China - Market Strategy 04 (Aug 18 - Jan 23)

[behappyalways]

China Clamps Down on Big Tech
https://m.youtube.com/watch?v=s_mVfypvVME

[winston]

End of lock-up period to unleash US$722 billion worth of Chinese stocks next year, the most since 2011

Gauge tracking the Star market fell 8.2 per cent in the three trading days after its one-year anniversary in July, when company insiders took their first chance to sell

Companies in electronics, medicine and biotechnology, and brokerage industries face the highest value of unlocks next year, according to CICC

Source: Bloomberg

https://www.scmp.com/business/china-bus ... ese-stocks

[winston]

*JPM: Upbeat on CN Stocks' 2021 Outlook; Recommends Domestic Demand, Digitalisation, Financial Opening, Carbon Neutrality Themes

Source: AAStocks Financial News

[winston]

Overall, we maintain our Overweight stance on Chinese equities on the back of solid recovery and robust activities.

We retain our preference for onshore A-shares to offshore Chinese equities, given relative valuations, greater sensitivity to policy support, and more exposure to emerging pillar industries.

The 14th Five-year Plan (FYP) focuses on quality growth, innovation and market reform, and emphasizes the “dual-circulation” strategy. This should support emerging pillar industries for future growth and development.

While detailed sector guidelines and policies have yet to be announced, and the full version will be released post approval by the National People's Congress in March 2021, we believe it will benefit sectors exposed to clean and renewable energy, domestic consumption, high-end industrials, internet and “new infrastructure”.

Source: OCBC

[winston]

China stock alarm bells rebuffed as JPMorgan, BlackRock stay upbeat, market barometers remain a distance from 2015 crash triggers

Price-earnings multiple, leveraged accounts, trading volume and overbought ratio are still below their 2015 levels

JPMorgan remains bullish on GDP outlook while BlackRock, Julius Baer see Chinese equities as intrinsic to portfolio holdings

To be sure, risks abound. As recovery gains traction, policymakers are keeping their hands firmly on the levers to contain debt default and systemic risks. Property developers have been given three red lines to comply with. Antitrust actions against a handful of internet-platform operators have knocked billions off the values of Alibaba Group Holding (the owner of this newspaper), Tencent Holdings and Meituan stocks.

Some 7 per cent of stocks listed in Shanghai were “overbought” this month, according to a technical indicator known as the relative-strength index. Yet that is minuscule compared with a 74 per cent rate before the 2015 market crash, according to Bloomberg data

Source: SCMP

https://www.scmp.com/business/markets/a ... 9c827&tc=6

[winston]

People’s Bank of China action sends shivers down financial markets

A chill swept through China's financial markets after the central bank withdrew cash from the banking system and an official warned about asset bubbles, Bloomberg reports.

The People’s Bank of China drained about US$12 billion via open-market operations on Tuesday.

The decision was unusual in the weeks before the Lunar New Year holiday, which in 2021 falls in mid-February, because residents typically need more cash to pay for seasonal travel and gifts. It also went against recent reports in Chinese newspapers that liquidity wouldn’t be tightened before the holidays.

Mainland investors bought a net HK$250 billion (US$32 billion) worth of Hong Kong stocks this year through Monday, almost 40 percent of last year’s total, and were buyers again on Tuesday.

In mainland markets, a gauge of interbank borrowing costs jumped 32 basis points to 2.74 percent on Tuesday, the highest level in a year.

“The PBOC wants to bring investors out of the euphoria caused by abundant liquidity in December,” says Xing Zhaopeng, an economist at Australia & New Zealand Banking Group.

Source: The Standard

https://www.thestandard.com.hk/breaking ... al-markets

[winston]

China Strategy - Looking beyond the robust Southbound inflow

MSCI China and CSI300 have risen by 15% and 8% YTD respectively.

The liquidity-driven rally has pushed MSCI China and CSI300 trading towards the high-end of trading range at 18x and 16.5x 2021e P/E, which is close to +3 and +2 s.d. to historical average, and could be vulnerable to pullback on profit taking.

