20150629-农银国际证券-2H15_Economic_Outlook_and_Investment_Strategy_35页_1mb

2H15 Economic Outlook and Investment Strategy Summary

Core Content

This document provides a comprehensive overview of the global and regional economic outlook for the second half of 2015 (2H15), with a focus on China and Hong Kong. It also outlines the investment strategies and themes for the period, emphasizing the impact of monetary and fiscal policies, global economic trends, and sector-specific opportunities.

Main Points

Global Economic Outlook

• Economic Growth: The global economy was still struggling in the first half of 2015 (1H15), with many regions experiencing weak growth or contraction. The U.S. and Japan showed signs of improvement, while the Eurozone remained sluggish due to ongoing debt issues in Greece and uneven recovery across core members.
• U.S. Economy:
  • The U.S. economy faced challenges in 1H15, including a contraction in GDP, weak industrial production, and subdued wage growth.
  • Despite these issues, the job market improved, and the Fed was expected to begin raising interest rates, likely in Q3 2015.
  • The U.S. equity market was inflated by QE liquidity, but fundamentals remained weak. We forecast U.S. GDP growth of 2.8% YoY for 2015.
• Eurozone:
  • The Eurozone showed modest recovery in 1H15, with some countries like France, Italy, and Spain seeing growth.
  • The Greek debt crisis posed a significant risk, and the possibility of Brexit (exit of the UK from the Eurozone) added uncertainty.
  • Inflation improved slightly in May 2015, but the region's overall growth was expected to remain limited. We forecast 1.3% YoY growth for the Eurozone in 2015.
• Japan:
  • Japan's economy showed improvement in 1H15, with GDP growth of 3.9% QoQ.
  • The third arrow of Abenomics (wage growth and employment) was slow to materialize, and inflation weakened significantly.
  • The BoJ continued its stimulus measures, and we expect 1.8% YoY growth for Japan in 2015.
• Emerging Asia:
  • Growth in emerging Asian economies was limited due to weak global demand and the impact of the Fed's potential rate hikes.
  • Commodity prices fell due to China's slowing growth, and many countries faced current account deficits and declining foreign reserves.
  • We forecast 5.0% YoY GDP growth for the region in 2015.

China Economic Outlook

• Growth: China's economy showed a slowdown in 1H15, with GDP growth at 7.0% YoY, the lowest in six years.
• New Normal: China is transitioning to a "new normal" of slower, more sustainable growth, with a GDP target of 7.0% for 2015.
• Domestic Demand: Weak property market and related sectors contributed to subdued domestic demand.
• Inflation: Inflation remained mild, at 1.7% YoY for the full year and 2.1% in 2H15.
• FAI Growth: Fixed Asset Investment (FAI) growth was expected to stabilize, with 12.0% YoY in 2H15.

China Policy Outlook

• Monetary Policy: The PBOC continued to implement monetary easing in 2H15, including further rate cuts and RRR reductions.
• Fiscal Policy: The government introduced stimulus measures to mitigate falling aggregate demand.
• RMB Trend: The RMB was expected to experience greater volatility but was unlikely to undergo drastic depreciation.
• Economic Themes:
  • The "New Silk Road" initiative would boost infrastructure demand.
  • The "China Manufacturing 2025" plan would favor smart manufacturing sectors.
  • Consumption growth would be driven by rising services demand and internet-based consumption.
  • Mild inflation would provide room for more monetary easing.
  • External trade growth was expected to remain unstable.

Hong Kong Economic Outlook

• Growth: Hong Kong's economic growth was expected to remain subdued in 2H15 due to slowing consumption and services exports.
• Investment Themes:
  • Credit loosening and capital market liberalization would benefit the financial sector.
  • The Shenzhen-Hong Kong Stock Connect would further liberalize cross-border investment.
  • The "China Manufacturing 2025" plan and "New Silk Road" would drive demand for infrastructure and smart manufacturing.
  • Environmental protection policies would support renewable energy and water treatment sectors.
  • The property sector was expected to regain momentum.
  • The "Internet-Plus" strategy would facilitate growth in internet-related sectors.

Investment Strategy

• Stock Indices and Picks: The document outlines stock indices and specific stock picks for 2H15, though details are not provided.
• Recommendations:
  • The equity rating system is based on stock return relative to the market return rate.
  • The risk rating is based on 180-day volatility relative to the Hang Seng Index.
• Market Outlook:
  • The U.S. equity market was expected to face short-term volatility due to rate hikes.
  • Emerging Asian markets would likely experience higher volatility but not as dramatic as in 2013.
  • The financial sector in Hong Kong and China would benefit from credit loosening and capital market liberalization.

Key Information

• Rating Definitions:
  • Buy: Stock return ≥ Market return rate
  • Hold: Market return - 6% ≤ Stock return < Market return rate
  • Sell: Stock return < Market return - 6%
• Risk Definitions:
  • Very high: 2.6 ≤ 180-day volatility / 180-day benchmark index volatility
  • High: 1.5 ≤ 180-day volatility / 180-day benchmark index volatility < 2.6
  • Medium: 1.0 ≤ 180-day volatility / 180-day benchmark index volatility < 1.5
  • Low: 180-day volatility / 180-day benchmark index volatility < 1.0
• Time Horizon: Share price targets are based on a 12-month time horizon.
• Disclaimer: The report is for informational purposes only and does not constitute investment advice. No liability is accepted for any loss or damage arising from the use of the report.
• Disclosure: ABCI Securities and its affiliates have investment banking relationships with some of the companies mentioned in the report.
• Contributors: Banny Lam and Paul Pan are the contributors to this report.
• Publication Date: June 26, 2015.