Zhitong Decision Reference | Hang Seng Index continues to decline, bearish momentum weakening

[Editor's Market View]

Last week, the positive news only lasted for one day, and the Hang Seng Index continued to decline after reaching a high of 18,000 points. The biggest constraint on the market is the drag from the real estate sector, as well as the tightening measures by regulatory authorities and the hawkish stance of Federal Reserve officials.

The focus this week is on the meeting between the Chinese and US presidents in San Francisco, with the market hoping for some positive outcomes. The key areas of observation include the 301 tariffs, climate cooperation, and bilateral trade.

This meeting has a certain foundation, and the main consensus between the two sides is to establish an economic and financial working group led by deputy ministerial officials, which will report to the leaders of both sides and hold meetings. The leaders of both sides have agreed to communicate directly on a regular basis. It is emphasized that China and the US do not seek economic "decoupling" and agree to cooperate on economic issues related to climate change, as well as low-income and emerging economies' debt issues.

The bearish momentum of the Hang Seng Index is weakening after continuous declines, and it is expected to rebound in the first half of the week based on expectations for the meeting. The focus will be on whether the outcomes exceed expectations. It is worth noting that rating agency Moody's has downgraded the outlook for the US sovereign credit rating from stable to negative, but it still maintains the highest rating of Aaa. The reason is the rise in interest rates and doubts about the government's ability to implement effective fiscal policies. Credit damage may increase the risk of a US government shutdown on November 17th this week. In addition, social financing data, electricity generation, and earnings reports from internet giants will also have a significant impact on the market.

In terms of hot topics, reelshort, a short drama platform under Chinese Online, went viral again over the weekend, ranking second on the overall download chart in the US and first on the entertainment chart, and entering the top ten in 40 countries. The concept of short dramas is worth paying attention to.

Zhong Nanshan predicts that in the near future, including this month, next month, and January, there will be a small peak in infections, and it is recommended to get vaccinated as soon as possible. At the same time, Simcere Pharmaceutical's confirmation of the benefits of its new blood vessel drug, Simeglurant, has stimulated innovation in the pharmaceutical industry.

According to The Wall Street Journal, Tencent has reached a preliminary agreement with Meta to sell Meta's affordable VR headsets in China (exclusive distribution) later next year. Apple's MR headset, Vision Pro, will also see new catalysts. AI+VR hardware may become a future trend.

[Stock Picks of the Week]

BeiGene (06160)

BeiGene (06160) announced that for the three months ended September 30, 2023, the company achieved a total operating revenue of RMB 5.624 billion, a year-on-year increase of 111.5%; product revenue was RMB 4.287 billion, a year-on-year increase of 79.2%, accounting for 76% of total revenue; and net profit attributable to shareholders in the third quarter was RMB 1.341 billion, turning from a loss to a profit.

"King of Innovative Drugs" BeiGene delivered a very good performance in the third quarter, with revenue growth mainly driven by the continued sales growth of its independently developed BTK inhibitor, zanubrutinib, globally and the PD-1 tumor drug, tislelizumab, in China, as well as the sales growth of authorized products from Amgen in China. The company also confirmed deferred revenue from its collaboration with Novartis in 3Q23, with total collaboration revenue for 1-3Q23 amounting to USD 265 million. BeiGene's product revenue for the first three quarters reached RMB 10.984 billion, surpassing RMB 10 billion for the first time, with a year-on-year increase of 81%, exceeding last year's full-year product revenue. The biggest highlight is the continuous increase in the overseas market share of Zebutinib, which has reached 16-19% in the three major BTK markets in the United States as of 3Q23, an increase of 6-7ppt from 1Q23. In the third quarter, overseas revenue accounted for more than 80% of Zebutinib's total revenue, making it the "first domestically developed anti-cancer drug to go global". BeiGene has submitted a new indication for the combination of Zebutinib and Apatinib for the treatment of follicular lymphoma (FL) to the US FDA and has been accepted for review. The FDA is expected to make a decision on this application in March 2024. Europe will also contribute incremental growth in the fourth quarter. Tislelizumab, another star product of BeiGene, has already been approved in the European Union for the second-line treatment of adult patients with esophageal squamous cell carcinoma (ESCC), achieving a breakthrough in the "zero" export of domestically produced PD-1 inhibitors.

