2022-01-26-瑞士信贷集团-转向中国_增持并支持一些中国代理_28页_1mb

Global Equity Strategy Summary

Core Content

This document outlines a revised investment strategy that raises China to overweight from benchmark, based on a set of positive macroeconomic and market indicators. The strategy also highlights the potential outperformance of mining and life insurance sectors, and suggests selecting certain China proxies to benefit from the country's economic and policy environment.

Main Points

1. Policy Shift and Liquidity Trends

• Monetary Policy Easing: China is easing monetary policy, while other major economies are tightening. This includes expected cuts in the RRR (50bps in 1H22) and interest rates (10bps in 2022), alongside fiscal stimulus of 1% of GDP.
• Excess Liquidity: Excess liquidity (M1/nominal GDP) is improving, and equities have yet to fully reflect this trend.
• RMB Strength and Capital Controls: A strong RMB and tight capital controls are expected to ring-fence liquidity within China, likely directing it into financial assets.
• Economic Momentum: China's PMI (new orders) is improving, and its GDP growth forecast is 5.9% for 2022, higher than the consensus of 5.2%.

2. Valuation Advantages

• Discounted Valuations: MSCI China is trading at a 28% discount to global markets on P/E.
• Dividend Yield: The dividend yield is at a level that suggests buy signals, relative to corporate bond yields.
• Buffett Indicator: The ratio of market cap to nominal GDP is very attractive for China compared to other major equity markets.

3. Earnings Revisions

• Relative Earnings Revisions: Earnings revisions for both the broader market and tech are starting to turn upwards, indicating improved fundamentals.
• Productivity vs. Real Wage Growth: The gap between productivity and real wage growth is closing, suggesting improving margins.

4. Policy Uncertainty and Common Prosperity

• Common Prosperity Policy: While a key uncertainty, recent rhetoric (e.g., President Xi's speech at the World Economic Forum) appears more moderate.
• Regulatory Environment: Although challenging, the rhetoric is expected to ease after the "two-sessions" in March and the 20th CPC National Congress in Q4.
• Dual Circulation Focus: The strategy aligns with the dual circulation theme, favoring consumer-focused and low-margin sectors.

5. Key Risks

• Housing Prices: A 20% fall in property prices could trigger systemic deleveraging and a crisis, though the current LTVs are low, which may limit the extent of the correction.
• Omicron Impact: A widespread lockdown due to Omicron remains a risk, though localized measures have been effective.
• Regulatory Uncertainty: Continued pressure on certain sectors under the common prosperity initiative could lead to criticism and regulatory changes.

Top Picks

• China Resources Beer
• Longi Green Energy
• Nio
• PetroChina

Other Sectors of Interest

• Mining: Continued overweight due to:
  • Strong valuations: Mining ranks second on the composite valuation scorecard.
  • Outperform ratings: Rio Tinto and Anglo American are highlighted.
  • Copper Demand: Strong correlation with China PMI, and the sector is structurally attractive due to capital discipline and low leverage.
• Life Insurance: Suggested as a China proxy due to Asia-exposure and discounted valuations.

Key Risks Revisited

• Housing Correction: If prices fall by 20%, it could lead to systemic issues, but the current LTV levels and capital controls may prevent a full bust.
• Global Supply Chain: Easing bottlenecks could boost auto production and industrial output, benefiting mining and industrial commodities.
• Regulatory Changes: Potential for increased scrutiny on certain sectors, especially those linked to national security or speculation.

Valuation Scorecard Highlights

• Mining is second in the composite valuation scorecard, with attractive forward P/E and strong fundamentals.
• FCF Yield: Even under stress scenarios, mining companies like Rio Tinto and Anglo American show positive FCF yields.

Strategic Positioning

• Foreign Investment: Despite being benchmark in terms of allocation, foreign investors are not heavily selling China, suggesting potential for re-rating.
• Market Sentiment: Chinese equities have historically outperformed when relative economic momentum improves and valuations are attractive.

Conclusion

The document concludes that China equities are undervalued and well-positioned for re-rating due to policy easing, improving economic momentum, and favorable valuations. Mining and life insurance are highlighted as proxy sectors with strong fundamentals and growth potential. Investors are advised to align with policy goals and favor consumer and self-sufficiency-oriented sectors.