this?

Sam: The first, more pessimistic guess: this rebound is only a false rebound; the second core reason: the Korean market is still continuously deleveraging. Local regulators have introduced multiple restrictive policies: increasing margin requirements, controlling leveraged ETFs, prohibiting the issuance of related new products, and limiting single transactions of existing products to only 20 shares. The goal of regulation is to structurally reduce the market leverage level to a safe range. If leverage does not reach the target level, control policies will continue to be introduced subsequently, and the market's volatile 行情 will not end.

According to historical patterns, before the market truly stabilizes, the volatility index needs to fall significantly, but so far there are no obvious signs of downward movement.

Olga: If the Korean market completes its deleveraging, can the stock price break through previous highs?

Sam: We should not be too optimistic in the short term, for two reasons:

1. Historical pattern: High points pushed up by massive leverage are difficult for the market to return to after deleveraging. The historical high of the A-share Shanghai Composite Index and multiple overseas markets have shown similar trends. Subsequently, the market will no longer allow the accumulation of leverage on the same scale.
2. Korean retail investors (nicknamed "Kimchi Team" and "Ant Army" in the industry) have extremely strong faith in AI semiconductors. After the pullback, many retail investors believe that the decline is an opportunity to buy the dip. Even if they are forced to liquidate positions, they will switch to leveraged ETFs to continue holding. The pace of deleveraging is very slow.
   Only when retail investors' investment enthusiasm and market faith cool down significantly can the leverage level reach the standard satisfactory to regulators. But by then, the risk-reward ratio for betting on a rebound will be poor: betting on a 10% rebound while 随时 bearing a 20%-30% drawdown. Repeated operations over the long term will likely result in losses.

Olga: Will the continued volatility of Korean stocks affect surrounding related sectors?

Sam: Yes, but at the same time, the absorption effect of semiconductors will continue to loosen. Assuming the US economy is stable, liquidity will not continue to tighten, and inflation pressure is controllable, funds will disperse to various sectors, and the market will bloom like flowers. The Hang Seng Tech Index in HK has recently warmed up, and the funding side will continue to benefit. Korean investors generally have a radical style and are keen on various high-leverage derivative tools. Their enthusiasm for participating in HK derivative tools is also very high.

CRO Pharmaceutical Sector, WuXi AppTec, Pharmaron

Olga: Many viewers have sent questions, let me organize them: Some ask about Zhao Yan's related "Monkey Module" pharmaceutical stocks, the trend of WuXi AppTec, and the market performance of Hengke, Zhipu, Xiaomi, and Meituan. Over the past month, HK AI semiconductors have generally pulled back, but the CRO pharmaceutical sector has performed extremely strongly, with Pharmaron rising sharply throughout.

Sam: The "Monkey Modules" everyone talks about all belong to the CRO industry. The sector leader is WuXi AppTec. Since January this year, it has completely crossed bull and bear markets, unaffected by the rise and fall of the AI sector, with an independent trend. After the 10-day moving average broke through the 50-day moving average, it did not break below again. It belongs to a sector quietly laid out by long-term funds.

The CRO industry plays the role of "selling shovels" in the innovative drug track. Industry prosperity directly reflects the demand for innovative drugs. For ordinary investors, choosing the leading WuXi AppTec makes it easiest to grasp the market trend. Funds have only just started to pay attention recently. Every pullback offers an opportunity to get on board, unlike the AI new track where funds flood in at once without a pullback window.

Olga: What hidden worries exist for WuXi AppTec? Are there any recommended warrant products?

Sam: Two core hidden worries: global liquidity environment and China-US relations. WuXi AppTec's US business accounts for 40%-60% of its total, and future earnings growth also highly depends on the North American market. Five years ago, the stock price belief collapsed, and the core inducement was the deterioration of China-US relations. This year, exchanges and visits between the two sides have warmed up, and the market has re-priced the leading enterprise's valuation.

If you are bullish on WuXi AppTec, you can refer to warrants (15362), with leverage of about 4 times.

Zhipu, Domestic Semiconductors (Hua Hong, SMIC)

Olga: The most asked question is about Zhipu. It surged 40% in a single day today. Some viewers worry it will crash like Minimax, while others ask if the core reason for this rebound is the Nio-related plan or the impact brought by Kimi K3?

Sam: Zhipu's stock price fluctuates extremely. Most retail investors find it hard to bear. It will be much simpler to consider operations after a big drop. Chasing highs carries extremely high risks.

The market generally believes that the main reason for today's rebound is the Nio-related plan, but I hold reservations. Forcing the daily rise and fall to bind to a single message itself has limitations. The core variable truly affecting it is the release of Kimi K3: Initially, Zhipu drove its stock price surge with its own new model. Now that competitor models have gone viral, its valuation will naturally be suppressed.