In 2024, BeiGene will also submit applications for marketing approval in the United States, European Union, Japan, and China to further expand the global layout of Tislelizumab. In terms of production, the company's total production capacity at the Guangzhou biopharmaceutical production base has reached 64,000 liters. In addition, in Suzhou, the newly built small molecule innovative drug industrialization base will be completed this month. In New Jersey, USA, the new production base and clinical research center are entering the final stage of construction and are expected to be operational in the summer of 2024.

[Industry Observation]

Novo Nordisk disclosed the latest data from the SELECT Phase III clinical trial of semaglutide 2.4mg dose at the American Heart Association Scientific Sessions (AHA 2023) on November 11, 2023. The semaglutide 2.4mg dose group showed a 20% reduction in major cardiovascular disease risk and an average weight loss of 9.4%. The company has applied for label updates for Wegovy in the United States and the European Union in September 2023, including the inclusion of the reduction of major adverse cardiovascular events in adults with body mass index (BMI) ≥27kg/m2 and diagnosed cardiovascular disease as an indication.

Cardiovascular disease accounts for one-third of global deaths, and semaglutide is expected to benefit significantly. Novo Nordisk announced last Friday that it will invest over DKK 42 billion (approximately USD 6 billion) from 2023 to expand its production facilities in Denmark for the production of current and future products for severe chronic diseases. The construction project will be completed gradually from the end of 2025 to 2029.

Novo Nordisk stated that this investment will create more capacity in the company's global value chain, including the production and packaging of active pharmaceutical ingredients, with the majority of the investment being used to increase the production capacity of active pharmaceutical ingredients. The company said in a statement, "This investment will enhance the company's ability to meet future market demand, including GLP-1 products."

Eli Lilly announced on November 8, 2023, that the FDA has approved the listing of its Zebound (Trelleborg peptide) injection for use in adults with obesity (BMI≥30 kg/m2) or overweight (BMI≥27 kg/m2) who have comorbidities such as hypertension, dyslipidemia, type 2 diabetes, or cardiovascular disease related to weight, for weight loss and weight maintenance. Zepbound is the first GLP1/GIP dual agonist to receive such approval.

Hong Kong stock recommendations focus on: Pharmaceuticals: Sino Biopharmaceutical (01801), Fosun Pharma (03933); APIs: WuXi AppTec (02359), Kanglong Chemical (03759), Sinopharm Group (02257).

[Data Analysis]

Data released by the Hong Kong Stock Exchange shows that the total number of open positions for Hang Seng Index futures (November) is 121,468 contracts, with a net open position of 48,195 contracts. The settlement date for Hang Seng Index futures is November 29.

Looking at the distribution of long and short positions in the Hang Seng Index at the 17,203 level, the concentration of long positions near the axis indicates bearish sentiment in the Hong Kong stock market. Moody's has changed the credit rating of the United States to negative, and Powell has issued a hawkish warning about future policy interest rates. The Hang Seng Index is expected to decline this week.

[Editor's Note]

Based on recent discussions, institutions currently maintain a neutral view on the overall Hong Kong and A-share market. The hot sectors include biopharmaceuticals, semiconductor chips, consumer electronics, short dramas, and computing power, while real estate and finance receive less attention. Sometimes, we can focus on industries and sectors with lower attention, as there may be opportunities brewing. Last week, there was intense debate about liquidity in the Evergrande Group, which was reflected in the market's long and short positions. Regardless of future changes, one thing remains unchanged: after a brutal reshuffling, the real estate industry will see "survival of the fittest".

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