20220620-招银国际-China_HK_Market_Weekly_HK_market_s_rerating_continues_11页_1mb

China / HK Market Weekly Summary

Core Content Overview

This report provides a detailed analysis of the China and Hong Kong (HK) stock markets, focusing on recent performance, fund flows, interest rates, sentiment indicators, and earnings revisions. It highlights the market's resilience in the face of global central bank tightening, particularly the Federal Reserve's rate hikes, and outlines the medium-term re-rating potential for certain sectors.

Market Performance

• HK Market: The Hang Seng Index (HSI) declined by -3.4% last week (13-17 Jun), while the CSI 300 Index rose by 1.7%.
• Sector Performance:
  • In HK, all major sectors declined.
  • In A-shares, Healthcare & Consumer Discretionary led gains.
• Growth vs. Value: China Growth stocks (e.g., Internet, Healthcare, Consumer Discretionary) have been outperforming Value stocks, with Growth stocks nearing a break from an 18-month downtrend.

Fund Flows

• Global Fund Flows:
  • Equity funds flowed out of Emerging Markets (EM) due to higher-than-expected US inflation and Fed tightening.
  • Equity flows to China continued to improve as the country entered a liquidity easing and economic resumption cycle.
• Stock Connect Flows:
  • Northbound inflows remained high, with significant buying in sectors like Food, Beverage & Tobacco, Banking, Semiconductors, and Software & Services.
  • Southbound inflows increased week-over-week (WoW), with strong demand for Consumer Discretionary, IT, Energy, Industrials, and Healthcare sectors.
• Top Southbound Stocks:
  • Tencent, Meituan, CNOOC, Kuaishou, GCL Technology, Xiaomi were top inflows.
  • China Construction Bank saw net selling, while Sunny Optical also had net selling.

Interest Rates & Valuation Gaps

• Interest Rates:
  • US Treasury yield curve flattened as short-term yields rose due to Fed rate hike expectations.
  • The implied Fed funds rate in Dec 2022 increased to 3.57%.
  • The USD/HKD exchange rate reached 7.85, indicating tighter HK dollar liquidity.
• Valuation Gaps:
  • Valuation gaps between HK and other major markets have narrowed.
  • HSI's forward P/E is approaching its 10-year mean after earnings cuts and re-rating.
  • US, Europe, and Japan markets' forward P/E dropped below their 10-year mean due to recent weakness.

Sentiment Analysis

• Risk Appetite: Mildly decreased in HK due to Fed tightening.
• Fear Index: VHSI rose to 31.1, reflecting increased market volatility.
• Short-Sell Ratio:
  • Rebounded to 17.1% in HK.
  • Sectors like Financials, IT, Consumer Discretionary, Healthcare, and Consumer Staples saw increased short-selling activity.

Earnings & Revisions

• Earnings Revisions:
  • HSI's EPS consensus was revised down by 1.0%.
  • HSTECH's EPS consensus was revised down by 2.6%.
  • CSI 300's EPS consensus was revised down by 0.8%.
• Sector Earnings:
  • In HK, IT, Healthcare & Consumer Discretionary sectors saw earnings revisions.
  • In A-shares, Financials & Staples had upward revisions, while IT & Healthcare were revised down.

Key Views

• Volatility Outlook: China Internet, Healthcare & Consumer Discretionary stocks may remain volatile this week as investors digest Fed tightening.
• Medium-Term Potential: Continued re-rating potential for Growth stocks, especially in the context of global economic uncertainty.
• Value Stocks: Financials are seen as more defensive compared to Commodities, which may underperform due to concerns over global economic slowdown and higher interest rates.

Ratings & Recommendations

• CMBIGM Ratings:
  • BUY: Potential return over 15% in next 12 months.
  • HOLD: Potential return between +15% to -10% in next 12 months.
  • SELL: Potential loss over 10% in next 12 months.
  • NOT RATED: Not rated by CMBIGM.
• Industry Ratings:
  • OUTPERFORM: Industry expected to outperform broad market benchmarks.
  • MARKET-PERFORM: Industry expected to perform in-line with broad market benchmarks.
  • UNDERPERFORM: Industry expected to underperform broad market benchmarks.

Disclaimer & Disclosures

• The report is for informational purposes only and does not provide individually tailored investment advice.
• Past performance is not indicative of future results, and actual events may differ materially from the report's analysis.
• Investors should evaluate investments independently and consult a financial advisor before making decisions.
• CMBIGM may have investment banking relationships with the companies mentioned and may have conflicts of interest.
• The report is not an offer or solicitation to buy or sell any securities and is intended for specific recipients only.