20210903-招银国际-Strategy_Report_HSI_nearing_bottom__Buy_policy-driven_stocks_14页_1mb

Summary of Strategy Report: HSI Nearing Bottom; Buy Policy-Driven Stocks

Core Content

This report discusses the current state of the Hong Kong stock market (HSI), analyzing key factors such as regulatory risks, economic indicators, liquidity conditions, and technical signals. It concludes that while the HSI is nearing its bottom, the upside is limited until regulatory overhangs are removed. The report suggests a gradual increase in exposure to HK equities, with a focus on policy-driven sectors and monitoring for bottom-fishing opportunities in new-economy stocks.

Main Points

1. HSI Performance and Regulatory Risks

• The HSI underperformed in August due to ongoing regulatory risks in China.
• The index dropped 0.3% in August, following a 9.9% slump in July.
• Growth sectors like Internet, Healthcare, and Consumer Discretionary underperformed compared to old-economy sectors like Financials, Real Estate, and Commodity.

2. 1H 2021 Earnings Review

• Earnings were mixed, with old-economy stocks showing more positive surprises.
• Technology and Internet sectors beat expectations despite regulatory challenges.
• Earnings revisions for the HSI and HSTECH are mixed, with 2021E up and 2022E down.
• New-economy stocks like Internet and Healthcare saw earnings cuts, while some old-economy sectors saw upward revisions.

3. Fed's Tapering and Inflation Outlook

• The Fed is likely to taper soon but not raise rates immediately.
• Inflation expectations are moderating, with the expected CPI inflation for 2022 falling to 2.7%.
• The weakening USD is seen as a positive for EM equities, including HK stocks.

4. Key Catalysts for HSI to Bottom Out

• China's Policy Support: Despite increased monetary and fiscal stimulus, policy risks remain a major overhang.
• China's PMI: The official PMI has declined for five consecutive months, and Caixin PMI fell below 50, signaling economic contraction.
• Liquidity: Foreign investors have been selling HK/China stocks since July, with Southbound trading showing net outflows.
• Weakening USD: The USD's retreat is expected to support EM equities, including HK stocks.
• HSI Valuation: The HSI's adjusted forward P/E is near troughs, with valuations close to 2 s.d. below the 10-year average.

5. Technical Analysis

• The HSI is near its long-term support level from 2008 (around 24,000).
• A potential "triple divergence" in RSI could signal a bottom.
• The HSI Volatility Index (VHSI) surging to 28 would indicate market panic and a buying opportunity.

6. Investment Strategy

• Gradual Exposure: Suggest increasing exposure to HK equities as downside risks diminish.
• Policy-Driven Sectors: Focus on sectors with low policy risk, such as Machinery, New Energy, NEV & Hardware.
• Bottom-Fishing in Growth Sectors: Monitor new-economy sectors like Internet and Healthcare for re-rating opportunities once policy risks ease.

Key Information

• Market Data:

  • Hang Seng Index: 26,090
  • 52-week High/Low: 31,183/23,124
  • 3-month avg. daily turnover: HK$163.4bn

• Indices Performance (1-month, 3-month, 6-month):

  • HSI: -0.6%, -10.9%, -10.3%
  • HSCEI: 0.1%, -14.7%, -17.8%
  • HSTECH: 0.1%, -17.4%, -26.5%

• Recommended Sectors and Stocks:

  • Policy-Driven Sectors: Machinery, New Energy, NEV & Hardware
  • Stocks: Zoomlion (1157 HK), SANY Heavy (600031 CH), Zhejiang Jingsheng (300316 CH), China Longyuan (916 HK), ENN Energy (2688 HK), BYD (1211 HK), Xiaomi (1810 HK)
  • Growth Sectors to Monitor: Internet, Healthcare
  • Key Stocks: Tencent (700 HK), Meituan (3690 HK), CSPC Pharma (1093 HK), Jinxin Fertility (1951 HK)

Conclusion

The report concludes that the HSI is approaching its bottom, with valuations attractive and USD weakening. However, until policy risks are fully addressed, upside potential remains limited. Investors should focus on policy-friendly sectors and remain cautious, waiting for signs of market panic and RSI divergence before increasing exposure to growth stocks.