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Summary of Industrial Securities Co., Ltd. Report

Core Content

Industrial Securities Co., Ltd. provides a comprehensive market review and analysis for the Chinese and global markets, including stock indices, sector performance, company news, and macroeconomic outlook. The report also includes industry insights on the Baijiu and dairy sectors, as well as soybean production affected by La Nina.

Market Indices Overview

• SSE Composite: Closed at 2992.00, down 1.91%.
• SZSE Component: Closed at 10405.85, down 4.11%.
• CSI 300: Closed at 3218.24, down 1.57%.
• ChiNext: Closed at 2155.39, down 5.45%.
• HSI: Closed at 22218.99, up 0.40%.
• HSCEI: Closed at 9115.29, up 0.59%.
• Aggregate Market Volume: CNY 807 billion, up 66.3% from the previous session.

Market Review

• China's stock market plunged on Wednesday, with mid and small-cap stocks leading the sell-off.
• The decline was attributed to regulatory actions on thematic investments (VR, graphene, AI) and the lack of strong market-moving news.
• Losers outnumbered winners by 2461-to-167.
• The market's performance was impacted by a significant drop in volume and sentiment.

Sector Review

Winners

• Banks: Industrial and Commercial Bank of China (601398) +0.00%; China Merchants Bank Co. (600036) +1.16%.

Losers

• IT: Hundsun Technologies Inc. (600570) -7.85%; Wonders Information Co. (300168) -8.72%.
• Nonferrous Metals: China Northern Rare Earth (Group) High-Tech Co. (600111) -6.84%; Jinduicheng Molybdenum Co. (601958) -8.87%.
• Electronic Components: Goertek Inc. (002241) -4.26%; Shenzhen O-Film Tech Co. (002456) -7.28%.
• Media: East Money Information Co. (300059) -4.89%; Beijing Enlight Media Co. (300251) -5.90%.
• Heavy Machinery: Siasun Robot&Automation Co. (300024) -5.62%; CITIC Heavy Industries Co. (601608) -6.06%.

Daily Headlines

• China's Policy Directions: Prudent monetary policy and proactive fiscal policy will continue in the second half of 2016. The government will deepen SOE reforms, curb asset bubbles, and encourage private investment.
• Coal-Capacity Cuts: Local governments are urged to achieve coal-capacity cuts by November.
• Insurance Disclosures: Insurers are required to improve shareholding disclosures.
• Bondholder Actions: Holders of Dongbei Special Steel Group's 5-yr bonds request immediate payment.
• Corporate Mergers and Acquisitions: LeEco acquires Vizio Inc. for $2 billion. China's State Grid bids for Abengoa Brazil's power lines.
• Trade Concerns: Top iron-ore miners call for anti-dumping investigations against Australian and Brazilian imports.

Latest Company News

• Hangzhou Robam (002508.SZ): 1H net income of 422.8 million yuan, up from 306.6 million yuan y/y.
• Huaneng Power (600011.SH): Parent company completes stake increase.
• Minsheng Bank (600016.SH): Liu Yonghao reduces A-share stake to 5.95% from 6.1%.
• PetroChina (601857.SH): Parent CNPC reports 1H profit due to spending cuts.
• Sinochem Intl (600500.SH): Shares suspended; company to investigate media reports on Total's unit bidding.
• Yanzhou Coal (600188.SH): 2Q saleable coal output falls 11.4% y/y.

Today's Research

Expectation for Fed's Rate Hike Rebounds in July

• The market's implied probability of a December Fed rate hike is 45.1%.
• Improved U.S. economic metrics are the main reason for the shift in expectations.
• U.S. stock market and USD have shown positive correlation, suggesting increased capital inflow into the U.S. market.
• Citigroup's economic surprising index turned positive, with retail sales, labor market, and industry showing significant growth.
• The U.S. labor market is approaching saturation, with most new jobs in low-income service sectors.
• Uncertainties include ECB stress test results, Brexit-related geopolitical tensions, and the refugee crisis in Europe.

Overweight First-tiered Baijiu and Dairy Product Brands

• Baijiu Sector: The sector is booming due to consumption upgrading and brand concentration. Fund managers are showing increasing interest in first-tiered brands.
• Dairy Sector: The dairy segment is recovering with improved profitability. Fund managers are increasing holdings in Xinjiang Tianrun Dairy and Inner Mongolia Yili Industrial Group.
• Investment Recommendations: Recommend buying food and beverage stocks despite short-term corrections. Highlight Wuliangye Yibin, Luzhou Laojiao, and Xinjiang Yilite Industry Co. Ltd. for Baijiu. Recommend Xinjiang Tianrun Dairy and Inner Mongolia Yili Industrial Group for dairy.
• Potential Risk: Slower consumption upgrading and intensified market competition.

La Nina Casts Headwinds to Soybean Output

• The departure of El Nino and arrival of La Nina will impact soybean yields.
• Global soybean output may see slight growth due to the ultra-low base effect.
• La Nina's timing and duration will determine the exact impact on soybean yields.
• Historical data shows that earlier fading of La Nina reduces damage to South American soybean output.
• U.S. and South American soybean production data is provided to show the effects of La Nina and El Nino.

Investment Recommendations

• Sinopac Guangzhou Guangri Stock Co., Ltd. (600894.SH): Maintain "BUY" rating due to steady growth in main business and potential from SOE reforms.
• Great Wall International Acg (000835 SZ): Initiate "OUTPERFORM" rating due to M&A expansion in the animation industry.
• Baijiu and Dairy Sectors: Maintain "BUY" rating, as fundamentals and fair valuation support growth.
• Soybean Sector: Maintain "BUY" rating, as global production may see slight growth despite La Nina's impact.

Analysts and Translators

• Analysts: Han Wang, PhD; Chen Songkun; Wang Xiaoming; Bu Zhonglin; Chen Jiao; Jiang Weihua; Mao Yifan; Wang Wei.
• Translators: LI Xing; PAN Mengchen; LU Yang.

Key Tables

• Table 1: Market Indices and Changes.
• Table 2: Historical La Nina impacts on soybean yields.
• Table 3: USDA forecasts for U.S. soybean production during El Nino/La Nina transitions.
• Table 4: Historical La Nina fading times and impacts on South American soybean yields.
• Table 5: Production and inventory of South American soybeans during El Nino/La Nina transitions.
• Table 6: Global soybean production and inventory during El Nino/La Nina transitions.