20210401-招银国际-April_Monthly_Strategy_Style_shift_to_take_a_break_12页_1mb

April Monthly Strategy Summary

Core Content

This April Monthly Strategy report outlines the current market outlook and investment recommendations for the Hong Kong and China equity markets. The key focus is on the shifting dynamics between value and growth stocks, the impact of bond yields, earnings revisions, and fund flows. It also provides a technical analysis of key indices and identifies preferred industry leaders for stock picking.

Main Views

1. Market Sensitivity to Bond Yields

• The correlation between stock prices and bond yields has turned slightly positive, indicating that stocks are becoming less sensitive to rising yields.
• The S&P 500 and NASDAQ Composite show a reduced sensitivity to bond yield changes, especially for growth stocks.
• The rise in bond yields may be taking a break, providing a potential relief for equity markets.

2. Earnings Season Review

• The Hong Kong annual result season for FY20 was disappointing, with revised downward consensus earnings for FY21E.
• Cyclicals, particularly financials, outperformed in earnings surprise, while growth stocks like internet, consumer, and healthcare underperformed.
• In the U.S., value stocks had better earnings revisions than growth stocks.

3. Fund Flows

• Southbound buying via Stock Connect has weakened significantly since mid-February.
• The drop in onshore mutual fund issuance in Mainland China contributed to the decline in Southbound inflows.
• Despite lower valuations, Mainland investors have not returned to buy Hong Kong stocks.

4. Technical Analysis

• The Hang Seng Index (HSI) is at a crossroads, forming a "head-and-shoulders" pattern and a downward channel.
• The HSTECH Index is forming a bullish "double bottom", suggesting a potential end to its correction.
• MSCI China Value is overbought relative to MSCI China Growth, with a bearish MACD crossover indicating the end of the current outperformance.
• The NASDAQ Composite remains in an uptrend, supporting the outlook for tech/growth stocks.

5. Sector Rotation

• The rotation from growth to value sectors has been ongoing but may be nearing an end.
• The daily RRG of the HSCI shows value sectors weakening and growth stocks improving in momentum.
• The analyst does not expect an immediate return to growth stocks, as such rotations are less frequent as the economy normalises.

6. Investment Strategy

• The strategy has shifted from sector allocation to bottom-up stock picking.
• Preferred investments are industry leaders with strong fundamentals and potential for outperformance.

Key Information

Preferred Industry Leaders

Market Data

• Hang Seng Index (HSI): 28,378
• 52-week High / Low: 31,183 / 22,520
• 3-month avg. daily t/o: HK$223.7bn

Indices Performance (as of 30 Mar 2021)

Conclusion

The report suggests a more balanced approach between value and growth stocks, with a focus on stock selection rather than sector rotation. It highlights the importance of fundamentals and valuation in identifying strong performers, particularly in the context of a normalising economy and stabilising bond yields.