China - Market Strategy 06 (Jul 24 - Dec 26)

[winston]

G Sachs Rates H-/ A-Shrs as Overweight, Upbeat About Consumer/ Internet/ Insurance/ Healthcare Sectors

Goldman Sachs maintained an Overweight stance on Chinese and Hong Kong stock markets. Kinger Lau, Chief China Equity Strategist at Goldman Sachs, pointed out that the forward one-year P/E ratios for MSCI China and CSI 300 indices are currently 10.1x and 13.5x, respectively, which have already reverted to a historical median average, but they still have attractiveness as they offer significant discounts compared to other markets.

Driven by corporate earnings growth and moderate valuation increases, Goldman Sachs forecasted that MSCI China and CSI 300 will rise by 15% and 13% next year.

Lau said that Goldman Sachs has not set a target for the HSI, but he expected that the HSI may reach around 23,000 next year using the growth of the MSCI China index as a reference.

In terms of sectors, the broker envisioned a solid rebound in the consumer sector next year.

It was also optimistic about non-bank financial sectors like the internet, e-commerce, gaming, media, pharmaceutical, and brokerage sectors, advising investors to explore government-related consumption investment themes, such as transportation infrastructure, high-tech equipment, essential consumer goods, and semiconductors.

Goldman Sachs was also upbeat about companies actively enhancing shareholder returns, predicting that the total amount of dividends and buybacks of Chinese listed companies could exceed RMB3 trillion in 2025.

Source: AAStocks Financial News

http://www.aastocks.com/en/stocks/news/ ... -news/AAFN

[behappyalways]

Since the day Goldman upgraded China to BUY:
https://x.com/ecommerceshares/status/18 ... 3723686397

[winston]

China Strategy - More supportive policy tone at the Central Economic Work Conference

We believe market sentiment should be supported in the near term after the Central Economic Work Conference (CEWC), which concluded yesterday, and the December Politburo meeting, which was held earlier this week and sent a strong signal to step up policy easing.

To recap, the CEWC was chaired by President Xi and set out economic policy stance for next year.

In-line with the usual practice, official quantitative growth and policy targets were not announced at the CEWC but will only be unveiled at the National People’s Congress (NPC) in March next year.

At the CEWC and the December Politburo meeting, policymakers maintained a pro-growth stance and acknowledged the growth headwinds from weakness in domestic demand and external challenges as highlighted in the December Politburo meeting symposium and “to actively create favourable external environment to China”.

The positive takeaway was that boosting domestic consumption, especially household consumption, becomes a top policy priority next year.

What are the possible policies easing to look forward to?

Fiscal policy – Policymakers pledged to raise headline fiscal deficit ratio and increase quotas for ultra-long special sovereign bonds and local government special bonds. Market consensus estimate that headline fiscal budget deficit is likely to rise to 4.0% of GDP in 2025 (vs 3.0% in 2024).

The scope for using local government special bonds (LGSB) could likely be expanded, such as for housing inventory de-stocking. We expect the government will extend and/or upsize the current subsidy for consumer goods trade-in and equipment upgrade program, and expand the program to cover more categories. For instance, mobiles phone is one of the consumer goods that have been discussed by local media recently.

Monetary policy – the CEWC explicitly mentioned to “cut policy rates and reserve requirement ratio (RRR) in a timely manner”. The People’s Bank of China (PBoC) may cut RRR before the Chinese New Year (which will be in late Jan 2025) when liquidity is usually tighter.

On exchange rate, it highlighted "keeping RMB exchange rate largely stable at a reasonable and balanced level", which was the same as in the past few years. Our 12-month forecast on USDCNY is at 7.40.

Real estate policy – it reiterated the focus on "stopping the decline in the housing market" and "stablising the housing and stock markets". That said, there was no new guidance being set out at the CEWC.

Policymakers vowed
i) to accelerate urban village renovation,
ii) to control new land supply, and to revitalise existing land resources and commercial property, and
iii) to continue work on housing inventory de-stocking.

Shifting policy tone is likely to boost market sentiment in the near term

We view the stronger and relatively more aggressive policy tone would support market sentiment and a continuation to the policy pivot in the September Politburo meeting. More policy easing should be expected, and policy implementation and delivery will be key to watch.

However, we expect further policy catalysts will have to wait till the NPC in March 2025, where quantitative growth and macro targets will also be announced, unless the tariff hikes and geo-political tensions escalate faster-than-expected.

We prefer the onshore A-share equity market to offshore equities and expect the former to relatively outperform in the near term given the support from the “national team” and the latest PBoC’s swap and relending facilities.

In light of the changing dynamics in US tariff hikes, geopolitical tensions and China policy response, we maintain a barbell strategy focusing on the following investment themes:
i) defensive yield stocks to cushion market volatility while waiting for more policy clarity amid potential escalation of tariff disputes;
ii) internet and platform companies, which account for about one-third of MSCI China Index weight and could also be a key proxy to China consumption via their large exposure to advertising and e-commerce, riding on a cyclical recovery; and
iii) policy beneficiaries, such as those that could ride on the potential extension and expansion of consumer goods trade-in program.

Source: OCBC

[behappyalways]

YTD flows into China equities: domestic vs foreign
https://x.com/zerohedge/status/1867607171485106606


Inflows into Chinese stocks are picking up again
https://x.com/Mayhem4Markets/status/1868577566686404818

[winston]

G Sachs: CN Stock Mkt Has Limited Downside for 2025

China's stock market will face limited downside next year, as stimulus policies in China offered a buffer against further sell-offs, while the market has factored in the risk of US tariff hikes, Si Fu, Goldman Sachs' China portfolio strategist, said.

