20151226-招商证券_香港_-Hong_Kong_Equity_Investment_Strategy_2016__Sailing_Against_Current_61页_4mb

Hong Kong Equity Investment Strategy 2016 Summary

Core Views

• Stagnation brewing breakthrough: The HK stock market is expected to remain range-bound and fluctuating in the short run due to systematic risks, including China's down cycle, uncertainty around Fed rate hikes, RMB depreciation expectations, capital outflows, debt default risks, and international relations changes.
• Eyes on structural chances: In the second quarter of 2016, structural opportunities are anticipated due to reforms and policy changes, such as the possible launch of a strategic emerging industries board, the implementation of Shenzhen-Hong Kong Stock Connect, and QDII2. These reforms could improve investment sentiment and replenish liquidity.

Investment Themes and Asset Allocations

• Investment themes:
  • SOE (State-Owned Enterprises) reform
  • Capital market reform and opening up
  • The beginning of the "13th Five-Year Plan"
• Recommended overweight sectors:
  • TMT (Technology, Media, and Telecommunications)
  • Insurance
  • Pharmaceuticals
  • Environmental protection
  • New energy
  • Consumer staples
  • Property
  • Automobiles
• Trading opportunities:
  • Sector banks
  • Brokers
  • Petrochemicals
  • Gaming
  • Ports
  • Cement

Market Performance and Valuation

• In 2015, the HK market had moderate performance with the HSI outperforming the HSCEI.
• Asset volatility increased due to diverging monetary policies.
• The probability of Fed rate hikes in 2015 fluctuated significantly, with expectations rising to 74% by the end of the year.
• SH-HK Stock Connect did not narrow the A-H premium.
• The HK market still has "volatile price & structural opportunities."
• Delay of SZ-HK Stock Connect ended the short-lived outperformance of small caps.
• Systematic risks affected both valuation and earnings of the HK market.
• Outperformed sectors mainly gained from PE expansion rather than earnings growth.
• The HSI Index P/E and P/B were relatively low compared to historical levels, indicating potential undervaluation.

Capital Market Dynamics

• The HK market is still active despite its size, with high turnover in futures and options.
• Financial markets in the Asia-Pacific region grew rapidly, while European markets shrank.
• The HK market has long-term strategic investment value, even though it may appear boring.

Stock Market Analysis

• New economies have a stronger edge, with sectors like software and services, healthcare, and IT hardware showing better performance.
• The Hang Seng Index (HSI) and Hang Seng China Enterprises Index (HSCEI) have shown mixed performance over the past few years.
• The Hang Seng Mainland Healthcare Index (HSMHI) and Hang Seng IT Hardware Index (HSITHI) have seen significant returns in 2016.

Black Swans and Political Events

• 2016 is a global election year, which could bring political uncertainty and impact the market.
• The CMS liquidity index suggests the market is still in a bottoming phase.
• Strong depreciation pressure on both CNY and CNH affects the valuation of HK-listed Chinese companies.
• The impact of global elections on the market varies, with some events having a high impact and others a low impact.

Conclusion

• The HK market is expected to remain volatile in the short run due to various systematic risks.
• Structural opportunities are anticipated in 2016, driven by reforms and policy changes.
• The market still has long-term investment value despite short-term challenges.
• Investment should focus on new economies and key reform sectors, with a mix of bottom-up and top-down strategies.