德银-中国-股票策略-机敏如沙：2019年3月南向影响更新-2019.3.7-42页_2mb

Asia Equity Strategy - March 2019 Southbound Impact Update

Core Content

This report provides an update on the performance and strategy of the Southbound Impact investment approach in March 2019. It outlines the flow of Southbound investments, sector preferences, and the performance of both long and short baskets. The strategy focuses on identifying stocks that are either significantly impacted by Southbound flows or show potential for outperformance.

Main Points

• Southbound Flow Trends:

  • Southbound investors have been net sellers in 2019, with outflows of $450 million in January and $1.1 billion in February.
  • Financials and Real Estate have been the most heavily sold sectors, with nearly $700 million outflow each year-to-date.
  • There is a divergence within the Financials sector, with continued buying in Insurance and Brokers, and selling in Banks.
  • CCB (939 HK) saw a significant outflow of nearly $1 billion in February, representing a $-20% turnover impact, indicating a shift in sentiment towards "riskier" stocks.

• Performance of Long Basket (DBHKSI3P):

  • The long basket DBHKSI3P consists of 20 stocks and is equal-weighted.
  • It is overweight in IT, Health Care, Consumer Discretionary, Real Estate, Consumer Staples, and Industrials, and underweight in Utilities, Communication Services, Energy, Materials, and Financials.
  • Southbound investors have accumulated $1.5 billion in these 20 stocks over the last month, representing an average stake of 1.8% of the free float market cap.
  • The basket is trading at 13.3x NTM earnings and 2.2x NTM book, compared to 11.8x NTM P/E and 1.5x NTM P/B for MSCI China.

• Performance of Short Basket (DBHKSS3P):

  • The short basket DBHKSS3P includes the most negatively impacted stocks by Southbound flow.
  • It is equal-weighted and can accommodate trades of up to $60 million per day.
  • Stocks in the basket have a minimum Southbound holding threshold of 5 days of ADV, ensuring that there are enough holdings to potentially sell.

• Performance Metrics:

  • The long basket DBHKSI3P has outperformed the HSCEI by 8.6% since inception in April 2017.
  • The strategy's performance is primarily driven by security selection, as indicated by the performance attribution analysis.

• Key Findings:

  • The strategy recommends buying DBHKSI3P against the HSCEI to capture Southbound outperformance or hedging with DBHKSS3P for Southbound impact long/short exposure.
  • The report highlights the importance of tracking Southbound flows and their impact on stock performance and market dynamics.
  • It also suggests that fundamental-oriented investors can use the strategy's screens to assess their own portfolios and trading decisions.

Key Information

• Turnover Impact: In February 2019, gross turnover impact reached 18%, close to the all-time high levels seen in February 2018.
• Sector Allocation: The long basket is significantly overweight in IT, Consumer Discretionary, and underweight in Financials and Communication Services.
• Valuation Metrics: The long basket is valued at 13.3x NTM earnings and 2.2x NTM book, compared to 11.8x NTM P/E and 1.5x NTM P/B for MSCI China.
• Investor Sentiment: The shift from selling Banks to buying Insurance and Brokers indicates improving sentiment and a rotation towards riskier stocks.
• Data Sources: The analysis is based on Deutsche Bank, Bloomberg Finance LP, CCASS, and HKEx data, with a focus on trailing net purchase and sale flows.

Strategy Recommendations

• Buy DBHKSI3P vs. HSCEI: To capture the positive impact of Southbound flows.
• Hedge with DBHKSS3P: For short exposure to Southbound impact, particularly for stocks that are heavily sold.
• Monthly Updates: The strategy aims to introduce new target baskets on a monthly basis to adapt to changing market dynamics.

Conclusion

The Southbound Impact strategy continues to provide insights into the behavior of Southbound investors in Hong Kong. Despite overall net selling, there are signs of improved sentiment, particularly in the Financials sector, with a shift towards buying Insurance and Brokers. The long basket has shown strong performance relative to the HSCEI, while the short basket offers a hedge against potential underperformance. The strategy emphasizes the importance of security selection and sector rotation in capturing the impact of Southbound flows.