HK - Market Strategy 03 (Dec 17 - Dec 25)

[winston]

Hong Kong stocks lose support from mainland buyers who snub cheap valuations, balk at regulatory risks

Average daily purchases this month have slumped by 90 per cent, versus the appetite shown in the past two months

Hang Seng Index’s biggest members are also targets of China’s antitrust probes, with the outcomes still up in the air

by Zhang Shidong

Daily inflows via the trading link’s southbound channel have averaged HK$194 million (US$25 million) in June, compared with HK$2.5 billion in April and HK$2.6 billion per day in May.

The 58-member Hang Seng Index is valued at 13.4 times projected earnings, the lowest among the world’s major markets. That compares with the multiple of 22.5 times for companies in the S&P 500 index and 18.7 times for those in Europe’s Stoxx 50.

Source: SCMP

https://www.scmp.com/business/china-bus ... s-who-snub

[winston]

Too soon for investors to breathe easy

by Mary Ma

Cathie Wood's announcement that her investment flagship vehicle has sold nearly all its Chinese stocks was bound to raise eyebrows.

The messages that the central authorities in Beijing sought to impress upon the international bankers were straight forward.

First, what has been going on is not a blanket curtail.

And second, the central government maintains an open attitude as to where mainland companies may choose to list their shares

Source: The Standard

https://www.thestandard.com.hk/section- ... eathe-easy

[winston]

Hong Kong equity investors may as well give up and kiss the HSI goodbye

A hellish week for investors in Chinese equities as risk profiles shift from valuation methodologies we hold dear to policy changes by Chinese and American governments

With the best of intentions, HSBC’s Hang Seng Indexes Company spices up its Hong Kong indexes to increasingly cover China tech, potentially making them uninvestible

Source: SCMP

https://www.scmp.com/week-asia/opinion/ ... si-goodbye

[winston]

Fed reductions may affect HK stock market: UBS analyst

The Hong Kong stock market will be significantly affected in the next few months by the Federal Reserve's possible reduction in bond-buying in November or December, coupled with the impacts of various policies, said Meng Lei, China equity strategist at UBS.

However, the effect on the A-share market will be limited, as there are fewer internet and education stocks there, and foreign investment accounts for a relatively low proportion of the market, Meng said.

Investors generally have a negative view of the new policies and regulations, Meng said, but added that he believed that when the fines are officially implemented, the regulatory policy will come to an end.

However, investors will still need time to regain their confidence, and the economy may slow down in the second half of the year.

Source: The Standard

https://www.thestandard.com.hk/breaking ... BS-analyst

[behappyalways]

Chinese Tech Names Slide On Report Beijing Seeks To Break Up Alipay; Hang Seng Tech Index Tumbles
https://www.zerohedge.com/markets/chine ... ex-tumbles

[winston]

On Wednesday, the HSI index declined 0.57% or 138 points to 23966.49.

The index is below its 20-day moving average (currently at 24881) and below its 50-day moving average (currently at 25501).

22% of the index constituents are above their 20-day moving average compared to 18% the previous session and 15% of the shares are above their 50-day moving average compared to 17%.

On a daily chart, the index stays on the downside after testing the low of September.

The declining 20-day moving average should pressure the prices lower. Therefore, unless the resistance level at 25270 is violated, the index should expect a drop to 23500 and even to 22520 in extension.

Source: Phillips

[winston]

HK Strategy: Policy Address unveiled long-term development strategies

The latest Policy Address unveiled a series of long-term development plans, including the Northern Metropolis Development Strategy, public infrastructure projects to enhance connection with the Greater Bay Area (GBA), further policy initiatives to support HK to grow as the center for innovation and technology, and more supports to enhance the international financial center status.

The Policy Address highlighted that a series of consistent long-term strategies will be needed in resolving the housing supply issues in HK.

We believe the near-term overhang should be removed as there were no signs of the HK government putting the developers under the limelight to “contribute” to help resolve the housing supply issue and no short-term property cooling measures being mentioned.

Based on the latest government housing supply target for the next 10 years, it would suggest that around 23% of the land supply will be for the private sector. With the focus on increasing long-term housing supply from various sources, supply for private sector remains relatively tight. It would offer a relief rebound for HK property developers, but not a re-rating, in our view.

