US Rate Cut and China Stimulus Ignite Fosun's Surge

HONG KONG, Oct 15, 2024 - ( JCN Newswire ) - As we enter the fourth quarter, the market buzzes with optimism. The U.S. Federal Reserve's interest rate reduction, aimed at bolstering liquidity, has drawn Chinese mainland capital inflow into the Hong Kong stock market. Just before China's National Day holiday, the People's Bank of China (PBOC) unveiled a series of pivotal measures: a reserve requirement ratio cut, an interest rate reduction, and a decrease in existing mortgage rates. Analysts and commentators widely regard these moves as unprecedented since 2008. Notably, the PBOC's injection of at least RMB 800 billion into the stock market represents a historic milestone.

On 10 October, the People's Bank of China (PBOC) made a significant move by introducing a swap facility, initially valued at RMB500 billion. This facility aims to bolster capital market development and further invigorate both the Hong Kong and A-share markets. Just two days later, on 12 October, Lan Fo'an, Minister of Finance of the People's Republic of China, announced a forthcoming series of targeted incremental fiscal policy measures. These measures are designed to support high-quality economic development, with a focus on stabilizing growth, expanding domestic demand, and mitigating risks. As the economy stabilizes and corporate earnings improve, the overall market is poised for a new phase of growth.

Interest rate cuts poised to register gains in Hong Kong's stock market

The U.S. Federal Reserve has implemented a 50-basis-point interest rate cut, the first in four years. According to the Fed's projections, the federal funds rate is expected to reach 4.4% by year-end, falling within a target range of 4.25% to 4.5%. Looking ahead, the rate is anticipated to decrease further to 3.4% by 2025 and 2.9% by 2026. Market sentiment suggests that another 50-basis-point rate cut may occur this year, with expectations of a full 100-basis-point reduction next year.

As the Federal Reserve initiates rate cuts, it will ease the capital outflows and stabilize currency fluctuations in countries beyond the United States. This policy shift also grants greater flexibility to central banks worldwide, including China, enabling them to tailor their monetary strategies to foster economic expansion and bolster stock market performance. In this evolving landscape, bonds emerge as an attractive option. As deposit rates are projected to gradually decrease during the rate-cutting cycle, investors can secure appealing fixed returns over the long term. Additionally, both stocks and bonds"particularly those with robust growth potential and stable fundamentals"are poised to attract significant interest among investors in the short term.

Despite several major supportive measures introduced by the central government, the stock market experienced a pullback after the National Day holiday. Nevertheless, institutions like Morgan Stanley, HSBC, and CITIC have expressed confidence in the government's unwavering dedication to economic stimulation. These institutions anticipate the gradual introduction of additional measures, amounting to trillions, with an aim at bolstering the economy. Market sentiment suggests that these economic stimulus measures will be moderate and sustained, recognizing that a steady rise in stock market plays a crucial role in driving economic growth and encouraging consumer spending.

Given the government's steadfast commitment to boosting consumption, Fosun International (00656), a leading global innovation-driven consumer group, remains undervalued for an extended period. It is poised to emerge as a frontrunner. Notably, the significant increase in Fosun International's share price subsequent to earlier stimulus measures underscores its considerable growth potential.

Successfully building industry leaders to strengthen core industrial advantages

Since 10 September, Fosun International's stock price has steadily risen, resulting in an impressive cumulative increase of 58.46%. Notably, this increase surpasses the Hang Seng Index's 34.26% increase during the same period.

The recent surge in Fosun International's share price is underpinned by the company's solid fundamentals. Guo Guangchang, Chairman of Fosun International, emphasized during the interim results presentation that despite the challenging macro environment, Fosun International remains committed to its core business-focused strategy and continued to cultivate industry-leading companies and develop excellent products in advantageous sectors. So far, this strategy has yielded positive results.

