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

[winston]

China stock traders abandon ‘bubble stocks’ amid PBOC liquidity signals as reflation bets gain momentum

Consumer and technology stocks, dubbed as ‘stampede trades’ and ‘bubbles’ by analysts, bore the brunt of selling last week after markets reopened

HSBC Jintrust, among top domestic fund managers, says matching fundamentals with valuation is top priority in asset allocation

The People’s Bank of China mopped up a net 260 billion yuan (US$40.2 billion) of liquidity from the financial system on Thursday.

The central bank has also lowered lending quota in a move seen as reining in asset speculation.

“The dual force of global recovery and the start of the restocking cycle will make cyclical stocks stand out".

HSBC Jintrust Fund Management, one of the top domestic fund managers in 2020, recommends base metal, petrochemical and financial stocks as well as new-energy sectors whose resilient industry sentiment can offset valuation concerns.

Source: SCMP

https://www.scmp.com/business/markets/a ... -liquidity

[winston]

Stock bears grip China markets as slump in liquor, tech stocks show Tesla, bond traders are not alone in their pain

Benchmark index members in Shanghai, Shenzhen and Hong Kong have lost US$1.2 trillion of market value in sell-off from this year’s highest points

Hang Seng Tech Index has dropped 21 per cent, putting tech bellwethers in a bear market, while its Shenzhen peer, the ChiNext, tumbled 17 per cent

by Zhang Shidong

“Banking and insurance stocks offer safer margins and they stand out in terms of allocation values now.”

The ChiNext in Shenzhen and the Hang Seng Tech Index lost 17.4 per cent and 21.1 per cent, with the ATM trio of Alibaba Group Holding, Tencent Holdings and Meituan logging 26.6, 12.4 and 26.7 pe recent losses from their all-time highs.

The economy faces a triple tightening in monetary and fiscal conditions, regulatory focus on lenders and scrutiny of the property market.

Source: SCMP

https://www.scmp.com/business/markets/a ... show-tesla

[winston]

China Strategy - A modest growth target; reiteration of a gradual policy normalisation

The ”Two Sessions” (i.e. the National People’s Congress (NPC) and the Chinese People's Political Consultative Conference (CPPCC)) has just kicked off and Premier Li Keqiang delivered the Government Work Report (GWR) outlining key economic targets for this year.

The overall message of fiscal and monetary policy is more or less in-line with market expectations.

On the macro policy front, the direction is consistent with what has been communicated at the Central Economic Work Conference (CEWC) in Dec-20, i.e. the overall monetary supply growth and total social financing growth would match nominal economic growth and keep liquidity reasonably sufficient.

The NPC confirmed a set of modest growth targets and a gradual policy normalisation. As such, we do not see major surprises to the market.

The GWR announced key reforms and initiatives for the 14th Five Year Plan (FYP) i.e. 2021-2025.

Key targets and initiatives include:
i) the emphasis of quality over growth
ii) the reiteration of the focus on innovation and self-sufficiency
iii) setting specific targets are set for achieving carbon neutrality
iv) expanding domestic consumption from a broader perspective
v) developing long-term retirement pension schemes.

While near-term market volatility is likely to remain high in light of the concerns of rising US treasury yields and Chinese equities is still trading close to a relatively high-end of its valuation range, we believe the NPC highlighted and reiterated investment opportunities that could benefit from the favourable structural trends and supportive government policies.

MSCI China is trading at 17.0x 2021e P/E, which implies a +2 s.d. to historical average, despite the recent pull back.

We maintain our view that earnings growth would be the key driver for further outperformance.

The earnings announcement season will be in full swing in the month of March and we believe the market will get more clarity and confirmation on earnings growth trend and fundamentals.

Source: OCBC

[winston]

China State Funds Buy Stocks to Stem Worsening Rout

by Sofia Horta e Costa

The CSI 300 has now plunged more than 14% from its Feb. 10 high in the biggest loss among global benchmarks tracked by Bloomberg.

Declines have been led by the champions of the recent rally such as Moutai, which has fallen 26%.

Historically, Beijing has supported markets when needed around significant events or dates. On Friday, the first day of the NPC, the CSI 300 ended the day down 0.3% after falling as much 2%.

Slumps of 10% or more in the CSI 300 have occurred twice in the past two years, before the index bounced back each time.

Source: Bloomberg

https://finance.yahoo.com/news/china-st ... 40712.html

[winston]

Highlights From The Two Sessions

The 14th FYP was officially ratified at the Two Sessions Meeting, confirming the
emphasis on new consumption and innovation.

The key beneficiaries will be consumer (dairy, EV, home appliances, online education, travel), energy (solar, wind), healthcare (biotech, medical equipment, online healthcare), industrials (automation) and IT (SaaS).

Source: UOBKH

https://research.uobkayhian.com/content ... 0a648bf830

[winston]

China stocks fall as policy tightening worries persist; Hong Kong up

“China has chosen to proactively burst the bubbles in stocks with frothy valuations, including by giving window guidance to prevent loans from flowing into stocks and properties market, and by issuing a series of implicit warnings on state-backed media against those stocks”.

China’s regulators have also told banks to trim their loan books this year to guard against risks emerging from bubbles in domestic financial markets.

Source: Reuters

https://www.reuters.com/article/china-s ... SL1N2LD06L

[winston]

Chinese stocks face a monetary policy headwind

Chinese authorities are tightening, doing the responsible thing, while America continues to run up its plastic

By DAVID P. GOLDMAN

Source: Asia Times

https://asiatimes.com/2021/04/chinese-s ... -headwind/

[winston]

China’s US$11 trillion stock market needs cyclical catalysts to end lethargy amid debates on growth outlook, BCA Research says

Defensive stocks’ strength over cyclicals and benchmark gauges, bode ill for the broader market and economic growth, BCA Research says

Cyclical stocks – proxied by energy, materials, and consumer discretionary among others in MSCI China gauges – remain depressed in onshore and offshore markets

Source: SCMP

https://www.scmp.com/business/china-bus ... -catalysts

[winston]

China’s market regulator starts investigation into stock price manipulation amid fund complaints

Ye Fei, a private equity fund manager, took to Weibo earlier this month alleging ‘valuation management’ scheme in stock prices

by Martin Choi

The CSI 300 Index of biggest companies in Shanghai and Shenzhen has lost 11 per cent in value from its mid-February peak.

China’s 20 trillion yuan (US$3.07 trillion) mutual fund industry is among the casualties of the current doldrums.

“China’s A-share market has over 180 million investors”.

Source: SCMP

https://www.scmp.com/business/markets/a ... tock-price

[winston]

China’s state media moves to reassure rattled investors after rout wiped US$574 billion off stock market

State-run newspapers such as the Securities Times and the Securities Daily ran articles talking up China’s battered onshore and offshore stocks

Fears have been mounting among investors that Beijing will target more industries after its crackdown on the technology and after-school tutoring sectors

by Zhang Shidong

Overseas investors sold domestic Chinese stocks at the fastest pace in a year on Monday.

On top of the clampdown on the technology and the private education industries, China has also tightened its oversight of the overheated property market.

The government bought at least 1 trillion yuan (US$154 billion) of stocks in an attempt to arrest the declines in the 2015 market meltdown that wiped out US$5 trillion, only to see share prices fall further.

Source: SCMP