Si added that equity valuations have come off their October peak and believed that potential improvements in corporate fundamentals, could support current valuation levels.

However, if the US were to raise tariffs on China by 60%, valuations would fall by 10% from current level, but it is unlikely that such a large tariff hike would occur.

Source: AAStocks Financial News

http://www.aastocks.com/en/stocks/news/ ... -news/AAFN

[winston]

China’s stimulus blitz attracts more Gen Z stock traders with bigger risk appetite: report

Gen Z traders doubled to 110 million after the September policy measures, swelling the pool of investors with higher risk appetite, a Hurun-Ping An report shows

This group of investors, defined as those born between 1997 and 2012, doubled to about 110 million or 30 per cent of China’s army of stock traders.

Source: SCMP

https://www.scmp.com/business/china-bus ... pe=section

[winston]

China urges funds to limit stock sales

At least four large mutual funds received calls from the Shanghai and Shenzhen stock exchanges on December 31 and January 2 and 3, asking them to buy more stocks than they sold each day.

Source: Agencies

https://www.thestandard.com.hk/section- ... tock-sales

[winston]

China Strategy: Navigating a bumpy path

Although the Central Economic Work Conference (CEWC) in December 2024 delivered a supportive policy tone, the official quantitative targets will only be unveiled at the National People’s Congress (NPC) in March 2025.

We stay Overweight on Chinese equities within Asia ex-Japan and prefer the onshore A-share equity market to offshore equities in the near term given that it is more sensitive to policy easing and would benefit from the support from the “national team”.

i) Defensive yield stocks: We prefer defensive yield stocks to cushion market volatility while waiting for more policy clarity amid potential tariff dispute escalation and geopolitical tensions. We prefer energy, telcos, selective state-owned Chinese banks with limited capital raising needs, and selected state-owned enterprise with low price-to-book and relatively high dividend yield.

ii) Internet and platform companies: We believe internet and platform companies offer upside optionality given they account for about one-third of index weight and could be perceived as a China consumption proxy via their large exposure to advertising and e-commerce, and to ride on a cyclical recovery as and when domestic easing steps up. Valuations are not demanding, with leading internet and platform companies actively focusing on shareholders’ returns mainly via share buyback, supported by their strong operating cash flow.

iii) Policy beneficiaries: While further supportive policies may be announced at and after the NPC in March, various government meetings and conferences (such as the CEWC in December 2024 and the NPC Standing Committee in November) highlighted the CNY10-12t local government debt swap program. Also, the National Development and Reform Commission (NDRC) announced that the CNY150b consumer goods trade-in program in 2024 will be extended and the scope of coverage will be expanded, including products, such as smart phones, computer tablets and smart watches in 2025.

We also prefer HKEX (388 HK) which is a high beta stock and is expected to outperform during the periods of trade truce and when negotiations and deals settled. HKEX could benefit from a recovery in average daily turnover and a pick-up of IPO activities with large-cap leading A-shares are planning to do the dual-listed H-share IPOs.

Source: OCBC

[behappyalways]

Chinese Stocks are plunging below their 50D moving average after experiencing the worst start to a year since 2016
https://x.com/Barchart/status/1876259808829116711

[winston]

China Strategy: a policy vacuum in the near-term suggests a defensive bias

HK and Chinese equities market pulled back 1.0-3.9% last week on concerns about rising geopolitical tensions with Tencent (700 HK) and other Chinese companies that were added to the US Chinese Military Companies (CMC) list.

On the other hand, the National Development and Reform Commissions (NDRC) and the Ministry of Finance (MOF) announced on 8 January the details of the 2025 consumer goods trade-in and equipment upgrade program.

The announcement is in-line with ours and market’s expectations, with the program and the scope of coverage being extended.

The expansion of coverage was slightly broader in scope and size than market expectations. We believe this year’s funding for the program could potentially be upsized although the specifics of the funding arrangement will be unveiled at the National People’s Congress (NPC) in March with other official quantitative targets, such as GDP growth and the headline fiscal deficit.

We expect US tariffs to be front-loaded and geopolitical tensions may escalate after President-elect Trump’s inauguration on 20 January. It is likely that Trump could impose new tariffs on his first day in the office through executive order. Hence, there could be a policy vacuum in the near-term and we prefer defensive yields and policy beneficiaries.

We believe e-commerce platforms and leading home appliances players can benefit from the expansion of the consumer goods trade-in program.

We prefer BYD (1211 HK), JD.com (9618 HK / JD US), Alibaba (9988 HK / BABA US), Midea (000333 CH) and Haier Smart (6690 HK / 600690 CH).

We view JD.com as relatively better positioned to benefit from the extension of the consumer goods trade-in program given its prior experience and strong supply chain capabilities to capture growing demand in this years’ trade-in program.

Alibaba’s Tmall has competitive advantage with major brands and their large distributors, and therefore should also benefit from this policy initiative.

While the inclusion of Tencent into the US the US Department of Defense’s (DOD) list of Chinese Military Companies (CMC) on 6 January would be an overhang to Tencent’s share price in the near-term, the Office of US Trade Representative (USTR, which is a part of the executive office of the US President and the agency to negotiate trade issues directly with foreign governments) removed Tencent’s WeChat/Weixin from the Notorious Markets List (NML), which is related to operations on trademark counterfeiting and copyright piracy, on 8 January.

We view the removal from the NML positively, suggesting that US regulators are not targeting specific companies like Tencent on a systematically basis and could ease some of investors’ concerns. Tencent has been commitment to shareholder return with HKD112b share buyback in the full year 2024. Since, 7 January 2025, Tencent has stepped up share buybacks and more than doubled its daily share buyback to HKD1.5b.

Source: OCBC