In the ever-evolving landscape of global finance, the media industry has recently garnered attention due to a notable increase in valuation levels, hitting a two-year highHowever, this surge does not entirely reflect optimism across the board; rather, media stocks remain fundamentally underweighted in portfolios compared to other sectorsAmong the six sub-industries classified under media, two have been marked as overweight while four lag behind, indicating a potential divergence in investment strategies within this dynamic field.

Since the mid to late April disclosure of first-quarter reports, the TMT (Technology, Media, and Telecommunications) sector has experienced varying degrees of performanceWhile sectors such as electronics, computers, and communications show signs of adjustment with negative returns, the media sector continues to exhibit a robust momentum

This performance is substantial, especially when contrasting it with the broader market experiences within the TMT group, where other industries are grappling with declines.

By May 4th, figures showcase stark disparities: the major indices for electronics, computers, and communications sectors recorded declines of -10.55%, -8.6%, and -5.35%, placing them at the bottom tier of performance among 31 primary industriesIn sharp contrast, the media index surged, presenting a remarkable increase of 15.12%, marking it as the top performer during this time frameWithin the media industry, sub-sectors like publishing and gaming dominate the rankings, boasting exceptional growth rates of 26.92% and 22.19%, respectively—placing them firmly in the lead among 124 secondary industry classifications.

Focusing on year-to-date performance in 2023, the media sector, alongside telecommunications and computing, continues to lead the market narrative

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Media stocks have ballooned by 60.60% since January, while telecommunications and computer industries follow with gains of 31.61% and 25.81%. Delving further, sub-industries within the media sector such as gaming, publishing, and cinema have outperformed expectations with staggering increases of 113.60%, 80.75%, and 36.25%, respectively—remarkable figures that highlight the vibrancy of this sector.

Examining investor behavior, public mutual funds have made substantial yet cautious investments in media stocksBy the end of the first quarter, these funds held a total market capitalization of approximately 41.2 billion RMB in A-share media stocks, constituting just 1.24% of their total A-share holdings, valued at 3.31 trillion RMBThis marks a significant increase from the start of the year when it was a mere 0.89%. Nevertheless, it still indicates an underweight status, specifically 0.70 percentage points below the average downsize among A-share circulations.

As the media industry's valuation climbed to a recent peak of 52.47 times earnings on May 4th, investor sentiment is shifting as evidenced by a reduction in holdings by Northbound capital—questioning whether it is prudent to further amplify their position in the media sector or strategically wait

This presents a complex decision landscape for fund managers as they seek to balance potential gains against prevailing market volatility.

Turning to the specifics of fund holdings, the latest data highlights significant changes in the first quarterAccording to reports, mutual funds had a total holding of 95 A-share media stocks, collectively worth 41.2 billion RMB, ranking the sector 18th among industry categoriesThis represents a rise of seven positions compared to the previous year-end, when it recorded a total holding of 53 billion RMB, ranking 25th.

When juxtaposing against the same quarter last year, holdings in the media sector only eclipsed last year's figures by three positionsAt that time, there were 76 stocks valued at 37.4 billion RMB in media—markedly lower in terms of share allocation among industries

Notably, as of the first quarter, the media sector constituted 1.24% of the total fund holdings, reflecting a deficiency when compared to its 1.94% presence in the circulating market, showcasing the underlying caution surrounding investment decisions.

The media industry comprises seven sub-sectors, including gaming, advertising, publishing, digital media, film and television, and broadcasting, with significant investment focus primarily on the first sixBy the end of the first quarter, mutual funds heavily invested in gaming with a 43.43% share of their media holdings, followed by advertising marketing at 19.45% and publishing at 12.67%.

The gaming sector saw the most considerable increase in weight, jumping from 25.86% at the end of 2022 to notably higher positionsMeanwhile, the publishing sector showed minor growth while other sectors, notably advertising marketing, faced declines, most sharply fluctuating downward by 11.53 percentage points in their stake.

In the context of streaming market challenges, the gaming industry, despite lower performance recently, continues to lead in profitability—commanding 17.60% of total revenue and capturing a significant 31.95% of net income within the media domain.

In exploring the investing climate, by May 4, Northbound money primarily held 71 media stocks amounting to 61.7 billion RMB, which represents 3.60% of the media industry's circulating value of 1.71 trillion RMB

This signifies a modest decrease relative to the first quarterYet, sub-sectors portray a mixed review, with Northbound capital enhancing its stakes in broadcasting, publishing, advertising, and film industries, particularly amplifying its holding in the broadcasting sector by 0.27 percentage pointsContrarily, investments in gaming and digital media saw a decline.

Ultimately, the performance of the media sector throughout 2023 and its capacity to leverage trends such as artificial intelligence, specifically driven by advances like ChatGPT, remain pivotal in shaping its future valuation and positioning within the larger marketThe industry faces the critical task of demonstrating its growth potential and maintaining a favorable valuation trajectory to reclaim its standing—or surpass—previous high allocations observed in years prior to the 2020 paradigm shift.