20220207-招银国际-February_Strategy_Report_HK_market_continues_re-rating_on_policy_support_11页_1mb

February Strategy Report Summary

Core Content

This February Strategy Report provides an analysis of the performance and outlook for both the Hong Kong (HK) and U.S. stock markets, focusing on valuation trends, sector performance, and policy impacts.

Main Views

• HK Market Re-rating: The HK stock market has been a standout performer in 2022, re-rating from distressed valuations due to policy support from Beijing and renewed interest from Mainland investors. This trend is expected to continue as China's economy potentially rebounds in Q2 2022.

• U.S. Fed's Exit Plan: The U.S. Federal Reserve has priced in five rate hikes (125 bps) for 2022. The market impact of these hikes will be more influenced by changes in interest rate forecasts than actual rate moves. Real interest rates may turn positive in Q4 2022, which could put pressure on stocks, but unless the hikes are more aggressive than expected, the impact may not be bearish.

• Value Stocks Outperform in Early Rate Hike Cycles: Historical data shows that U.S. value stocks, such as Financials, Energy, and Materials, tend to outperform growth stocks in the early stages of a rate hike cycle. However, they underperform in the later stages as economic slowdowns hit more heavily.

• China's Economic Outlook: China's economy showed signs of slowdown in Q1 2022 due to the resurgence of COVID-19 and a weak housing market, but it is expected to bottom out in Q2 with policy support. This rebound could benefit sectors like Internet, Construction Machinery, and New Energy Vehicles (NEVs).

• Sector Preference: The report highlights Internet, Construction Machinery, and NEVs as preferred sectors. Internet stocks have seen much of the regulatory headwinds priced in, while Construction Machinery benefits from expected infrastructure spending. NEVs, despite a 30-40% price correction, are expected to maintain strong growth in 2022, supported by the anticipated economic rebound.

Key Information

• HSI Performance: The Hang Seng Index (HSI) has gained 5.0% YTD, contrasting with losses in other major markets. During periods of China's GDP rebound, the HSI has historically posted better returns, with Internet, Healthcare, and Industrials leading the gains.

• A-H Premium: The A-H premium has narrowed from a decade high, with H-shares outperforming A-shares by an average of 13 ppts in the past month. However, the premium remains significantly higher than its 10-year average, suggesting more potential for H-shares to catch up.

• Technical Analysis: The HSI is holding above its long-term uptrend, and recent bullish patterns, such as the "Island Reversal" on 4 Feb, indicate potential for a rebound to around 26,000. Internet-heavy indices like Hang Seng TECH and MSCI China are also testing downtrend resistance and may see a significant upside if they break through.

• Market Data:

  • HSI: 24,573
  • 52-week High / Low: 31,183 / 22,665
  • 3-month avg. daily turnover: HK$125.3bn

• Indices Performance:

  • HSI: 4.6% (1-month), -1.2% (3-month), -6.1% (6-month)
  • HSCEI: 4.3% (1-month), -2.7% (3-month), -7.4% (6-month)
  • HSTECH: 1.4% (1-month), -11.1% (3-month), -16.7% (6-month)

Sector Preference

1. Internet: The sector has priced in most of the regulatory headwinds, with recent policy news being more neutral or supportive. This suggests potential for re-rating as the economic environment improves.

2. Construction Machinery: Expected to benefit from increased infrastructure spending and easing steel cost pressures, which could improve margins.

3. New-Energy Vehicles (NEVs): NEV start-ups have experienced a 30-40% price drop YTD, presenting a buying opportunity. Strong growth is anticipated for NEV sales in 2022, supported by the expected economic rebound.

Conclusion

The report outlines a cautiously optimistic outlook for the HK market, driven by policy support and potential economic recovery in China. It also highlights the importance of monitoring U.S. Fed policy and its potential impact on real interest rates. Sector-specific opportunities are identified, particularly in Internet, Construction Machinery, and NEVs, with technical indicators suggesting a possible rebound for the HSI. Investors are advised to consider these sectors and seek professional advice for tailored investment decisions.