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Dim Sum Express Summary

Core Content

This report provides an analysis of equity research and macroeconomic trends, focusing on the performance of key indices, A-shares, and Hong Kong ADRs. It also discusses the risk of emerging market currency crises and outlines sector-specific insights, particularly in the power and textiles & apparel industries.

Key Index Performance

The following table summarizes the performance of key indices:

Hong Kong ADRs Performance

Macro: Emerging Market Currency Crisis - Who's Next?

• Currency Crisis Risk: The strengthening of the US dollar has triggered currency depreciation in emerging markets, with Argentina, Turkey, and Brazil already experiencing significant declines.
• Potential Crisis Countries: Egypt and South Africa are most likely to face currency crises if the dollar continues to strengthen.
• Comparison with 1997 Crisis: Emerging markets are in a better position than before the 1997 Asian financial crisis.
• Key Indicators: Real exchange rate, foreign exchange reserves, GDP growth, current account, credit growth, inflation, and fiscal surplus are the seven most commonly used indicators to predict currency crises.
• US Dollar Impact: The Fed's rate hikes and retreat from quantitative easing have increased the risk of currency depreciation in emerging markets. The dollar index has risen over 7% since mid-April.
• Central Bank Response: Emerging market central banks have raised interest rates to stabilize their currencies, as seen in the Turkish lira's 25% depreciation in the week beginning Aug 6.
• Conclusion: A large-scale currency crisis is unlikely unless key indicators deteriorate rapidly.

A-Share Market Analysis

Power Sector

• Electricity Consumption: Grew by 6.8% YoY in July, with a 3.1pp YoY decline in growth compared to previous months.
• Sector Breakdown:
  • Primary industry: +7.9% YoY
  • Secondary industry: +4.6% YoY
  • Tertiary industry: +11.2% YoY
  • Household consumption: +14.6% YoY
• 7M18 Growth: Total electricity consumption increased by 9% YoY, showing steady growth.
• Supply and Demand: Daily consumption at six major power companies remained low in July due to reduced demand and increased hydropower output. Coal inventory is at 19 days of production, which is high and continues to pressure coal prices.
• Risk Outlook: Thermal power production costs may decline further if coal demand weakens.

Textiles & Apparel Sector

• July Retail Sales: Apparel retail sales at 50 major retail companies declined by 3.8% YoY, a 10.6pp drop from July 2017.
• NBS Data: Retail sales of clothing, shoes, and hats at designated-size enterprises increased by 8.7% YoY, a 2.3pp increase from July 2017.
• Consumer Trends: Domestic brands are gaining consumer recognition and have invested in design, production, retail, and flexible supply chains, which supports further market share gains.
• Demand Drivers: During economic downturns, consumers tend to reduce spending on durable goods, freeing up disposable income for non-durable items like clothing.
• Industry Concentration: Similar to Japan's experience post-1991 real estate bubble, increasing industry concentration is expected to benefit large-cap clothing companies.
• Risks: Macroeconomic downturns, increased competition, and management risks due to rapid store expansion.

Rating Definitions

Company Ratings

Sector Ratings

Analyst Certification & Disclosure

• The research analyst certifies that all views expressed accurately reflect his or her personal views on the covered companies and securities.
• No part of the analyst's remuneration is directly or indirectly linked to specific recommendations in the report.
• GF Securities (Hong Kong) and its affiliated companies do not hold any shares of the securities mentioned in this report.
• No investment banking relationships with the mentioned companies in the past 12 months.
• No financial interests or ownership in the securities mentioned in the report.

Disclaimer

• This report is for informational purposes only and does not constitute an offer to buy or sell securities.
• The report is intended solely for GF Securities (Hong Kong) clients.
• No action has been taken to permit distribution in jurisdictions where it is unlawful.
• The information, opinions, and forecasts are subject to change without notice.
• The report should not replace professional advice when making investment decisions.