20210823-招银国际-Strategy_Report__Gauging_a_bottom_of_the_HSI_6页_754kb

CMB International Securities | Equity Research | Market Strategy Summary

Core Content Overview

This report from CMB International Securities provides an analysis of the Hang Seng Index (HSI) and outlines a market strategy for investors. The key focus is on identifying a potential short-term bottom for the HSI and recommending sectors that are less exposed to policy risks.

Main Points

1. HSI Performance and Valuation

• HSI Slump: The HSI dropped to a year-to-date (YTD) low of 24,582 on 20 August, representing a 20%+ decline from its peak of 31,183 in February.
• Valuation Analysis: The 2021E P/E of the HSI is 11.9x, which is not considered cheap compared to the 10-year average of 11.4x. However, when excluding 12 recently added growth stocks (e.g., Alibaba, Meituan, Xiaomi), the adjusted HSI trades at 9.4x / 8.7x for 2021E / 2022E, which is 2 standard deviations below the 10-year average and similar to past troughs.
• Valuation Context: The HSI's valuation has been inflated by the inclusion of growth stocks since the first half of 2020.

2. Technical Analysis

• Support Level: The HSI's long-term uptrend since 2008 suggests 24,000 as a potential support level.
• RSI Divergence: The RSI has fallen into oversold territory, and the report suggests waiting for a "triple divergence" between the HSI and its RSI to confirm a bottom.
• Market Range Prediction: The HSI is expected to trade in a relatively low range (24,000–26,000) in the coming weeks without significant catalysts.

3. Sentiment Analysis

• VHSI Surge: The HSI Volatility Index (VHSI) reached over 28 on 20 August, indicating investor panic.
• Contrarian Signal: A surge in the VHSI is often a contrarian signal, suggesting a potential market bottom.

4. Catalysts for a Rebound

• Historical Reference: The 2015 bear market rebound was driven by policy support, cheap valuation, rebounding PMI, extra liquidity, and a weakening USD.
• Current Catalysts:
  • Policy Support: Not present, as strict regulations remain a major risk.
  • Cheap Valuation: Present, with the adjusted HSI P/E below 10x.
  • PMI Rebound: Not present, as China's PMI has been declining for three months.
  • Extra Liquidity: Not present, as foreign investors are selling, and "short China" is a common trade.
  • Weakening USD: Not present, as the USD has been strengthening.

5. Investment Strategy

• Avoid Policy Risks: The report emphasizes avoiding policy risks and staying on the sidelines until there is more clarity on China's regulatory policies.
• Sector Recommendations: Sectors such as NEV (New Energy Vehicles), New Energy, Machinery, and Hardware are identified as potential bottom-fishing opportunities.
• Recommended Stocks: Examples include BYD (1211 HK), Suntien Green Energy (956 HK), Tian Lun Gas (1600 HK), BYDE (285 HK), and Xiaomi (1810 HK).

Key Information

• Market Outlook: The HSI is expected to remain in a low trading range unless major catalysts are introduced.
• Investor Sentiment: Panic is evident from the VHSI surge, which may indicate a potential turning point.
• Valuation Status: The adjusted HSI is undervalued, but policy risks remain a significant concern.
• Catalyst Shortfall: The current market lacks the necessary catalysts for a strong rebound.
• Investment Approach: Avoiding policy risks is the primary strategy, with a focus on sectors likely to benefit from policy shifts.

Conclusion

The report concludes that while the HSI's valuation suggests a potential short-term bottom, the market remains vulnerable due to ongoing policy risks and lack of positive catalysts. Investors are advised to wait for more clarity and to focus on sectors with lower policy exposure. The HSI is expected to trade in a low range (24,000–26,000) in the upcoming weeks.

CMBIS Ratings

• BUY: Potential return of over 15% over the next 12 months.
• HOLD: Potential return of +15% to -10% over the next 12 months.
• SELL: Potential loss of over 10% over the next 12 months.
• NOT RATED: Stock not rated by CMBIS.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Important Disclosures

• Risks: Investing in securities involves risks and past performance does not guarantee future results.
• Disclaimer: The report is not investment advice and is not a recommendation to buy or sell any security.
• Liability: CMBIS does not assume liability for any losses or damages resulting from reliance on the report.
• Regulatory Compliance: The report is intended for specific investors and may not be distributed to others without prior consent.

Analyst Certification

• The research analyst certifies that the views expressed accurately reflect their personal views.
• The analyst does not have any financial interest in the securities covered in the report.