20180906-招商证券_香港_-Going_Through_Trough_23页_2mb

Strategy Report Summary

Core Content

This report outlines the current state of the global and Hong Kong stock markets, with a focus on the economic conditions, policy responses, market performance, valuations, and sectoral trends. It also highlights the impact of Sino-US trade tensions and the ongoing balance between economic stabilization and deleveraging in China.

Main Points

• Global Economy: Growth is less synchronized, with the US outperforming emerging markets (EMs) due to strong fundamentals and capital inflows. EMs, particularly those with weak fundamentals, are struggling with currency crises and capital outflows.

• China's Economic Dilemma: The government is balancing stabilization with deleveraging, implementing fiscal and monetary measures to ease downward pressure. These include accelerating special bond issuance, encouraging credit extension, and liquidity injections via MLF and RRR cuts.

• Sino-US Trade Friction: The trade war remains a major concern, with the US imposing tariffs on $200bn of Chinese imports and China responding with its own list of $60bn of US imports. This tension is expected to continue, with no near-term resolution in sight.

• Market Performance: Hong Kong and China stock markets have underperformed compared to global indices, especially the US. The Hang Seng Index (HSI) and MSCI China Index have seen negative returns, while the US S&P 500 has gained significantly. EMs have also experienced substantial declines.

• Valuation: Hong Kong market valuations are relatively undemanding compared to global and regional indices. HSI and MSCI China trade at forward P/E ratios of 11.3x and 12.3x, respectively, which are cheaper than major global indices. The index is at or near its historical median.

• Sectoral Performance: Defensive sectors such as energy, utilities, and healthcare have outperformed, while tech hardware, diversified financials, and semiconductors have underperformed. The report suggests a cautious stance on certain sectors and a positive outlook on others like banks, property, and utilities.

• Liquidity Concerns: There is a continued outflow of funds from the Hong Kong market and EMs, driven by a strong USD, interest rate hikes, and trade tensions. Southbound Connect has seen significant net outflows.

• Earnings Revisions: Earnings for MSCI China constituents have seen modest revisions. While some sectors like real estate and insurance beat expectations, others like tech hardware and semiconductors missed. The report notes that the market's earnings revision is more optimistic than Bloomberg consensus.

Key Information

• Market Returns (YTD):

  • HSI: -6.8%
  • MSCI China: -8.9%
  • CSI 300: -17.3%
  • S&P 500: +8.5%

• Valuation Metrics:

  • HSI: 11.3x forward P/E
  • MSCI China: 12.3x forward P/E
  • S&P 500: 18.0x
  • Europe Stoxx: 14.7x
  • MSCI EM: 12.2x

• Liquidity Measures:

  • M2 growth accelerated to 8.5% in July 2018
  • RMB1tn net injection via MLF since May 2018
  • Two RRR cuts in April and July 2018, releasing RMB400bn and RMB700bn respectively

• Southbound Outflow (August 2018):

  • HK$27.7bn, the largest since the launch of Stock Connect
  • Total net outflow since April 2018: HK$50bn

• Earnings Revision (Based on Bloomberg Consensus):

  • MSCI China 2018/19E EPS revised down by 3.8% and 3.6% respectively
  • Sectors with significant downward revisions: Tech hardware (-16.5%), diversified financials (-9.6%), semiconductors (-8.5%), telecom (-8.5%), transportation (-8.4%)

• Earnings Revision (Based on CMS Estimate):

  • MSCI China 2018/19E EPS revised down by 0.2% and -0.2% respectively
  • Sectors with significant downward revisions: Tech hardware (-12.4%), diversified financials (-4.8%)

Sector Preference and Investment Outlook

• Positive Outlook:

  • Banks
  • Property
  • Materials
  • Utilities (natural gas)

• Negative Outlook:

  • Tech hardware and trade war-related sectors
  • Airlines
  • Diversified financials
  • Semiconductors

• Undemanding Valuation Sectors:

  • Consumer staples
  • Healthcare
  • Consumer discretionary

• Expected Recovery:

  • The report suggests a potential rebound in Q4 2018 if the EM currency crisis does not spread globally.
  • Moderate policy easing is expected towards the end of the year.

Conclusion

The report indicates that the global economy is experiencing less synchronized growth, with the US leading and EMs lagging due to various macroeconomic and geopolitical factors. The Hong Kong market is currently in a trough, with valuations appearing undemanding and potential for recovery in Q4 2018. China is balancing stabilization and deleveraging with supportive policies, while Sino-US trade tensions continue to cast a shadow on the market outlook. The report recommends a cautious approach to certain sectors and highlights the potential for moderate policy easing and a rebound in the market.