Fed Cuts Rates by 50bps; A-Shares Surge with 30% Upside Potential

Recently, the news of the Federal Reserve's interest rate cut has dominated the headlines.

After the Fed's rate cut, the A-share market has also seen some new movements, such as the index beginning to stop falling and rebound, and sectors like non-ferrous metals have seen a strong rise.

Institutions believe that the Fed's rate cut will help to improve the allocation opportunities for sectors like non-ferrous metals.

On September 18th, local time, the Fed announced a cut of 50 basis points in the target range of the federal funds rate to 4.75% to 5%, marking the first rate cut since 2020 and exceeding institutional expectations.

On the first trading day of A-shares following the Fed's announcement, September 19th, major indices stopped falling and rebounded.

On that day, the Shanghai Composite Index, Shenzhen Component Index, and ChiNext Index rose by 0.69%, 1.19%, and 0.85%, respectively.

The total transaction volume of A-shares on that day increased to 629.3 billion yuan, a 30% increase compared to the previous day.

Market views suggest that the Fed's rate cut will help to improve liquidity in A-shares.

Haitong Securities stated that the Fed's preemptive rate cut may help improve liquidity in A-shares, but the fundamentals still need to be verified in the medium to long term.

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Looking at the sector performance on September 19th, the vast majority saw varying degrees of increases, with non-ferrous metals, real estate, commerce, agriculture, light industry manufacturing, computers, building materials, food and beverages, and steel among the top gainers.

Non-ferrous metals saw the highest increase, exceeding 3%, ranking first in the sector increase.

Looking at individual non-ferrous metal stocks, on September 19th, stocks such as Pengxin Resources, Kingho Resources, Northern Copper, Jiaozuo Wanfang, Luoyang Molybdenum, and China Aluminum all saw strong rebounds.

Pengxin Resources achieved a "10cm" daily limit up, and on September 20th, the company's stock price hit the limit up again.

Pengxin Resources' main business is gold, copper, cobalt, and other metal mineral resources, and on September 13th, the company's stock price had already achieved a "one-word" daily limit up.

In addition to Pengxin Resources, many non-ferrous metal concept stocks have also entered a continuous rise pattern, such as Zijin Mining, which has risen for four consecutive days from September 13th to September 20th, with a cumulative increase of more than 10%.

Overall, the Fed's rate cut will have a synergistic impact on multiple sectors of the A-share market.

Regarding non-ferrous metals, many institutions believe that the Fed's rate cut will highlight the allocation value of non-ferrous metals.

For gold, Guojin Securities stated that historical experience shows that before and after the Fed's first rate cut, commodities other than gold are more cautious, and as subsequent U.S. labor data further weakens, gold will continue to benefit from the "double-sided" drive of declining real interest rates and a weakening dollar.

For base metals, Pacific Securities stated that as the rate cut cycle begins, data supports a stronger expectation of a soft landing, coupled with the arrival of the peak demand season, the outlook for base metal prices is positive.

Benefiting from both rising prices and increasing quantities, the performance of non-ferrous metals in the mid-term report is generally positive.

In addition to the external factor of the rate cut, the internal fundamentals of the non-ferrous metal sector are also improving, closely related to the factors of "rising prices" and "increasing quantities."

Non-ferrous metals can be divided into heavy metals (such as copper, lead, zinc), light metals (such as aluminum, magnesium), precious metals (such as gold, silver, platinum), and rare metals (such as tungsten, molybdenum, lithium, etc.).

The downstream involves many application fields such as construction, electricity, transportation, communication, aerospace, etc.

In the first half of this year, the prices of many sub-varieties of non-ferrous metals have risen significantly, such as the Shanghai copper contract 2411, which rose nearly 30% from January to mid-May this year; the gold contract 2412 rose more than 14% in the first half of this year.

Among the 135 non-ferrous metal concept stocks, 117 made a profit in the first half of this year, accounting for 87%; 84 companies achieved year-on-year growth in performance, accounting for 62%.

In terms of profit scale, companies such as Zijin Mining, China Aluminum, Luoyang Molybdenum, Jiangxi Copper, and Yunnan Aluminum all had a net profit of more than 2 billion yuan in the first half of this year, with Zijin Mining having the highest profit scale of 15.084 billion yuan.

