Daily Investment Strategy

Daily focus：Tongcheng Travel（780）

In the face of potential tariffs, the enhancement of policies to promote domestic demand to counteract the impact of Trump 2.0 will be the main theme in coming years. The General Office of the State Council recently issued the “Certain Measures on Further Cultivating New Growth Points and Prospering Culture and Tourism Consumption”, which proposed to organize a series of activities to boost consumption through culture and tourism, and to support the strengthening of cooperation among different regions in terms of sending tourists to each other and promoting the resources of each other. The authority will encourage the introduction of culture and tourism consumption vouchers and consumption discounts, as well as other preferential and regionally integrated consumption and benefit measures. We anticipate that this year's "Two Sessions" will again mention large-scale consumption stimulus, which will benefit consumption-related sectors. In our view, consumption stimulus policies are likely to have a more significant impact on the low-tier market. As of the end of June 2024, over 87% of Tongcheng Travel's registered users reside in non-first-tier cities in China, indicating that Tongcheng has been focusing on lower-tier cities, and as travel becomes a necessity for ordinary people, residents of non-first-tier cities are expected to gradually become the emerging force in outbound travel consumption, directly benefiting Tongcheng Travel. We believe that the travel boom story is still ongoing, especially under the current circumstances of promoting domestic consumption. Benefiting from strong demand for domestic tourism, Tongcheng's earnings per share are expected to grow by about 19-20% in 2025 and 2026, surpassing the profit growth of its peers, and thus, its stock price has the potential to catch up. Target price: $22.8.

S&P 500 slumps, as China's DeepSeek AI poses a huge threat to U.S. AI dominance

The S&P 500 fell 1.5%, the Dow rose 289 points, or 0.7%, and the Nasdaq fell 3.1%. The S&P 500 Volatility Index surged more than 20% to around 18. Chinese artificial intelligence startup DeepSeek has launched its latest model, the R1, which it says has performance comparable to leading U.S. models such as OpenAI’s ChatGPT, but at a significantly lower cost. The advancement poses a competitive threat to established players in the field of artificial intelligence hardware, especially Nvidia, whose shares fell about 17%. Other AI-related stocks were also down, with companies such as Broadcom, AMD, Microsoft and Palantir all falling sharply. Shares of power companies including Vistra Energy Corp and Constellation Energy Corp, which had previously gained from betting on increased energy-related AI demand, also fell sharply. On the corporate front, attention this week is likely to be on quarterly results released this week by a number of influential technology companies. Meta Platform, Apple, Microsoft and Tesla will all release results.

Hong Kong Stock Connect had a net inflow of HK$9.07bn on Monday of which Tracker Fund (2800) had the largest net inflow, reaching HK$3.5bn; followed by HSCEI ETF (2828). SMIC (981) recorded the largest net outflow at $0.85bn, followed by KingSoft Cloud (3896).