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Market Report Summary - 21 January 2015

Core Content Overview

This market report provides an analysis of the Chinese economy, the brokers sector, and the TMT (Technology, Media, and Telecommunications) sector as of 21 January 2015. It also includes insights into major equity indices, commodity prices, currencies, and interest rates across global markets.

China Macro Monitor: Consumption Revival to Support Growth in 2015

• GDP Growth in 2014: China's GDP grew at 7.4% in 2014, the slowest since 1990. The government missed its 7.5% growth target due to a reluctance to unveil new stimulus measures.
• Property Investment: Property investment growth slowed significantly, reaching 10.5% in 2014, the lowest since 1997. While a modest rebound is expected in 2015 with improved home sales, the overall credit environment for developers remains tight.
• Investment Outlook: Infrastructure investment growth is expected to moderate further due to a high base effect. The report forecasts stabilization of investment growth at around 15% in 2015.
• Consumption Trends: Consumption is seen as a key driver for growth in 2015. Retail sales growth accelerated to 11.9% YoY in December, the highest in four quarters. The surge in the stock market has increased household wealth, which could boost discretionary spending.
• Capital Outflow Risk: The report warns of potential capital outflows due to the surge in USD, which could weigh on credit growth and prompt the PBoC to cut reserve requirements and interest rates to support economic activity.

China Brokers Sector: Concerns Alleviated, Yet Lacking Catalysts

• Regulatory Relief: Concerns over margin financing services (MFSL) and A-share market trends have been largely alleviated. The CSRC announced that it would not ban margin financing for existing credit accounts with less than Rmb500k.
• Earnings Impact: The 3-month ban on new credit accounts resulted in a minimal earnings loss, estimated at 1.2% of monthly earnings for major brokers like Citic, Haitong, and Guotai Junan.
• Valuation Concerns: Despite the rally in the stock market, brokers are still overvalued compared to historical levels. The report suggests that current valuations may not be justified without clearer positive catalysts.
• Broker Price Movements: Share prices of major brokers such as Citic-H, Haitong-H, and China Galaxy rose by 5.93%, 5.99%, and 8.33% respectively following the regulatory relief.
• Market Outlook: The report indicates that the upward trend for brokers lacks strong catalysts in the short term, as market expectations have already been priced in.

TMT Sector: Daily Update

• Key Deals and Investments:

  • Tencent sells Kingsoft stake to Xiaomi: Xiaomi acquired a 2.98% stake in Kingsoft from Tencent for HK$527 million.
  • Baixing.com Secures USD 100 mln Investment: Baixing, an online classifieds site, received a Series D investment to improve user experience and expand into the second-hand vehicle sector.
  • Alibaba invests in Israel startup for QR codes: Alibaba invested in Visualead, an Israeli startup, to enhance its "offline to online" technology.
  • Aoliday Secures US$1.5 mln Funding: A Chinese outbound travel platform received fresh funding to expand its operations.
  • Smart Power Adapter Maker Raises $6.4M: A smart power adapter company secured RMB 40 million in funding.

• Stock Market Performance:

  • HK Equities: Hang Seng Index (HSI) closed at 23,951 with a 0.9% gain. H-Share Index rose 2.3%.
  • China Equities: CSI 300 Index increased by 1.2%, Shenzhen Composite Index rose 3.4%.
  • Asian Equities: Nikkei 225, KOSPI, TWSE, and Sensex all showed positive movements.
  • US/European Equities: DJIA, S&P 500, and NASDAQ posted small gains, while the UK FTSE 100 and Germany DAX showed modest increases.

• Valuation and Earnings:

  • Brokers' valuations are stretched, with PERs ranging from 12.6x to 22.9x for 2015F, compared to the 30x peak in 2007.
  • The report highlights that current prices may have already priced in strong 2014 earnings and expectations of a gradual bull market.

Key Indicators

Commodity and Currency Outlook

• Oil and Gas:

  • WTI Crude Oil: Closed at $46.5, down 5.4%.
  • Heating Oil: Fell 2.34%.
  • Natural Gas: Down 9.47%.
  • Gasoline RBOB: Down 3.39%.
  • Coal: Prices fell slightly, with McCloskey Coal (FOB) at $56.96 and (CIF) at $59.22.

• Precious Metals:

  • Gold: $1,294.0, up 1.3%.
  • Silver: $18.00, up 1.74%.
  • Platinum: $1,282.9, up 1.38%.
  • Palladium: $777.1, down 2.42%.

• Industrial Metals:

  • Copper: $5,672.0, no change.
  • Aluminium: $1,818.0, no change.
  • Nickel: $14,475.0, no change.
  • Zinc: $2,078.0, no change.

• Shipping Freights:

  • Baltic Dry Index: 753.0, up 1.9%.

• Currencies:

  • CNY: Fluctuated around 6.21.
  • Rmb NDF 12-mth: Ranged from 1,960 to 2,237.
  • CNH: Ranged from 6,2118 to 6,2238.
  • HKD: Ranged from 7,7519 to 7,7551.
  • USD Trade Wgt Index: Ranged from 86,8817 to 85,1343.
  • Euro: Ranged from 1,1541 to 1,1615.
  • GBP: Ranged from 1,5058 to 1,5200.
  • Yen: Ranged from 117,5600 to 119,7800.
  • AUD: Ranged from 0.8160 to 0.8218.
  • NZD: Ranged from 0.7624 to 0.7783.
  • CHF: Ranged from 0.8686 to 0.8838.
  • CAD: Ranged from 1,1939 to 1,2115.

Conclusion

The report suggests that while the Chinese economy faces a slowdown in GDP and investment growth, consumption is expected to pick up and provide support in 2015. Brokers are seeing reduced concerns due to regulatory relief, but valuations remain stretched without clear catalysts. The TMT sector is active with several investment deals, indicating continued interest in technology and media. Global equity indices and commodities show mixed performance, with some sectors showing resilience and others facing declines.