We believe HK developers that have a relatively longer land bank and those with a larger portion of farmland could be potential beneficiaries.

For instance, Sun Hung Kai Properties, which have around 8-years land bank, is likely to benefit. With a potential more flexible and efficient large-scale farmland conversion, developers with relatively sizeable exposure to farmland could benefit.

Henderson Land has the largest farmland among its peers. Among HK property, we prefer retail landlords to property developers, which could benefit from the potential of more border re-opening initiatives.

the Policy Address listed five policy directions in enhancing HK's role as an international financial center and asset management center, such as offering more offshore RMB denominated products and offering tax concessions to attract family office etc.

Also, UST 10-year bond yield has increased to 1.59% recently and BOS expects there is further room to go. HK banks are highly geared to rising US bond yields.

Within HK banks, we prefer HSBC as
i) it has potential for provisions write-backs, which could support earnings growth;
ii) it has surplus capital, which could support potential share buyback, and
iii) its competitive advantage in comprehensive product offering should make it a key beneficiary to the Wealth Connect scheme.

Source: OCBC

[winston]

China Strategy: Earnings disappointment overhang; focus on those with earnings certainty and policy

Chinese equities markets have been clouded by regulatory guidance, concerns of an Evergrande spillover and power rationing over the past few months.

While valuation has retrenched back to close to historical average level for MSCI China, we expect downward earnings revision will continue for both onshore and offshore Chinese equities and this has kept us to maintain a Neutral recommendation for the time being.

While further earnings downward revision is likely to be an overhang, we recommend investors to focus on those with earnings certainty and policy support.

In this note, we will focus on the 3Q21 earnings and provide an update on power rationing. In addition, we will also discuss the latest guideline on internet and platform companies, and the “re-opening” theme in HK.

Regulators have introduced various measures to ease the situation on power shortages and elevated commodity price levels and it is expected that power rationing pressure could ease in 4Q.

This would be negative for coal but positive on IPPs. The power shortage development reiterates our thesis that renewables is a multi-year investment theme.

The PBOC has recently announced a new financial instrument to support decarbonization, which may help lower the cost of financing for renewable energy operators and equipment makers, and therefore could improve project return profile and lifting equipment demand.

We believe the latest SAMR’s guidelines on internet and platform classifications could be an overhang for the sector given a lack of implementation details. It could potentially cap the upside of sector valuation multiple from a substantial re-rating in the near-term, but we believe it is unlikely to affect current valuation multiples into 3Q21 earnings announcement.

We maintain our view that the road to recovery for the sector is likely to be a long and bumpy one. Within the sector, Baidu is one of the preferred picks and could benefit from potential opening up of content by other platforms and providers for Baidu search.

The HKSAR government is placing top priority on border re-opening with Guangdong province and hence, would be supportive to the “re-opening” theme.

While the initial phase will be subject to a limited quota, it will form an expectation of sequential increase in visitor arrival, benefitting the retail sector, retail landlords and other companies and sectors where Mainland visitors are a major driver to their business (such as insurance). We prefer AIA and Wharf REIC.

Source: OCBC

[winston]

UBS Sanguine about H Shrs in Mid-to-long Term

Selina Cheung, Co-Head of Asia ECM at UBS, said the broker was sanguine about H shares in mid-to-long term, especially new energy and ESG segments.

She expected the H shares to be relatively feeble in early 2022, before turning around in 2Q22.

Besides, more companies will consider to float on Hong Kong bourse amid escalated China-U.S. tensions.

Source: AAStocks Financial News

[winston]

Investors hunt for battered Hong Kong shares after crackdowns

by Jason Xue & Scott Murdoch

From a valuation perspective, it's a good buying opportunity.

Alibaba, Tencent, and Meituan over the long term.

Share buy-backs including Xiaomi Corp and WuXi Biologics.

Hang Seng Index has slumped nearly 15% so far in 2021 and the Hang Seng Tech Index has tumbled 33%. In contrast, the Shanghai Composite Index is up roughly 4%.

Double whammy of Hong Kong's shrinking liquidity and Beijing's hawkish regulation against internet giants.

Rocky Sino-US relationship had already hit a bottom?

Many blue chips offer dividend yield of 7%-8%, making them "more rewarding than high-yield bonds".

Source: Reuters

https://www.theedgemarkets.com/article/ ... crackdowns