20181211-中国银河国际证券-Hong_Kong_Strategy__Southbound_Stock_Connect__Major_sell-off_in_Tencent,_China_financials_and_China_property_6页_612kb

Hong Kong Strategy Summary: Southbound Stock Connect Activity in November and December 2018

Core Content

This summary outlines the performance and activity of Southbound Stock Connect in Hong Kong during November and December 2018, highlighting key trends in fund flows, stock performance, and investor behavior.

Main Points

• Net Fund Outflows in Southbound Trading:
  Southbound trading experienced net fund outflows of HK$5.15bn in November 2018, reversing the net inflows seen in September and October. In the first week of December, the outflow continued at HK$1.3bn.

• Heavy Selling in Major Large Caps:
  Southbound investors heavily sold Tencent (0700.HK), China financials (e.g., China Pacific Insurance (2601.HK), China Merchants Bank (3968.HK), CCB (0939.HK), Ping An Insurance (2318.HK), and CITIC Bank (0998.HK).
  The outflow for Tencent was HK$2bn in the past two weeks, indicating a significant shift in sentiment.

• Positive Fund Flow in Certain Sectors:
  Southbound investors showed active buying in certain stocks such as Tingyi (0322.HK), HEC Changjiang Pharmaceutical (1558.HK), and Galaxy Entertainment (0027.HK).
  Tingyi attracted significant interest after a sharp drop in share price, with the stake owned by Southbound investors increasing from 0.27% to 0.89%.
  HEC Changjiang Pharmaceutical saw its stake rise from 10.04% to 15.90%.
  Galaxy Entertainment experienced a turnaround in fund flow, with net inflow of HK$123m in the past two weeks, and Sands China (1928.HK) also recorded a net inflow of HK$200m.

• Steady Inflow to SMIC:
  SMIC (0981.HK) recorded a net inflow of HK$670m over two months and continued to see steady inflows of HK$240m in the past two weeks. The stake rose to 15.92%, and the stock rebounded by over 25% since mid-November.

• HSBC's Fund Inflow Slowed:
  HSBC (0005.HK) had a strong net inflow of HK$8.1bn over two months, but the momentum slowed in the past two weeks with only HK$148m inflow.

Key Information

• Tingyi (0322.HK):

  • Share price dropped over 20% in November due to unexciting Q3 2018 results.
  • Southbound investors bought HK$370m in the past two weeks, increasing their stake to 0.89%.

• HEC Changjiang Pharmaceutical (1558.HK):

  • Stake owned by Southbound investors increased from 10.04% to 15.90%.
  • The stock performed better than other drug companies, which faced double-digit declines due to concerns over low tender prices through GPO.

• Galaxy Entertainment (0027.HK):

  • Recorded a net inflow of HK$123m in the past two weeks, showing a more favorable trend.
  • The stake owned by Southbound investors was at 0.41%, up from 0.41% in mid-November.

• SMIC (0981.HK):

  • Net inflow of HK$670m over two months, with steady inflows of HK$240m in the past two weeks.
  • Stake increased to 15.92%, and the stock rebounded by over 25% since mid-November.

• HSBC (0005.HK):

  • Strong net inflow of HK$8.1bn over two months, but the inflow slowed to HK$148m in the past two weeks.

Summary of Trends

• Market Volatility:
  The Hong Kong Hang Seng Index (HSI) rose over 6% in November, but Southbound trading recorded net outflows, suggesting that the performance of individual stocks and sectors influenced investor behavior.

• Sector-Specific Activity:

  • Financials and Property: Heavy selling observed, particularly in Tencent, China financials, and China property stocks.
  • Pharmaceuticals and Semiconductors: Positive buying trends, with HEC Changjiang Pharmaceutical and SMIC seeing significant inflows.

• Investor Behavior:
  Southbound investors showed a shift in focus, moving from traditional large caps to more specialized or undervalued stocks. This included stocks like Tingyi and Galaxy Entertainment, which attracted increased interest.

• Valuation and Dividend Yields:
  The report highlights the importance of valuation metrics and dividend yields in investor decision-making, especially for stocks like Tingyi and SMIC, which showed favorable ratios.

Conclusion

The Southbound Stock Connect activity in November and December 2018 was marked by a shift from net inflows to outflows, primarily due to heavy selling in major large caps. However, there were notable inflows in specific stocks, indicating a more nuanced investor strategy based on valuation and sector performance.