20181223-广发证券-Weekly_HK_Market_and_Sector_Views_7页_572kb

Weekly HK Market and Sector Views Summary

Core Content

This report provides a comprehensive analysis of the Hong Kong stock market and key sectors, including macroeconomic factors, investment strategies, and specific stock recommendations. It outlines the current market conditions, policy developments, and potential risks that could impact the performance of the Hong Kong market and its listed companies in the coming months.

Main Points

• Macro Outlook: The Fed raised interest rates by 25 basis points in December, pushing the federal fund rate to 2.25-2.5%. The central bank is expected to raise rates twice in 2019, slightly below the market's initial expectation of three hikes. The US economy is projected to grow at 2.3% in 2019, down from 2.5%. The prolonged trade war and uncertainties could slow the economy, leading to a potential end of the second-longest economic recovery in US history. The Fed's cautious approach may weaken the dollar and be bullish for emerging market stocks.

• Investment Strategy: The Hong Kong stock market is expected to remain relatively stable in 2019, but short-term pressures from US stock declines and weak domestic fundamentals could impact H-shares. The strategy suggests focusing on high dividend stocks, consumer services, and insurance in the short term, while looking for opportunities in automobiles, technology, and construction in the medium term.

• Consumer Sector:

  • Gaming: November GGR rose 8.5% YoY, with a return to high single-digit growth. December GGR is expected to grow at a high single-digit YoY rate. Recommended stocks: Galaxy Entertainment (00027 HK), Sands China (01928 HK).
  • Property Management: Country Garden Services (06098 HK) is highlighted for its strong landbank and growth potential. Recommended stock: Country Garden Services (06098 HK).
  • Consumer Discretionary: The trade war, renminbi depreciation, and stock market declines have affected consumer sentiment, particularly in Hong Kong and Macau. However, Chow Tai Fook (01929 HK) is recommended due to its multi-brand and mainland-focused strategy. Risks include trade war escalation, renminbi depreciation, and reduced mainland tourist arrivals.

• Auto Sector:

  • Automakers: Sales declined in December due to a high base from the previous year and weakened consumer demand. The State Council's policies on used cars, NEVs, and smart auto development are expected to support the sector. Recommended stock: Geely Auto (00175 HK).
  • Auto Dealers: Inventory levels have increased, leading to pressure on margins. Zhongsheng Holdings (00881 HK) is recommended due to its lower exposure to US imports. Risks include rising inventory, price wars, and margin pressures.

• Financials: Hong Kong financial stocks fell alongside the Hang Seng Index. The PBoC's TMLF aims to support private enterprises. The report prefers large state-owned banks with sound risk control and low valuations. Recommended stock: CITIC Securities (06030 HK).

• Healthcare: The sector faces continued de-rating due to regulatory overhang. Sino Biopharmaceutical (01177 HK) and others are recommended due to their strong R&D capabilities and product portfolios. Risks include stricter regulations and slower R&D progress.

• New Energy & Utilities:

  • Wind Power: Curtailment rates are falling, and wind operators are seeing rising margins.
  • Natural Gas: Sales volumes have exceeded expectations due to coal-to-gas substitution.
  • Environmental: Strong demand for hazardous waste treatment.
  • Electricity: Demand is falling slightly, but profits are rising due to lower coal prices.
    Recommended stocks: China Suntien (00956 HK), China Gas (00384 HK), Tian Lun Gas (01600 HK).

• TMT Sector:

  • Hardware: The sector is in a down cycle with flat demand before 5G commercialization. However, optical components are expected to gain value. Recommended stock: Sunny Optical (02382 HK).
  • Internet: The gaming industry is showing signs of recovery with a policy shift. Recommended stocks: Tencent (00700 HK), China Literature (00772 HK), IGG (00799 HK). Risks include stricter regulations and slowed user growth.

Key Information

• Market Performance: Hong Kong stocks were relatively flat, with the Hang Seng Index and Hang Seng China Enterprises Index falling by 1.3% and 2.5% respectively. US stocks led the global decline.

• Stock Connect Flows: Net northbound flow was Rmb3.91bn, while southbound flow was Rmb1.01bn.

• Sector Ratings:

  • Positive: Auto, TMT, New Energy & Utilities
  • Neutral: Financials
  • Cautious: Consumer Discretionary, Healthcare

• Company Ratings:

  • Buy: Sino Biopharmaceutical (01177 HK), 3SBio (01530 HK), SSY Group (02005 HK), Geely Auto (00175 HK), Sunny Optical (02382 HK), Tencent (00700 HK), China Literature (00772 HK), IGG (00799 HK)
  • Accumulate: Galaxy Entertainment (00027 HK), Sands China (01928 HK), Country Garden Services (06098 HK), CITIC Securities (06030 HK)
  • Hold: None specifically mentioned
  • Underperform: None specifically mentioned

• Risks:

  • Escalation of Sino-US trade disputes
  • USD appreciation and US bond yield rise
  • Credit tightening in China
  • Regulatory pressures in healthcare and gaming
  • Inventory pressures in the auto sector
  • Weaker tech demand and competition in TMT

Legal and Compliance Notes

• The report is prepared by GF Securities and its affiliates.
• It is distributed in compliance with relevant laws and regulations.
• GF Securities (Hong Kong) is licensed to provide securities advisory services.
• The report does not constitute an offer or recommendation to buy/sell securities.
• GF Securities may have other communications with differing conclusions.
• The views and opinions expressed are those of the analysts and not necessarily those of GF Securities or its affiliates.
• Recipients should not rely solely on this report for investment decisions and should seek professional advice.