Although Zhipu has already achieved profitability, compared to its hundreds of billions in market cap, the profit scale is insufficient to support the current valuation. Stock prices are mainly priced based on market sentiment and industry benchmarks: Institutions will use the valuations of OpenAI and Anthropic as anchors to adjust the pricing logic of domestic large model enterprises. Retail investors may feel this logic is unreasonable, but institutional funds will operate according to this line of thought.

Subsequently, the market will realize that no matter how advanced the large model technology is, it cannot do without computing power support at the bottom layer. Therefore, the domestic semiconductor substitution sector had the strongest gains today: Hua Hong rose 17% in a single day, and SMIC rebounded nearly 9% cumulatively in this round.

Olga: What are some references for warrants corresponding to Hua Hong and SMIC?

Sam: Hua Hong has had the strongest sector performance this year, with its valuation reaching a volatility range close to 100. If bullish, you can refer to (13010); Hua Hong Industrial (981) has relatively smooth volatility, with leverage around 3 times.

Technically, SMIC's 10-day moving average briefly broke below the 50-day moving average. If it stands above this moving average again, it will open a new round of market trends. For high leverage, choose (14768); for steady 3x leverage, choose (14728).

In addition, both Hua Hong and SMIC benefit from the positive news of Zhipu building a fully domestic data center. There are also rumors of funds entering the market to stabilize the semiconductor sector.

Hengke, Tencent, Xiaomi, Meituan, Alibaba

Olga: Many viewers who usually trade semiconductors have switched to Hengke, but feel that Hengke's daily rise and fall is only one or two points, lacking stimulation, and want to amplify volatility through leverage.

Sam: After Tencent's 10-day moving average broke through the 50-day moving average, it has maintained a volatile upward pattern. Market funds predict that the stock price will form a head-and-shoulders bottom pattern. The company regularly releases various positive news, and next month will officially enter the earnings disclosure period.
If you feel Tencent's volatility is too small, you can choose high-leverage warrants (28942), with leverage close to 10 times, expiring in mid-November. Remind everyone that for high-leverage products, you must reduce position sizes. Many investors suffer significant losses buying 2x leveraged ETFs, the root cause being loss of position management control.

Olga: Some viewers ask if Xiaomi and Meituan can achieve a trend reversal?

Sam: Xiaomi rebounded in a straight line in the short term without healthy pullbacks to accumulate strength. There are only two subsequent trends: either a significant adjustment comes, or there are major potential positives yet to land. If a pullback occurs, you can layout opportunistically. For bullish warrant references, see (15138).

Meituan currently cannot confirm entry into a right-side uptrend. The 90-100 range is a strong resistance level. Its AI business purity is also inferior to other Hengke leaders. In the short term, it will likely maintain oscillation in the 80-90 range. Buying after a pullback has a higher win rate. For high-leverage products, choose (23112), with leverage of about 7 times.

Olga: Alibaba's recent trend is weak. Some viewers feel the upward momentum is insufficient?

Sam: I do not agree that Alibaba is weakening. The first resistance level for the Hang Seng Index is at 25,000 points. If it subsequently attacks 26,000 and 27,000 points, Alibaba will become the leading gainer. The market underestimates the value brought by the cooperation between Alibaba and Apple, greatly enhancing its appeal to overseas foreign capital. If bullish, you can refer to (29660), with leverage close to 6 times.

Additional Data Sharing: Northbound Capital Flows via Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect

Olga: Some viewers asked about the difference in fund flow trends for Shanghai and Shenzhen Stock Connect. After the end of March, the fund flows in both directions were completely opposite. What is the reason?

Sam: The HKEX will publish cumulative northbound capital flow data. The blue line represents Shanghai Stock Connect, with continuous net buying; the orange-red line represents Shenzhen Stock Connect, which has been continuously reducing positions since the end of March, with cumulative funds turning from positive to negative.

Olga: Perhaps funds have shifted to targets like Changfei and Kitakyushu. After entering July, Shenzhen Stock Connect funds began to flow back. If the bottom is confirmed, it will continue to flow in for the next two or three months, benefiting large-cap Hengke stocks. Related data can be viewed on the CITIC Warrants official website citicswarrants.com, in the market data section, checking daily Shanghai-Shenzhen-Hong Kong Stock Connect buy/sell details.

Sam: At the macro level, the deleveraging process of Korean stocks and the semiconductor sector has not yet ended. The sector will continue to oscillate, and the fund absorption effect continues to loosen. Technical signals for Hengke leaders (Tencent, Alibaba, WuXi AppTec) show a healthy signal of the 10-day line crossing the 50-day line. Subsequent funds have support.

Olga: Thank you, Sam, for today's sharing. Next Tuesday afternoon at 2 PM, same time slot, welcome everyone to share the program with friends around you who invest in HK stocks. See you next week!

Sam: Bye bye!