Editor's note: Chen Jiahe is the chief investment officer at Novem Arcae Technologies. The article reflects the author's opinions, and not necessarily the views of CGTN.

Throughout April, many listed companies in China have published their financial statements for the first quarter of 2021. While the GDP growth rate tells us the overall picture of the economy, these financial statements tell us the detailed performances of industries in China's economy.

Overall speaking, the financial statements of listed companies tell us a very positive economic momentum in the first quarter of the year. While the economy was hit very hard in the first quarter of 2020, it is now fully recovered from the impact of the COVID-19. Many listed companies have reported a massive increasing of their profits compared with one year ago. While reading through these statements, an investor can easily come across a lot of terms that states "a growth rate of a few hundred percentage points."

Meanwhile, the financial reports differ from industry to industry. For some industries that are recovering extremely well, such as tourism, shipping, international trade, coal, securities, we can find that the financial statements have been particularly good.

Amid these industries, the shipping industry has reported extremely good financial statements in the first quarter, thanks to the prosperous export that China is making amid the global campaign against the pandemic. For example, the COSCO Shipping Holdings, which is one of the largest shipping companies in China, has reported a profit of 15.4 billion yuan ($2.36 billion) in the first quarter along. The stock price of the company has increased by 17 percent this year, following a 132 percent increasing in 2020.

On the other hand, the domestic delivery industry has reported a lot of loss and has brought a big surprise to the market. The reason behind this surprising drop in the profit is not because the delivery industry is shrinking. On the contrary, China's internet shopping is growing in double digits in these years, which has brought a lot of businesses to the delivery industry. The sharp dropping in the delivery industry's profit is mainly caused by a severe competition between companies.

As price cutting has been used as the major weapon in this competition and the delivery cost for one item can be lower than two yuan, many delivery companies have reported a sharp dropping with their profits. The stock market did not anticipate this and the stock prices of many delivery companies have been disappointing.

Furthermore, one of the largest industries in the stock market, the banking industry, has reported a very stable financial statement in the first quarter. The profitability is stabilized between 10 and 15 percent, while the capital adequacy ratio (CAR) is around 16 percent for large banks and 12 percent for medium banks. The non-performing loan (NPL) ratio is usually within two percent. This gives the investors a lot of confidence to the banking industry.

Since the banks are having one of the lowest valuations in China's stock market, together with the promising financial statements that they have issued in the first quarter, their stock performances have been very good in 2021. The Shanghai Banking Index increased by 5.2 percent since the end of 2020, while during the same period the Shanghai and Shenzhen 300 Index, which is benchmark index of the market, has dropped by five percent.

One phenomenon in China's equity market this year is that the stock prices have dropped sharply for some companies that had very high valuations at the end of 2020. Many of these companies are very good companies but their valuations were pushed to very high levels. At the end of last year, PE (price earning) ratios of 50 to 100 times have been very common for these companies. The stock prices of many of these companies have seen a very large correction this year.

In the Hong Kong market, there is a particularly important area that investors shall pay their attention to, which is to the companies with high dividend yield and low valuation. As the price performance gap between companies with high valuations and fancy fundamentals and companies with low valuations and traditional businesses has reached a very high level in 2020, this gap is starting to close in 2021.

In the first three and half months of this year, the Hang Seng High Dividend Yield Index has increased by 15 percent, while the Hang Seng Index has increased by 5.7 percent and the Hang Seng China Enterprise Index has increased by only 1.6 percent. However, this difference in the performance has not closed the valuation gap between Hong Kong's high dividend yield companies and the companies in the “new industries”, such as technology companies and medical service companies. The valuation of the Hang Seng High Dividend Yield Index is now 6.7 times PE ratio and 0.57 times PB ratio, according to the Wind Financial Terminal. On the other hand, the Hang Seng Healthcare Index is trading at 452 times PE ratio and 5.6 times PB ratio and the Hang Seng Internet & Information Technology Index is trading at 42.4 times PE ratio and 5.6 times PB ratio.

Overall speaking, the stock market for the first three and half months of 2021 can be concluded as "good fundamentals and drastic fluctuation with valuation." For the smart value investors around the world, the opportunities brought by the companies with low valuations and solid fundamentals can always bring promising profits.