In terms of performance growth, Yongmao Tai, Guocheng Mining, and other companies achieved a net profit increase of more than 10 times in the first half of the year, and many companies such as Changlu Shares, Hunan Silver, and Western Gold also achieved doubling growth.

Many companies stated that the main reason for the growth in performance is related to the rise in product prices and the increase in product sales volume.

Taking Guocheng Mining, which achieved a net profit increase of more than 10 times in the mid-term report, as an example, the company achieved a net profit of 42.991 million yuan in the first half of the year, a year-on-year increase of 1116.58%.

The company stated that the main reason for the growth in performance was the increase in the production and sales prices of silver concentrate and other products compared to the same period last year.

Another example is Luoyang Molybdenum, which has a high net profit scale.

The company's main business involves base metals and rare metals.

In the first half of this year, the company achieved a net profit of 5.417 billion yuan, a year-on-year increase of 670.43%.

The company stated that the main reason for the growth in performance was the significant increase in the production and sales volume of main products such as copper and cobalt, cost optimization, and the strengthening of copper market prices in 2024.

From the secondary market perspective, the company's stock price has also recently rebounded from a low position, with a cumulative increase of more than 10% over three trading days from September 18th to September 20th.

Against the backdrop of the rate cut, listed companies are optimistic about the industry outlook.

Shanghai Construction Group stated that the rate cut helps to stimulate investment, increase the valuation of real estate, indirectly boost the prosperity of the construction industry, and also help to reduce corporate financing costs.

The Fed's rate cut cycle has begun, and the long-term performance of gold has been good in previous rate cuts, which is beneficial for boosting the investment returns of the company's gold mining projects.

China Aluminum stated that from a macro perspective, the global economy is expected to maintain a moderate recovery trend in the second half of 2024.

The Fed's rate cut provides a loose macro environment for the rise in commodity prices, and it is expected that domestic aluminum prices will continue to fluctuate at high levels in the second half of the year.

Non-ferrous metal stocks have been highly recommended by institutions, and many targets have more than 30% room for increase.

Against the backdrop of the rate cut and the industry entering a "rising price and increasing quantity" phase, many non-ferrous metal targets have been highly recommended by securities institutions.

Among them, securities have given expected target prices for some companies, and there is a certain room for increase based on the latest closing data.

Statistics show that since August, many non-ferrous metal companies, including Zijin Mining, China Gold, China Aluminum, Yunnan Copper, and Yunnan Aluminum, have been recommended by securities firms.

Among them, most companies have been highly recommended by institutions, such as Zijin Mining, which has been recommended by nearly 20 securities firms since August, such as CITIC Construction Investment, Shanghai Securities, Guolian Securities, Zhongtai Securities, and Shenwan Hongyuan.

Regarding the focus logic of Zijin Mining, institutions mainly focus on the company's operating fundamentals.

For example, Shanghai Securities stated that the company's copper and gold business is rapidly expanding, and the prices of copper and gold are expected to rise, maintaining a "buy" rating.

Another example is China Gold, which has been recommended by more than 10 institutions, such as Guangfa Securities, Minsheng Securities, China Merchants Securities, and Huatai Securities.

Regarding the focus logic, Huaxin Securities stated that considering that gold prices still have room to rise, the company's newly built Shaling Gold Mine project is underway, and the long-term prospect of self-produced gold mine output growth is expected, maintaining a "buy" investment rating.

In addition to the companies mentioned above, many non-ferrous metal targets have been highly recommended by securities firms, such as Tin Shares, Tongling Nonferrous, Tianshan Aluminum, and Shenhuo Shares.

It is worth mentioning that many targets have been given relatively specific target prices by securities firms.

Based on the closing price as of September 19th, many targets have more than 30% room for increase compared to the target price.

For example, China Aluminum, Guangfa Securities gave its target price of 11.32 yuan, which has more than 60% room for increase compared to the closing price of 6.98 yuan.

In addition, Guotou Securities' target price for China Minmetals Resources, Guangfa Securities' target price for Tianshan Aluminum, Guotou Securities' target price for Shenhuo Shares, and Huatai Financial Holdings' target price for Chao Hengji, all have more than 50% room for increase compared to the latest closing price.