20171124-中国银河国际证券-Strategy_Notes_Stock_Connect_–_Recent_Developments_7页_402kb

Strategy Notes Summary - November 2017

Core Content

This document outlines the performance and trends of the Southbound Stock Connect in November 2017, focusing on trading volumes, net buying and selling activities, and the concentration of investments among specific stocks. The analysis highlights the continued interest in large-cap stocks and the impact of market conditions on investor behavior.

Main Points

• Net Buying Increase: Southbound Stock Connect net buying rebounded to HK$3bn per day in November, marking a significant increase from September levels. The net buying increased by 125% compared to September, while daily trading volume rose by 31%.

• Sector Interest: The tech sector saw aggressive buying, with Tencent, Ping An, and SMIC being the primary targets. However, the buying interest in these stocks started to taper off later in the month.

• HSBC and AIA: Earlier in the month, there was aggressive buying in HSBC and AIA, but this has reversed, indicating a shift in investor sentiment.

• Impact of A-Share Sell-Off: The recent sell-off in A-shares may affect Southbound flows and reduce trading activity, but the investment thesis for Southbound remains strong due to better H-share valuations.

• Trading Activity by Date: From 15 November, net buying began to decrease slightly, suggesting a possible slowdown in investor activity.

• Top Net Buying Stocks:

  • Tencent Holdings Ltd (700 HK): Net buying reached HK$2,185.3m since mid-November.
  • Ping An Insurance Group Co-H (2318 HK): Net buying amounted to HK$1,836.6m since mid-November.
  • China Construction Bank-H (939 HK): Net buying was HK$792.3m since mid-November.
  • New China Life Insurance C-H (1336 HK): Net buying reached HK$592.0m since mid-November.
  • China Southern Airlines Co-H (1055 HK): Net buying was HK$586.9m since mid-November.
  • China Pacific Insurance GR-H (2601 HK): Net buying was HK$566.0m since mid-November.
  • Agricultural Bank of China-H (1288 HK): Net buying reached HK$516.3m since mid-November.
  • SMIC (981 HK): Net buying was HK$505.3m since mid-November.
  • China Taiping Insurance Hold (966 HK): Net buying was HK$485.9m since mid-November.
  • China Merchants Bank-H (3968 HK): Net buying reached HK$383.1m since mid-November.

• Top Net Selling Stocks:

  • PICC Property & Casualty-H (2328 HK): Net selling was HK$543.1m since mid-November.
  • China Petroleum & Chemical-H (386 HK): Net selling was HK$413.6m since mid-November.
  • China Molybdenum Co Ltd-H (3993 HK): Net selling was HK$256.2m since mid-November.
  • AIA Group Ltd (1299 HK): Net selling was HK$224.2m since mid-November.
  • Aluminum Corp of China Ltd-H (2600 HK): Net selling was HK$125.7m since mid-November.
  • Sunny Optical Tech (2382 HK): Net selling was HK$116.8m since mid-November.
  • China Mobile Ltd (941 HK): Net selling was HK$114.1m since mid-November.
  • Future Land Development Hold (1030 HK): Net selling was HK$113.6m since mid-November.
  • China Gas Holdings Ltd (384 HK): Net selling was HK$88.2m since mid-November.
  • Maanshan Iron & Steel-H (323 HK): Net selling was HK$69.8m since mid-November.

Key Information

• Market Capitalisation Focus: The most significant net additions in Stock Connect positions were seen in stocks with high market capitalisation, such as Tencent, HSBC, and ICBC.

• Ownership Concentration: The highest level of Stock Connect ownership was observed in Digital China Holdings Ltd (861 HK), with 42.05% of its shares held by Mainland investors.

• A-H Share Premium: Some stocks, like New China Life Insurance C-H and Guangzhou Baiyunshan Pharmaceutical-H, showed a steep A-H share premium, attracting significant investment.

• Tech and Insurance Dominance: Tech companies and insurance firms were the most actively traded by Stock Connect investors, with notable examples including SMIC, Tencent, and Ping An Insurance.

• Moderation in Activity: While net buying increased significantly, there were signs of moderation in trading activity from 15 November onwards, and some stocks like HSBC and AIA saw reduced buying.

Summary of Trends

• Net Buying Growth: The net buying activity by Southbound investors increased substantially in November, reflecting a strong investment thesis due to better H-share valuations.

• Tech and Insurance Focus: The tech and insurance sectors were the primary focus of investment, with Tencent, Ping An, and SMIC leading the way in net buying.

• Reduction in Some Stocks: While some stocks like HSBC and AIA saw reduced buying, others like Tencent and Ping An continued to attract significant interest.

• Market Cap Influence: The concentration of Stock Connect holdings was heavily skewed towards large-cap stocks, indicating a preference for stability and growth potential.

• Moderation and Profit-Taking: There were signs of moderation in buying activity and some profit-taking in stocks like Sunny Optical Tech and Tencent, suggesting a potential shift in investor sentiment.

Conclusion

The Southbound Stock Connect showed a strong rebound in net buying and trading volume in November 2017, driven by interest in tech and insurance stocks. Despite a slight moderation in activity from mid-November, the investment thesis for Southbound remains intact due to better H-share valuations. The concentration of holdings among large-cap stocks and the A-H share premium further highlight the strategic focus of investors in this market.