Recently, Fosun International strengthened its advantages in core industries such as pharmaceuticals, tourism, consumption, and insurance by focusing on its core businesses, garnering market optimism. During the National Day holiday, the tourism sector experienced a strong start, with the tourism-related stocks seeing significant growth. During the first week of October, Fosun Tourism Group's (FTG) share price surged nearly 40%, reflecting the market's high recognition of the company's asset-light strategy and investors' confidence in FTG's growth potential. Currently, 85% of FTG's resorts operate under an asset-light model, making it one of the few leading tourism companies in the domestic market with both an asset-light approach and global operational capabilities.

Guo Guangchang mentioned on Weibo that the stock market's rally before the holiday gave everyone a sense of financial comfort. The wealth effect of rising stocks has truly stimulated consumer demand and driven an increase in spending. Sales of the company's Atlantis Sanya and Shede's baijiu saw a rapid rise during the holiday. Taking Shede as an example, as a renowned Chinese liquor company, it carried out promotions across its entire product line during the National Day holiday. Several products showed significant year-on-year increases compared to last year's sales. Among them, the high-end strategic product in the RMB1,000 price range, Collection Shede 10-Year Edition, saw a remarkable year-on-year sales growth of 384%. Crystal Shede experienced a 224% increase in sales, while the sales of T68 Tuopai Exceptional grew 80%, and the sales of Tuopai Qiujiu rose 69%.

In addition to the improving tourism and consumer businesses, Fosun's pharmaceutical and insurance businesses have also attracted positive market attention. As a leader in pharmaceutical innovation in China, Fosun Pharma has been optimizing its asset structure and accelerating cash inflow this year. It recently announced its plans to privatize its innovative drug platform, Shanghai Henlius, and to fully acquire the core cell therapy platform, Fosun Kite, with a view to focusing on its core innovative assets. Supported by favorable national measures and strong R&D and commercialization capabilities, Fosun Pharma has established itself as a leader in China's innovative drug market. In the first half of the year, it generated over RMB3.7 billion in revenue from innovative drugs, with steady growth expected in the second half. During the National Day holiday, Fosun Pharma's share price performed well and continued to increase. Since September, its share price has risen nearly 25%.

Recently, Fitch, one of the leading international credit rating agencies, upgraded Fidelidade's Insurer Financial Strength (IFS) Rating to "A+" from "A" and its Long-Term Issuer Default Rating (IDR) to "A"from "A-", maintaining stable outlooks. This represents the highest ratings Fitch has granted to a Portuguese financial company. The upgrade confirms that strategies implemented by Fidelidade have consistently strengthened its financial stability and reflects the improvement in Fosun's global operational capabilities. Fitch highlighted Fidelidade's sound business profile, strong capitalization, robust financial performance and profitability, and low investment portfolio risk.

USD888 million syndicated loan issuance demonstrates continued recognition of Fosun's credit quality by domestic and international banks

On 30 September, Fosun International announced the closure of a sustainability-linked syndicated loan totaling USD888 million through greenshoe, one of the largest of its kind issued by Chinese private enterprises this year. It is worth mentioning that the loan is a three-year senior unsecured working capital loan and the participating banks include several leading banks from Greater China, the Asia-Pacific region, and Europe and the Americas. This reflects the continued recognition of the Group's credit quality by both domestic and international banks. Fosun's sound financing channels can lay a solid foundation for the company's steady development.

Recently, several securities firms have highlighted the effectiveness of Fosun International's core business-focused strategy, with innovation and globalization driving healthy growth, while maintaining a declining leverage ratio and sound financials. Fosun has actively optimized its asset portfolio, consistently reduced leverage and strengthened cash reserves. As of 30 June 2024, the Group's adjusted total debt-to-capital ratio was 50.2%, maintaining a downward trend since 2020. In June 2024, international rating agency S&P fully recognized the effectiveness of Fosun's financial strategy and affirmed its rating outlook as "stable".

According to various research reports, as Fosun's business becomes more focused and its financial indicators improve, its future business development and profitability are becoming more predictable. Notably, globalization, innovation, and its sound asset-light operational capabilities are poised to drive a new round of growth for Fosun.

It is evident that benefiting from national measures, Fosun International and its subsidiaries have entered a new phase for potential valuation enhancement. The recent pullback in share prices could be an attractive buying opportunity for investors.