20220419-招银国际-China___HK_Market_Weekly_Consumer_stocks_gained_despite_COVID_10页_1mb

China / HK Market Weekly Summary

Core Content

Last week (11-15 Apr), the China / HK stock markets declined but outperformed the US market. The decline was partially offset by expectations of a reduction in the Reserve Requirement Ratio (RRR) by the State Council and efforts to boost consumption and export growth. Despite ongoing COVID lockdowns, consumer stocks showed positive performance, and there was potential for further rebound as the outbreak in Shanghai is likely to be peaking. Property stocks also showed signs of possible recovery due to expectations of further policy loosening in the real estate sector.

Market Performance

• HSI (Hang Seng Index): Declined by 1.62% but outperformed the US market for the second consecutive week.
• CSI 300: Declined by 0.99%.
• Sector Performance:
  • Growth stocks (IT & Healthcare) suffered due to heightened concerns over US rate hikes.
  • Commodity stocks gained.
  • Consumer stocks in both A and H-shares markets gained despite lockdowns.

Fund Flows

• Global Funds: Flow to emerging markets sharply deteriorated due to the US Fed's potential for accelerated tightening.
• China: Attractive valuations and the likelihood of Shanghai reaching the peak of its epidemic led to better conditions for China.
• China Internet ETF (KWEB): Had slight outflows after weeks of inflows.
• US Mutual Funds: Net withdrawals increased in early April due to a more hawkish Fed.
• Overseas Funds: Saw net inflows.
• Stock Connect Flows:
  • Southbound Net Buying: Rebounded further.
  • Northbound Flows: Oscillated between inflows and outflows.
• AH Premium: Slightly narrowed to 40.6%, still significantly above the 10-year average of 22%.

Sector Views

• Consumer Stocks: Showed potential for further rebound as Shanghai's outbreak is likely to peak.
• Property Stocks: May rebound on the expectation of further policy loosening.
• Earnings Revisions:
  • HSI: FY22E EPS estimates were cut by 0.2%.
  • CSI 300: FY22E EPS estimates were cut by 0.4%, extending the downtrend since mid-March.
  • HK: Healthcare and Consumer Discretionary sectors were revised down again.
  • A-shares: Real Estate, Financials, Consumer, and Healthcare sectors saw EPS estimates cut.

Sentiment Analysis

• Fear Indexes (VHSI & VIX): Rose due to a hawkish Fed stance.
• Short Sell Ratio:
  • Increased further to above 19% on the HK mainboard.
  • Notable increases in short sell ratios for sectors including Financials, Consumer Discretionary, Property, Healthcare, Utilities, and others.

Valuation Metrics

• HSI P/E Ratio: Close to the low end of its range, with forward P/E at 1 standard deviation below the 10-year average.
• CSI 300 P/E Ratio: Around the 10-year mean, not considered particularly cheap.
• HSI P/B Ratio: Below 1, lower than previous crisis troughs.
• CSI 300 P/B Ratio: Around 2.
• HSCI Sectors: Most sectors' P/E ratios are near their troughs.

Key Information

• The RRR cut by the State Council was smaller than expected, and the market had already priced in its positive impact.
• Consumer stocks are expected to rebound in the short term.
• Property stocks may also benefit from further policy easing.
• Short sell ratios rose across multiple sectors, indicating increased market pessimism.
• AH Premium remains elevated, suggesting a valuation gap between A and H shares.
• Fund flows were mixed, with China showing relative resilience compared to other emerging markets.

Summary of Key Points

• Market Recap: China / HK markets declined but outperformed the US.
• Fund Flows: China's valuation attracted inflows, while the US saw more withdrawals.
• Stock Connect: Southbound buying rebounded, Northbound flows fluctuated.
• Sentiment: Fear indexes rose, short sell ratios increased in multiple sectors.
• Earnings: EPS estimates for both HSI and CSI 300 continued to decline, especially in growth and consumer sectors.
• Valuations: HSI is undervalued compared to other major markets, with P/E and P/B ratios at or near historical lows.