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Industrial Securities Co., Ltd. Summary

Core Content Overview

Industrial Securities Co., Ltd. provides a comprehensive market review and analysis of China's A-share and Hong Kong stock markets, along with insights into the bond market and macroeconomic trends. The report includes key indices, sector performance, company news, and investment strategies for both domestic and international markets.

Market Indices

• Total Market Volume: CNY 498.99 billion (USD 72.31 billion), little changed from the previous day.
• Market Sentiment: Winners outnumbered losers by 2197-to-575.

Market Review

• Small-cap ChiNext stocks led the market, surpassing large-cap blue chips, driven by investor sentiment and the "new retailing" concept following Alibaba's cooperation with Shanghai Bailian Group.
• Investor appetite improved, with hot sectors emerging.
• Trading volume remained low, which may influence future market movements.
• A-share market rose for the second consecutive day, with the Shanghai Composite up 0.41%, Shenzhen Component up 0.74%, and ChiNext up 1.38%.

Sector Performance

Winners

• Software sector surged, with Shenzhen Infogem Technologies Co. (300085) up 10.02% and Surfilter Network Technology Co. (300311) up 5.43%.
• Retailing sector shined due to the "new retailing" concept, with Alibaba's collaboration with Shanghai Bailian Group and Yonghui Superstores Co. (601933) up 9.92%.
• Household products also performed well, including Xilinmen Furniture Co. (603008) up 6.69% and A-Zenith Furniture Co. (603389) up 8.87%.
• Healthcare sector outperformed, with Guangdong Transtek Medical Electronics Co. (300562) up 10.00% and Dirui Industrial Co. (300396) up 4.08%.

Losers

• Port sector fell due to profit-taking, with Zhuhai Port Co. (000507) down 2.52% and Shanghai International Port (Group) Co. (600018) down 1.32%.

Daily Headlines

• China's central bank adjusted the method for calculating the yuan's reference rate against the dollar.
• Provincial pension fund in Shandong plans to create a 5 billion yuan fund to invest in startups and state-owned companies.
• U.S.-Japan trade framework announced to boost economic ties.
• Douyu (Tencent-backed live-streaming service) in talks to raise 1 billion yuan at a valuation of ~$1.2 billion.
• Shandong Gold Mining is planning a $1 billion Hong Kong share sale.
• China's CPI rose 2.5% YoY in January, attributed to early Spring Festival and increased travel and oil prices.
• PPI continued YoY growth (6.9%) but slowed MoM (0.8%), due to upstream price controls.
• Market outlook suggests short-term consolidation in the Hong Kong market, but long-term growth is expected due to improving fundamentals and liquidity.

Investment Strategy

HK Market Strategy

• Low valuations are recommended for investment.
• Focus on:
  1. Sound-performing stocks driven by internal demand.
  2. Blue-chips with high dividend yields.
  3. OBOR and PPP beneficiaries.
  4. Leading value stocks with annual performance improvement.
  5. Growth stocks driven by manufacturing upgrades.
• Valuation metrics for HSCEI: PB ratio 1.03x, PE ratio 8.5x.
• Earnings season is approaching, with 90% of Hong Kong-listed companies expected to release annual reports and announce dividends between mid-February and end-March.

Bond Market Strategy

• Interest rates have limited upside potential in the short term.
• Bond market may rebound, but with limited gains.
• Short-duration bonds are recommended for investors.
• Liquidity remains loose, with the PBOC not planning to tighten.
• Bond yields have approached lending rates, making bonds attractive.
• Long-term bond yields are unlikely to drop significantly.
• 3-year-or-above yield curve is flat, so short-duration credit bonds are preferred.

Key Uncertainties

1. Financial system fragility remains, with deleveraging just beginning.
2. Economic fundamentals may stabilize in the short term but could worsen in the long run.
3. Inflation pressure is expected to ease in the short term but may persist if CPI remains high.
4. Liquidity crunch is likely due to continued deleveraging and tighter regulations.

Bond Market Weekly Review

Market Liquidity

• Inter-bank liquidity tightened slightly due to RRR and tax payments, but eased later in the week.
• Repo rates increased in the inter-bank market, while trade volume expanded for short-term repos.
• Exchange repo rates rose, and trade volume shrank, indicating reduced liquidity supply.
• NCDs and notes financing rates declined, and CNH Hibor remained stable.

Rates Product

• Primary market: Net supply of new bonds decreased, with improved bidding results for short-end rates.
• Secondary market: Yields for long-end and treasury bonds declined, with increased trade volume.
• Treasury futures (TF1703 and TF1706) rose, indicating market confidence.

Credit Bonds

• Primary market: Net supply increased, with some bonds issued.
• Secondary market: Yields fluctuated slightly, with limited trading activity.
• De-leveraging expectations and liquidity conditions influenced credit product performance.

Company News Highlights

• China Hi-Tech Group (600730 CH): Chairman resigns.
• Do-Fluoride (002407 CH): Terminates share sale plan after CSRC rules tightened.
• Guotai Junan Securities (601211 CH): FY net profit at 9.84 billion yuan vs 15.7 billion yuan year ago.
• Shandong Gold Mining (600547 CH): Said to plan a $1 billion Hong Kong share sale.
• Sino Hydro (601669 CH): Wins a $400 million power dam bid in Pakistan.

Conclusion

The A-share market showed mixed performance, with small-cap stocks driving the rally. The bond market is expected to rebound but with limited upside, suggesting investors should focus on short-duration bonds. Inflation data indicated structural divergence, with CPI and PPI both rising but at different rates. The HK market is consolidating after a strong performance, but the low valuations and improving fundamentals suggest long-term growth potential. Key uncertainties around the financial system and economic recovery remain, which may influence future market movements.