20210705-招银国际-Growth_stocks_to_regain_momentum_12页_1mb

Summary of 2H 2021 Outlook

Core Content

This document provides a strategic outlook for the second half of 2021, focusing on the performance of growth versus value stocks, the impact of the Fed's tapering roadmap, and the inflation dynamics in China.

Main Viewpoints

• Growth stocks are expected to regain momentum and outperform value stocks in 2H 2021.
• The Fed is anticipated to issue forward guidance on tapering as early as September 2021, with tapering starting in 2022 and quantitative easing ending by the end of 2022.
• China's inflation pressure is primarily reflected in PPI, which reached 9.0% YoY in May 2021, but is expected to slow to around 3.8% YoY by year-end.
• The PPI-CPI gap is expected to narrow in 2H 2021, similar to the trend observed in 2017, which was beneficial for growth stocks.
• Technical analysis suggests that US growth stocks have regained momentum relative to value stocks, while Chinese growth stocks are stabilising and may follow suit later.

Key Information

Fed's Tapering Roadmap

• The Fed is expected to begin tapering in 2022 and end QE by the end of 2022.
• The Fed's dot plot implies 2-3 interest rate hikes in 2023.
• The tapering process is expected to follow a similar timeline to the 2014-2019 tightening cycle, with forward guidance given several months before actual tapering.

Market Impact of Tapering

• Pre-tapering period (May-Dec 2013): Stocks continued to rise, growth stocks outperformed value and small caps outperformed large caps. USD remained weak, while EM currencies started to weaken.
• During tapering (Jan-Oct 2014): Stock markets showed more volatility, with growth stocks still outperforming value but with more corrections. Large caps outperformed small caps. USD strengthened, while EM currencies weakened further. Commodities remained directionless.

Inflation Outlook in China

• CPI inflation is expected to remain subdued in 2021, averaging around 1.2%, far below the policy target of 3%.
• PPI inflation peaked at 9.0% YoY in May 2021, but is expected to decline to around 3.8% YoY by year-end.
• The narrowing PPI-CPI gap is expected to benefit growth stocks by easing downstream margin pressure and reducing upstream earnings growth.

Sector Performance

• Growth stocks (Internet, Software & IT Services, Technology, Healthcare) are recommended for accumulation in the HK market.
• Upstream sectors (Energy and Materials) are advised to be avoided or taken profit on due to their underperformance during the narrowing of the PPI-CPI gap.
• In 2017, when the PPI-CPI gap narrowed, growth sectors significantly outperformed value sectors in the HK market.

Technical Analysis

• US growth stocks have regained momentum versus value stocks, as evidenced by the S&P 500 Growth / Value ratio breaking the top of a downward channel.
• Chinese growth stocks are stabilising relative to value stocks, and an upward breakout in the MSCI China Growth / Value ratio could confirm their momentum recovery.

Strategic Recommendations

• Accumulate Internet, Software & IT Services, Technology, and Healthcare stocks in the HK market.
• Avoid or take profit on upstream Energy and Materials stocks.
• The positive outlook for growth stocks is supported by:
  1. Economic growth and earnings normalisation in 2H 2021 due to the dissipation of the low-base effect.
  2. Fed's QE pace continuing until 2022, which historically supports growth stocks.
  3. PPI peak in 2H 2021 leading to reduced margin pressure on downstream sectors.
  4. Technical indicators showing growth stocks regaining momentum in the US market.

Conclusion

The strategic outlook for 2H 2021 highlights the potential for growth stocks to outperform value stocks due to a combination of Fed policy normalisation, narrowing inflation differentials, and economic recovery. Investors are advised to focus on growth sectors and adjust their positions in value and upstream sectors accordingly.