20161025-兴业证券-A-Share_Daily_Express_13页_1mb

Summary of Industrial Securities Co., Ltd. Report (October 25, 2016)

Core Content

This report provides a comprehensive overview of the Chinese stock and bond market performance on October 25, 2016, along with sector analysis, company news, and investment strategies. It highlights the impact of monetary policy, economic indicators, and regulatory changes on market dynamics.

Main Market Indices

Market Volume: CNY 538.75 billion (USD 79.49 billion), down 4.5% from the previous session.

Performance: Winners outnumbered losers by 1517-to-1056.

Market Review

• Stock Performance: China stocks closed slightly higher, with cyclical names performing well due to improved company results and investor enthusiasm.
• Monetary Policy: PBOC conducted 235 billion yuan of reverse-repos to inject 175 billion yuan into the market, improving short-term liquidity.
• Yuan Depreciation: The yuan's middle rate against the dollar was set at 6.7744, a new record low since 2010.
• Sector Performance:
  • Winners: Coal miners, nonferrous metals, gold shares, and liquor makers showed strong gains.
  • Losers: Construction and brokerage firms saw declines, with China Communications Construction Co. and China Railway Group Limited leading the drop.

Key Company News

• Baoshan Iron & Steel (600019 SH): Q3 net profit surged by 640% to CNY 7.496 billion, with strong performance expected in the following years.
• HNA Group: Acquiring 25% of Hilton Worldwide Holdings for $6.5 billion.
• Baosteel Group Corp.: Its listed unit reported the largest profit in over four years due to rebound in steel prices.
• Other Notable News:
  • PBOC's MPA test at the season end influenced business loans.
  • National Development and Reform Commission is discussing coal demand and supply.
  • China plans to conduct a network test for the Shenzhen-HK link.
  • Volatility control mechanism will be implemented on November 14.
  • Syngenta is in talks with EU on ChemChina.
  • U.S. Grains Council is in the verification stage of duties against U.S. distillers’ dried grains.

Investment Highlights

• Baoshan Iron & Steel (600019 SH): Maintained "Buy" rating due to strong growth momentum and strategic M&A with Wuhan Iron & Steel.
• EPS Forecast:
  • 2016: CNY 0.46 (12x PE)
  • 2017: CNY 0.52 (11x PE)
  • 2018: CNY 0.56 (10x PE)
• Potential Risks:
  • Continued decline in steel prices
  • Ineffectiveness of cost control measures
  • Supply-side reforms not meeting market expectations

Bond Market Analysis

Bond Trading Trends

• Bond Trading Becoming Trickier: Tightened regulations over WMPs are shifting funds back to proprietary traders, increasing pressure on corporate bonds.
• Interest Rate Impact: Rising interest rates are affecting market liquidity, particularly for short-term cash bonds.
• Liquidity Situation:
  • Inter-bank liquidity tightened due to quarterly tax payments and FX outflows concerns.
  • Repo rates increased for most terms, especially the 14-day repo rate.
  • Offshore market liquidity eased slightly.

Bond Yields and Rates

Bond Futures

Investment Strategy

• Bond Market: As interest rates continue to decline, investors should be cautious and focus on liquidity management and risk prevention.
• Swing Trading: Encouraged for bond traders due to increased volatility.
• Credit Bonds: Less attractive due to higher downside pressure.
• Rates Products: Expected to perform strongly due to economic downward pressure and increased foreign investor demand.

Analysts and Contacts

Analysts:

• Han Wang, PhD – wanghan@xyzq.com.cn
• Xiaojun Jia – jiaxj@xyzq.com.cn
• Yanjin Lu – luyj@xyzq.com.cn
• Lianqing Wang – wanglq@xyzq.com.cn
• Yijun Wang, PhD – wangyijun@xyzq.com.cn
• Chao Duan, PhD – duanchao@xyzq.com.cn
• Kun Yu, PhD – yukun@xyzq.com.cn

Assistant Analysts:

• LU Yang – luyang@xyzq.com.cn
• PAN Mengchen – panmengchen@xyzq.com.cn

Baoshan Iron & Steel Analysts:

• REN Zhiqiang – renzhiqiang@xyzq.com.cn
• QIU Xuezu – qiuzuxue@xyzq.com.cn
• YAN Peng – yanpeng@xyzq.com.cn
• LI Xing – lixingyj@xyzq.com.cn

Conclusion

The report underscores the mixed performance of the Chinese stock and bond markets, influenced by monetary policy, sector-specific trends, and regulatory changes. Baoshan Iron & Steel stands out with strong financial performance and growth potential, while investors are advised to be cautious in the bond market due to liquidity risks and potential credit concerns. The PBOC's measures, including repo purchases and MPA tests, are aimed at managing financial leverage and liquidity, though they may also contribute to market volatility.