20180906-招商证券_香港_-Strategy_report_23页_2mb

Strategy Report Summary

Core Content Overview

This report outlines the current state of the global and Chinese economies, the impact of Sino-US trade tensions, and the performance and valuation of the Hong Kong stock market. It also discusses the government's policy stance, sector-specific performance, and investment recommendations.

Global Economic Outlook

• Less Synchronized Growth: The global economy is experiencing uneven growth, with the US outperforming other regions.
• US Economic Strength: The US economy has shown robust performance, driven by strong corporate profits, tax reforms, and a strong USD.
• Emerging Markets (EM) Weakness: EM economies are struggling with weak fundamentals, currency crises, and capital outflows.
• IMF Forecast: The IMF predicted global growth of 3.9% for 2018/2019, but the growth is less even.
• Regional Performance: The US has seen strong growth, while EMs have experienced a decline. The divergence between US and EM markets has increased significantly since late March 2018.

China Economic Outlook

• Deleveraging vs. Stabilization: China is balancing deleveraging policies with stabilization measures to manage economic pressures.
• Policy Flexibility: The government has introduced fiscal and monetary measures, including:
  • Accelerating the issuance of special bonds for infrastructure.
  • Encouraging banks to provide more credit, especially to SMEs.
  • Injecting liquidity through MLF and reducing RRR.
• Economic Indicators:
  • M2 growth accelerated to 8.5% in July 2018.
  • RMB1tn net injection via MLF since May 2018.
  • Two RRR cuts in April and July 2018, releasing RMB400bn and RMB700bn respectively.
• Key Challenges:
  • Sino-US trade tensions.
  • Weak fundamentals in certain EM countries, particularly Argentina and Turkey.

Hong Kong Stock Market

• Performance: The Hang Seng Index (HSI) and MSCI China Index have underperformed global markets, with YTD returns of -6.8% and -8.9% respectively.
• Valuation: HSI and MSCI China trade at forward P/E ratios of 11.3x and 12.3x, which are much cheaper than global indices (e.g., S&P 500 at 18.0x).
• Sector Performance:
  • Best performers: Energy (+16.9%), Utilities (+8.5%), Healthcare (+7.7%).
  • Worst performers: Semiconductors (-42.8%), Diversified Financials (-29.1%), Transportation (-23.3%), Tech Hardware (-23.0%).
• Liquidity Concerns: Mainland investors have pulled back, with the largest net outflow through Southbound Connect in August 2018 (HK$27.7bn). Total net outflow since April 2018 reached HK$50bn.
• Currency Crisis Impact: The negative returns of the HSI and MSCI China Index are mainly due to valuation and earnings adjustments.

Earnings Revisions

• MSCI China Index:
  • Net profit revision: Down 3.9% for 1H18, with a slight negative impact on 2018E and 2019E forecasts.
  • Revenue revision: Slight upward revision for 2018E and 2019E.
• Sector-Specific Earnings:
  • Software: Net profit beat consensus by 22.0%, revenue beat by 38.1%.
  • Banks: Net profit beat by 6.2%, revenue beat by 7.7%.
  • Consumer Discretionary: Net profit beat by 20.4%, revenue beat by 19.9%.
  • Insurance: Net profit beat by 29.7%, revenue beat by 10.0%.
  • Real Estate: Net profit beat by 63.4%, revenue beat by 47.4%.
  • Tech Hardware: Net profit missed by -16.5%, revenue missed by -3.2%.
  • Semiconductors: Net profit missed by -19.4%, revenue missed by -3.5%.
  • Diversified Financials: Net profit missed by -11.9%, revenue missed by -4.3%.

Index Expectations and Sector Preferences

• Index Expectation: The HSI is expected to trade at 11x-12x forward P/E for the full year, with a trough expected in 2H 2018.
• Sector Preferences:
  • Positive: Banks, Property, Materials, and Utilities (natural gas) are preferred.
  • Negative: Tech Hardware and other trade war-related sectors, as well as Airlines, are avoided.
  • Neutral: Consumer Staples and Discretionary, and Pharmaceutical sectors are fairly valued.
• Long-Term Themes: High-tech, consumption upgrade, healthcare, and environmental protection remain long-term investment preferences.

Key Information and Figures

• Forward P/E Ratios:
  • HSI: 11.3x
  • MSCI China: 12.3x
  • S&P 500: 18.0x
  • Topix: 13.4x
  • Europe Stoxx: 14.7x
• Liquidity Measures:
  • M2 growth: 8.5% in July 2018.
  • RMB1tn net injection via MLF since May 2018.
  • RRR cuts: 1% in April 2018, 0.5% in July 2018.
• Outflow Data:
  • Southbound Connect net outflow in August 2018: HK$27.7bn.
  • Total net outflow since April 2018: HK$50bn.
  • Asia EM outflow YTD: US$21.5bn.

Investment Strategy

• Avoid: Tech Hardware, Airlines, and other sectors impacted by trade tensions.
• Cautious: Education sector, despite undemanding valuations.
• Positive: Banks, Property, Materials, and Utilities.
• Key Focus: Selection of individual stocks within fairly valued sectors.

Disclaimer

• The report is provided for informational purposes only and does not constitute investment advice. Investors should conduct their own research and consult with a financial advisor before making investment decisions.

Summary of Key Points

• Global Growth Divergence: The US economy is outperforming EMs due to strong fundamentals and a favorable USD.
• China's Policy Dilemma: Balancing deleveraging with stabilization measures to address economic pressures.
• Trade Tensions: Sino-US trade friction remains a major concern, with potential for further escalation.
• Hong Kong Market: Underperformed due to valuation and earnings adjustments, but valuations look undemanding.
• Sector Performance: Defensive sectors and healthcare led, while tech and financials lagged.
• Liquidity Concerns: Persistent outflow from mainland investors and EMs.
• Earnings Revisions: Mixed results with some sectors beating expectations and others missing.
• Investment Outlook: Expectation of a market rebound in Q4 2018, with a focus on fairly valued sectors and themes.