20220926-招银国际-China___HK_Market_Weekly__A-shares_less_vulnerable_to_external_shocks_10页_1mb

China / HK Market Weekly Summary

Core Content

This report provides a weekly analysis of the China and Hong Kong (HK) equity markets, highlighting the impact of global market conditions, monetary policies, and sectoral performance on stock valuations and investor sentiment.

Main Views

• Market Vulnerability: Chinese A-shares are less vulnerable to external shocks compared to H-shares, which are more sensitive to US rate hikes and geopolitical risks.
• Sentiment Outlook: Short-term stock market sentiment is expected to remain weak due to ongoing concerns over US interest rates and the Russia-Ukraine conflict.
• Value vs. Growth Stocks: Chinese value stocks have outperformed growth stocks in recent weeks, and this trend is expected to continue as value stocks are more responsive to potential credit easing and fiscal support.
• Sector Performance: Energy and Telecom sectors in HK and China have shown resilience, while IT and Healthcare sectors have experienced declines.
• Monetary Policy Divergence: The diverging monetary policies between China and the US are expected to support A-shares, as the Chinese market may benefit from more accommodative conditions.
• AH Premium: A-shares are currently trading at a 45% premium to H-shares, which is higher than the historical average and may remain elevated due to the above factors.

Key Information

Market Recap

• Global stock markets continued to decline, with the HSI, CSI 300, and S&P 500 down by -4.4%, -2.0%, and -4.7%, respectively.
• The USD Index rose by 3.1%, while the RMB depreciated further by 2%, negatively impacting China/HK stocks.
• Energy & Telecom sectors in HK gained, while IT & Healthcare sectors saw the largest declines.
• In China, Energy stocks gained, and IT & Healthcare stocks declined.

Interest Rates

• The US Fed raised rates by 75 bps, with the "dot plot" suggesting rates will remain higher at the end of 2023 than at the end of 2022.
• Interest rate futures indicate the Fed funds rate may peak at 4.7% in 2Q23, up 34 bps from the previous week.

Sentiment

• The US VIX (Fear Index) rose to a three-month high of 30.
• The short-sell ratio on the HK mainboard increased slightly to 19.1%, with increases in Financials, IT, Consumer Discretionary, and decreases in Energy, Staples, Property, and Healthcare.
• Value stocks in HK are more resilient to market volatility.

Earnings & Valuations

• Consensus EPS for HSI, HSTECH, and CSI 300 fell by 0.6%, 0.2%, and 2.8% respectively.
• The FY22E P/E of the HSI fell to 9.8X, indicating undervaluation.
• A-shares have shown better performance, leading to a widened AH premium.

Fund Flows

• Southbound inflows increased mildly, while Northbound inflows remained weak.
• The AH premium widened by 2.9 points last week, reflecting A-shares outperformance.

Sector Rotation

• Value Stocks: Expected to outperform growth stocks due to potential credit loosening and fiscal stimulus.
• Energy Stocks: Supported by geopolitical risks, particularly the Russia-Ukraine conflict.
• Growth Stocks: Face continued valuation pressure due to rising interest rates.

Key Events to Watch This Week

• Wednesday: Fed's Chair Powell speaks at a conference.
• Friday: China NBA Manufacturing PMI (Sep), US PCE Inflation (Aug), and Fed's Vice Chair Brainard speaks at a Federal Reserve Board Conference.
• Russia-Ukraine War: Expected to remain a key risk factor, potentially escalating in the coming days.

CMBIGM 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: Not rated by CMBIGM.
• 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

• The report is not investment advice and should not be relied upon for making investment decisions.
• The information is based on publicly available data and is provided on an "AS IS" basis.
• CMBIGM is not liable for any losses or damages arising from reliance on this information.
• The report is intended for specific recipients and may not be reproduced or distributed without consent.

Legal Restrictions

• UK: Only for persons falling within Article 19(5) or Article 49(2)(a) to (d) of the Financial Services and Markets Act 2000.
• US: Only for "major US institutional investors" and not for general distribution.
• Singapore: Distributed by CMBISG, an Exempt Financial Adviser, and legal responsibility is limited to the extent required by law.

Analyst Certification

• The primary analyst certifies that the views expressed reflect their personal opinions and that no compensation is directly or indirectly linked to these views.
• The analyst has not traded in the stocks covered in the report within 30 days prior to the report's release and will not do so for 3 business days after.

Summary of Key Charts

• Figure 1: China's M1 growth rebounded while HK's declined, reflecting diverging monetary policies.
• Figure 2: A-shares tend to outperform when the China-HK M1 growth spread widens.
• Figure 3: Global markets continued to selloff for the second consecutive week.
• Figure 4: HSI fell to below 18,000, the lowest in almost a decade.
• Figure 5: Energy & Telecom sectors in HK gained, while Growth stocks declined.
• Figure 6: Energy gained in CSI 300, while IT & Healthcare declined.
• Figure 7: US Growth stocks underperformed Value stocks due to rising interest rates.
• Figure 8: Chinese Growth stocks underperformed Value stocks in recent weeks.
• Figure 35: HSI's forward P/E fell to single digits, indicating undervaluation.
• Figure 40: A-shares' EPS estimates were flat last week.
• Figure 41: US S&P 500's EPS estimates declined by 0.7%, with a 2.8% drop from the peak in July.

Conclusion

The report emphasizes the relative resilience of Chinese A-shares against external market shocks, driven by diverging monetary policies and a stronger performance of value stocks. Investors are advised to monitor key events and maintain a cautious outlook due to ongoing geopolitical and interest rate risks.