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

[winston]

Hedge Fund Cuts China Stocks to Zero in Year Worse Than 2008

This year could be even worse for fund managers than 2008.

Macro funds, which often trade in equity, bond and commodity markets, averaged a 7.4% loss in the first quarter, the worst performance among eight hedge fund strategies.

Investors have resumed selling Chinese stocks after last month’s vow to stabilize markets yielded few concrete measures so far.

Source: Bloomberg

https://finance.yahoo.com/news/hedge-fu ... 00937.html

[behappyalways]

Chinese Stocks Crash As Covid Plunges Country Into "Darkest Moment In Decades"
https://www.zerohedge.com/markets/chine ... nt-decades

[winston]

Money is leaving China at a rapid clip

China witnessed $17.5 billion worth of portfolio outflows last month, an all-time high, according to data from the Institute of International Finance.

The outflows included $11.2 billion in bonds, while the rest was in stocks.

Data from the Chinese government also showed a record bond-market retreat by foreign investors in recent months.

Overseas investors offloaded a net 35 billion yuan ($5.5 billion) of Chinese government bonds in February, the largest monthly reduction on record, according to China Central Depository and Clearing.

The sell-off accelerated in March, hitting a new high of 52 billion yuan ($8.1 billion).

"China's support for the Russian invasion of Ukraine was clearly the catalyst for capital to leave China," said George Magnus, an associate at the China Centre at Oxford University and former chief economist for UBS.

Source: CNN

[winston]

China decries pursuit of glory, short-term gains in revamp of US$4 trillion fund industry amid steep market losses

Mutual funds must abandon the practice of seeking short-term returns, stop blindly pursuing scale and protect investors’ long-term interests, CSRC says

The guidelines will help stabilise financial markets and increase competition between mutual funds and other financial institutions, Truvalue’s chief economist says

by Iris Ouyang

Source: SCMP

https://www.scmp.com/business/banking-f ... 42cf72a942

[winston]

CHINA STRATEGY: GROWTH RECOVERY BEING PUSHED TO 2H

The modest reserve requirement ratio (RRR) cut and no change in policy rates missed market expectation.

We continue to expect stepping up of policy response going into 2Q22. That said, to stabilize growth, policymakers may prioritize credit expansion over rate reduction and focus on fiscal measures, which will take time to make an impact.

Recent key policy responses include relaxation of real estate financing policy and, most notably, President Xi’s calling for stepping up infrastructure construction.

Key projects include traditional infrastructure and “new infrastructure” (e.g., digitalization infrastructure, super-computing, artificial intelligence etc.).

We believe it could drive faster project approvals and potential upgrade of the quota for local government special bond (LGSB) issuance. The quarterly Politburo meeting to be held in end-April 2022 is an important policy event to watch.

We remain constructive on Chinese equities and see long-term investment value emerges with a 12-month investment horizon - forward price-to-earnings (P/E) multiples of MSCI China and Hang Seng Index falling to 8.7x and 8.8x respectively, representing 17% and 16% below their long-term average.

While we continue to prefer on-shore A-shares within Chinese equities, we expect the relative outperformance is likely to resume in 2H22 when easing measures intensify.

With rolling Covid outbreak and concerns about lockdowns in other cities/provinces in China, we believe Value will continue to outperform Growth in 2Q22.

In the near-term, we prefer those with defensive dividend and/or share buyback support (e.g., Chinese banks and Chinese telcos) and HK re-opening plays amid the implementation of the proposed 3-phase re-opening plan.

In this note, we will focus on recent developments in HK and Chinese banks, and selected construction and infrastructure related plays that will benefit from the expected stepping up of infrastructure spending.

We maintain our cautious stance on industries that would be negatively affected by the lockdowns, such as consumption, service, and transportation related sectors.

In the medium-term, given the current depressed valuation, we believe it would offer opportunity to accumulate i) quality companies with the competitive advantage to gain market share and ii) policy tailwind beneficiaries.

Nevertheless, we believe performance may take time to materialize and we watch out for some key signs for growth and valuation normalization.

