20181119-招商证券_香港_-Mixed_signals_on_trade_deal_and_macro_data_18页_2mb

Strategy Weekly Summary (19 Nov 2018)

Core Content

This report provides an overview of the global and Chinese macroeconomic data, stock market performances, and investment outlook for the fourth quarter of 2018. It highlights the mixed signals on the trade deal between the US and China, macroeconomic trends, and sector-specific performances.

Main Points

Trade Deal and Macro Data

• Trade War Developments:

  • Both the US and China confirmed communications at various levels to prepare for the G20 summit.
  • China provided a list of measures to resolve trade tensions, but some major items were missing.
  • Trump indicated he may not impose more tariffs, but the probability of a deal was downplayed.
  • Vice President Pence warned against ending tariffs and criticized China's Belt and Road initiatives.

• US Economy:

  • US CPI and core CPI rose by 0.3% and 0.2% respectively in October, showing steady inflation.
  • Retail sales rebounded by 0.8%, suggesting strong consumer spending momentum.
  • Industrial production slowed slightly to +0.1%, as strong manufacturing output was offset by a decrease in mining and utilities.

• China Economy:

  • Retail sales softened further to +8.6% in October.
  • Industrial production (IP) picked up slightly to +5.9%.
  • Fixed asset investment (FAI) stabilized at +5.7%, driven by infrastructure and manufacturing investment.
  • Property development investment cooled down.
  • M2 growth slowed to +8.0%, below consensus.
  • Total social financing (TSF) and new RMB loan figures were below expectations and significantly lower than previous months.

Stock Market Update

• Global Markets:

  • Hang Seng Index (HSI), MXCN, and CSI300 gained by 2.3%, 2.8%, and 2.8% respectively over the past week.
  • MXCN: Telecom and IT outperformed, while Energy and Health Care lagged.
  • A Shares: Financials and IT outperformed, while Energy and Banks lagged.

• Valuation:

  • HSI and MXCN trade at forward P/E of 11.0x and 11.8x respectively, close to the 5-year median.
  • CSI300 trades at 11.3x, below the 5-year median of 12.8x.

Investment Outlook

• Q4 Market Outlook:

  • A mild rebound is expected due to policy easing and undemanding valuations.
  • Cyclical sectors are anticipated to benefit the most.
  • Selective large consumer stocks could attract investor interest.
  • Tech hardware remains under pressure due to weak demand for Apple's iPhone.
  • The education sector will face headwinds due to policy changes.

• Key Risks:

  • Revised down consensus earnings forecasts for 2018E and 2019E by 3.8% and 4.9% since the end of August.
  • Policy tightening.
  • Higher than expected USD strengthening and US market pullback.
  • Escalation in the US-China trade war.
  • Spread of issues in emerging market countries.

• Key Catalysts:

  • China's policy easing.
  • Less trade war tension.
  • USD weakening.

Key Companies

• Alibaba (BABA US, Buy):

  • Recorded strong Singles' Day sales with GMV reaching RMB213.5bn, a 27% year-over-year increase, down from 39% in 2017.

• Tencent (700 HK, Buy):

  • Posted better-than-expected 3Q results, with sales and non-GAAP net profit growing by 24% and 15% year-over-year, respectively, ahead of the consensus.

Summary of Data

China Macro Data Overview

US Macro Data Overview

Key Figures and Trends

• Trade Deal: Mixed signals from both sides, with no clear resolution expected at the G20 summit.
• Policy Measures: PBOC called a special meeting to support private enterprises and SMEs.
• Economic Indicators: Mixed data showing robust US economy and a mixed Chinese economic picture.
• Market Performance: Global equity indices showed mixed performances, with some sectors outperforming others.
• Valuation: Valuation levels for major indices are close to or below historical averages.
• Investment Outlook: A mild rebound is expected in Q4 due to policy easing and favorable valuations.
• Risks and Catalysts: Earnings revisions, policy tightening, USD fluctuations, trade tensions, and EM issues are key risks, while policy easing and USD weakening are key catalysts.

Summary of Sector Performance

Conclusion

The report indicates a mixed outlook on the US-China trade deal and macroeconomic data, with the US economy remaining robust while China's performance was mixed. A mild rebound in the Q4 market is expected due to policy easing and undemanding valuations, with cyclical sectors and selective large consumer stocks likely to benefit. However, risks such as earnings revisions, policy tightening, USD strengthening, and trade war escalation remain. The education sector faces headwinds due to policy changes. Key catalysts include policy easing and USD weakening.