20161213-中国银河国际证券-A-share_Investment_Strategy_2017_Seeking_Structural_Opportunities_Amid_Tight_Liquidity_in_2017_28页_1mb

2017 A-Share Investment Strategy Summary

Core Content

This document outlines the investment strategy and market outlook for the Chinese A-share market in 2017, emphasizing structural opportunities amid tighter liquidity conditions. It also provides detailed sector-specific analyses, particularly focusing on petrochemicals, military & defence, and pharmaceuticals.

Key Views on A-Share Market

• Tighter Liquidity: The A-share market is expected to face tighter liquidity in 2017 due to US rate hikes, inflationary pressures from commodity price increases, and RMB depreciation.
• Market Volatility: The A-share market will likely be volatile in 2017, with the valuation of major indices around historical averages, while the ChiNext Index is below average.
• Investment Themes:
  • Policy-Related Opportunities: Supply-side reforms and public-private partnerships (PPP).
  • Quality Companies: Focus on healthcare, brand consumption, technical services, and intelligent manufacturing.

Macroeconomics Outlook

• US Impact: Donald Trump's policies, including tax cuts and infrastructure investment, will boost domestic employment, strengthen consumer prices, and support commodity prices.
• Fed Rate Hikes: The Federal Reserve is expected to raise interest rates in December 2016 and continue doing so in 1H17.
• Imported Inflation: RMB depreciation will lead to imported inflation, pushing up consumer prices in China.
• Monetary Policy Shift: China is expected to shift to neutral monetary policy to avoid stagflation.

Sector-Specific Investment Opportunities

Petrochemicals

• Crude Oil Market: Equilibrium expected by 2H17. Watch for OPEC production cuts.
• Private LNG Companies: Recommend Changchun Sinoenergy (600856 CH), ENN Energy (2688 HK), Geo-Jade Petroleum (600759 CH), and Guanghui Energy (600256 CH).
• Polyester Filament: Industry cycle is reversing. Tongkun Group (601233 CH) is a key recommendation.
• Butadiene and Natural Rubber: Butadiene prices are expected to soar due to declining supply and rising natural rubber prices. Key stocks include Zibo Qixiang Tengda Chemical (002408 CH), North Huajin Chemical Industries (000059 CH), and Sinopec Shanghai Petrochemical (600688 CH).
• Agricultural Chemicals: Signs of initial recovery. Recommend Changqing Agrochemical (002391 CH) and Hubei Xingfa Chemicals (600141 CH).

Military & Defence

• SOE Reforms: Mixed-ownership reforms are expected to kick off in 2017, improving corporate governance and efficiency.
• Civil-Military Integration: Expected to strengthen the military sector and create new opportunities. Key stocks include Taisheng Wind Power Equipment (300129 CH), Uroica (300099 CH), and Highlander Digital Technology (300065 CH).
• Recommended Stocks: AVIC Electromechanical Systems (002013 CH), Beifang Chuangye (600967 CH), and small-cap military stocks like Ctrowell Technology (300455 CH).

Pharmaceuticals

• Policy Support: Reforms in tendering, two-invoice system, drug evaluation, and distribution are accelerating.
• Valuation: The sector is currently undervalued compared to 2014 and 2015.
• Investment Themes:
  • Industry leaders with low valuations.
  • Blood products.
  • Pharmaceutical distribution.
  • Innovative drugs.
  • Formulation exports.
  • Medical services.
  • CROs and pharmaceutical accessories.
• Key Picks: ST Zhenxing Biopharmaceutical and Chemical (000403 CH), Hualan Biological Engineering (002007 CH), Jointown Pharmaceutical Group (600998 CH), and others.

Conclusion

The A-share market is expected to remain volatile in 2017, but structural opportunities will emerge from policy-driven reforms and the growth of quality companies. Investors should focus on sectors like petrochemicals, military & defence, and pharmaceuticals, which are supported by favorable policies and show strong potential for growth.