In the near-term, the Southbound Stock Connect will be closed for trading for Chinese New Year from 9th February for a week.

We expect earnings growth would one of the key drivers for market performance especially as the results announcement season approaching in end-February/March.

Consensus estimates are forecasting +25% and +17% earnings growth in 2021e for MSCI China and CSI300 respectively.

We maintain our relative preference towards the onshore A-shares. We believe A-shares offers more sectors and/or companies that could benefit from the long-term structural growth opportunities and is relatively less affected by ongoing US/China tension.

While near-term market pullback is possible, we believe it would offer opportunities to accumulate stocks that are to benefit from favourable structural trends and supportive government policies in the 14th Five Year Plan (FYP).

We have highlighted four key investment themes:
i) domestic consumption;
ii) green economy;
iii) onshore sourcing and import substitution; and
iv) new infrastructure.

We believe it will benefit sectors exposed to clean and renewable energy, domestic consumption, high-end industrials, internet and “new infrastructure”.

We also prefer sectors that can benefit from cyclical rebound and are still trading at a relatively undemanding valuation, such as, banks, energy and selective materials.

Source: OCBC

[winston]

Alpha Picks: February Conviction Calls

Despite a slight decline in the last week of January, China equity markets still
managed to rally further from a historical high level for the full month.

The risk of a more substantial market pullback remains; considering the demanding valuations, we keep to laggards and policy-supported sectors, and take profit on outperformers.

We add Beijing Easpring, CR Beer, Topsports, WuXi AppTec to our BUY list, and
Fuyao Glass, MicroPort, Whart REIC to our SELL list.

Source: UOBKH

https://research.uobkayhian.com/content ... 07782d56cc

[winston]

Supportive policies positive for Chinese equities

Keep an eye on the potential for normalization of fiscal, monetary, and credit policies, said Caroline Maurer, head of China and Hong Kong equities at HSBC Global Asset Management.

She expects a strong rebound in corporate earnings, supported by an inventory restocking cycle, and robust exports.

Also, a strong yuan could be positive for earnings and help draw capital inflows into China’s equity capital markets, she said.

As for the current rally in Hong Kong, she expects continuing inflows of mainland funds as the Hong Kong market has underperformed the A-share market in the past two years.

In the short term, she favors stocks related to travel and economic growth normalization.

In the medium-term, domestic circulation, companies in e-commerce, healthcare and education are likely to outperform given they are a part of the government’s goal to build a service-driven economy, she said.

Meanwhile, technology innovation and technology localization are key drivers of the digitalization theme, due to the policy support in the Five-Year Plan, Maurer said. And renewable energy and electric vehicles, as well as advanced manufacturing would be the key focuses given China's commitment to achieve carbon neutrality, she added.

Ming Leap, associate director of fixed income, said the central bank is likely to remain accommodative, while using open market operations to manage market liquidity.

He expects capital flows into the mainland bond market to continue, due to appealing valuations compared with global counterparts.

As for debt risks, he said the overall default rate in China remains relatively low at 1.3 percent of the total onshore bond market in 2020.

Source: The Standard

https://www.thestandard.com.hk/breaking ... e-equities

[winston]

China Strategy

Domestic mutual funds still have about Rmb1tr available to increase their A-share positions

The data and analysis for this report is from the China Galaxy Securities Fund
Research Centre (CGS Fund Research Centre).

Based on the 4Q20 reports of domestic mutual funds, they still have about Rmb550bn
available to increase their positions in A-shares.

For newly launched mutual funds in Nov and Dec 2020 (i.e. no quarterly report
released yet), the CGS Fund Research Centre estimates that they still have about
Rmb140bn available for A-share investment.

New mutual funds launched between Jan and early Feb 2021 are estimated to have
about Rmb322bn available for A-share investment.

Adding these three classes together, domestic mutual funds are estimated to have
about Rmb1tr (about 2.8% of the A-share free float) available to increase their A-share
positions.

Source: CIMB

https://rfs.cgs-cimb.com/api/download?f ... 4E62B3D764