20220510-招银国际-China___HK_Market_Weekly__Focus_turning_to_Q1_earnings___policy_support_10页_1mb

China / HK Market Weekly Summary

Core Content

This weekly report provides an overview of the Hong Kong and Chinese stock markets, focusing on recent market performance, fund flows, investor sentiment, earnings revisions, and sector outlooks. It highlights the impact of macroeconomic factors, policy changes, and global market dynamics on market behavior.

Main Points

• Market Performance:
  The Hong Kong stock market experienced a selloff last week (2-6 May) due to concerns over the hawkish US Federal Reserve and China's continued zero-COVID policy. The Hang Seng Index (HSI) dropped by 5.2%, and all major sectors declined. Value stocks outperformed growth stocks.

• Fund Flows:

  • Global funds continued to flow out of emerging markets, driven by the Fed's tightening stance.
  • Chinese policymakers signaled stronger support for growth, leading to a mild improvement in global equity flows to China.
  • US equity mutual funds saw net outflows.
  • The US 10-year Treasury yield broke above 3% for the first time since 2018, steepening the yield curve.
  • Stock Connect flows were limited due to holidays, with Southbound flows slightly positive and Northbound flows minimal.

• Sentiment Indicators:

  • The "Fear Index" (VHSI) rose further to 33, indicating increased market anxiety.
  • The US VIX moderated to 30.2.
  • The short-sell ratio on the HK mainboard remained above 20%, with higher ratios in Financials, IT, Consumer Discretionary, and Property sectors. Short-sell ratios decreased in Utilities, Energy, and Materials.

• Earnings & Valuations:

  • Earnings per share (EPS) estimates for HSI, HSTECH, and CSI 300 continued to decline, with HSI down 1.0%, HSTECH down 1.2%, and CSI 300 down 1.3%.
  • In the HK market, Energy and Industrials saw EPS revisions upward, while Property, Financials, Consumer Discretionary, and Healthcare saw downward revisions.
  • In the A-shares market, Real Estate and IT saw significant EPS cuts, while Commodities saw upward revisions.
  • Valuations for the HSI and its sectors are near historical lows, with P/E and P/B ratios well below previous crisis levels.

• Sector Outlook:

  • Internet Sector: Expected to remain volatile due to mixed policy signals and weak earnings guidance.
  • Property Sector: Valuation has room for repair with policy support, but fundamentals need more time to stabilize.
  • Infrastructure Sector: Likely to outperform as policymakers view it as a growth driver.
  • Consumer Sector: May benefit from fiscal policy support and expected recovery in household consumption.

Key Information

• Market Recap:

  • HSI slumped by 5.2% last week, with the gain from the Politburo meeting lost.
  • All major sectors in HK declined, with value stocks outperforming growth stocks.

• Stock Connect Flows:

  • Southbound flows had two trading days, with net buying in IT, Healthcare, Energy, and Consumer Discretionary.
  • Northbound flows had one trading day, with minimal activity.
  • The AH premium widened by 1.1 points, with H-shares declining more than A-shares.

• Earnings Revisions:

  • HSI and HSTECH EPS estimates were revised downward, with the HSI at 10.0X forward P/E.
  • A-shares EPS estimates were revised down, with Real Estate suffering the most.

• Valuation Metrics:

  • HSI P/E is close to its low end, while other major indices are near their 10-year average.
  • HSI P/B is well under 1, lower than previous crisis troughs.
  • Most HSCI sectors are near their valuation troughs.

Analyst Certifications & Disclosures

• The report is prepared by CMB International Global Markets Limited (CMBIGM), a subsidiary of China Merchants Bank.
• The research analyst certifies that the views expressed reflect their personal opinions and that there is no direct or indirect compensation link to the report's content.
• CMBIGM has investment banking relationships with some of the issuers covered in the report, which may lead to potential conflicts of interest.
• The report is intended for specific investors and is not an offer to buy or sell securities.
• It is not tailored for individual investors and does not guarantee accuracy, completeness, or timeliness of the information provided.
• In the United States, the report is only for "major US institutional investors" and should not be distributed to others.
• In the United Kingdom, the report is only for persons falling within Article 19(5) of the Financial Services and Markets Act 2000.
• In Singapore, the report is distributed by CMBISG, an Exempt Financial Adviser, and is subject to Singaporean regulations.

Investment Ratings

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

Contact Information

• Daniel So, CFA
  Email: danielso@cmbi.com.hk
  Tel: (852) 3900 0857

• Bingnan YE, Ph.D
  Email: yebingnan@cmbi.com.hk
  Tel: (852) 3761 8967

• CMB International Global Markets Limited
  Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong
  Tel: (852) 3900 0888
  Fax: (852) 3900 0800