These include clearer signs for sustainable activity resumption and major stepping up of easing measures.

Source: OCBC

[winston]

China’s securities regulator pledges action to shore up region’s worst-performing stock market, says rout is an ‘overreaction’

Measures include encouraging more tech companies to go public and adding more stocks to the exchange link with Hong Kong

Vice-chairman of the China Securities Regulatory Commission seeks to soothe shattered nerves of investors in interview with Xinhua

by Zhang Shidong

Source: SCMP

https://www.scmp.com/business/china-bus ... 146343ef2a

[winston]

China to gather private-sector firms as markets mull crackdown — sources

China’s top political advisory body plans to host a forum next week with some of the nation’s largest private-sector firms including Baidu Inc.

An economy struggling with rolling urban lockdowns, supply chain bottlenecks and evaporating consumption.

Source: Bloomberg

https://www.theedgemarkets.com/article/ ... 94-sources

[winston]

China strategy: Policy measures gathering pace

The weaker-than-expected April economic data & the USD strength have raised growth concerns.

Having said that, policy response has been gathering momentum, echoing the positive signals from the April Politburo meeting.

In this note, we will examine the impact of USD strength & look into measures that support specific industries that have been announced so far.

Historically, MSCI China had a positive correlation with USDCNY especially during the short periods of major USDCNY movement.

On the contrary, the onshore A-shares market has not shown a particular trend during the period of USD strength, & it has been more resilient to USDCNY movement than the offshore market (represented by MSCI China).

We remain constructive on Chinese equities and see long-term investment value emerge over a 12-month investment horizon with valuation of CSI300, MSCI China & Hang Seng Index (HSI) at 16-21% discount to their long-term average levels.

We prefer the onshore A-shares within Chinese equities & we expect the relative outperformance is likely to resume in 2H22 when easing measures intensify.

Since the April Politburo meeting, industry supportive policies have been announced in infrastructure (in terms of a renewables subsidy) & real estate (easing mortgage rate for first-time home buyers & allowing selected private real estate developers to issue onshore bonds).

In the near-term, we prefer those with defensive dividends and/or share buyback support, Hong Kong (HK) re-opening plays, & selected construction and infrastructure related plays (including renewables) that will benefit from the expected stepping up of infrastructure spending.

In the next few weeks, we would also watch out for:-
i) the auto industry for potential announcements of supportive measures for rural consumption &
ii) internet and platform industries as a symposium on digital economy is to be held this week.

For a sustainable rally, we will watch out for some key signs for growth and valuation normalization.

These include clearer signs for sustainable activity resumption, stepping up of policy easing, a more stable real estate market, and a concrete plan to address American depositary receipt (ADR) auditing.

Source: OCBC

[winston]

China’s biggest hedge funds and insurers trim equity holdings in sign that market has not yet hit bottom

Hedge funds’ allocation to equities fell to 74.3 per cent from 79.5 per cent in March, while insurers’ stock holdings accounted for 12.1 per cent of total assets in the first quarter

The benchmark Shanghai Composite Index has declined 15 per cent so far this year

by Zhang Shidong

Source: SCMP

https://www.scmp.com/business/china-bus ... rim-equity

[winston]

CHINA STRATEGY: SUPPORTIVE MEASURES AND RE-OPENING IN FOCUS

We prefer policy beneficiaries and selected re-opening plays.

We have discussed selected construction and infrastructure related plays (including renewables) as part of the policy beneficiaries from the stepping up of infrastructure spending in our previous reports.

In this note, we focus on autos as the details of purchase tax cut for passenger vehicles was announced early this week.

We are selective in re-opening consumer plays and we also prefer gas utilities and power utilities as beneficiaries to re-opening with a pick-up in power consumption.

While we prefer policy beneficiaries and re-opening plays, we maintain our preference to defensive value plays with strong cash flow and high dividend yield (China banks and telcos) amid higher rates and market volatility.

However, investors should be mindful of the upcoming ex-dividend dates of China banks and could consider locking-in some profits on or before it.

Source: OCBC