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

[winston]

C Suisse Sets HSI 2022 Target at 26,200; Expects Outlook to Improve This Yr

Credit Suisse published the 2022 outlook report on the Chinese capital market, remarking that the Chinese economy has lost its growth momentum since 3Q21 due to multiple factors, including COVID-19 resurgence, flooding in summer, unexpected power rationing and contraction of property sector, etc..

However, as the Chinese government is anticipated to expedite fiscal expenditure, relax monetary policies and adjust reforms, the Chinese economy will likely see a gradual recovery in 2H22, the report added.

The outlook of Chinese stocks in 2022 is likewise expected to improve, given the recovery of the Chinese market, increasingly positive policy environment and relatively lower investor expectations, the broker analyzed.

Credit Suisse set the 2022 target for HSI at 26,200 (implying a potential rise of over 13%). The 2022 targets for MSCI China and CSI300 are set at 91 and 5,760, respectively.

Source: AAStocks Financial News

[winston]

China strategy: Clear policy easing signals

In light of a diverging policy trend, we look at HK and Chinese equities markets performance in previous cycles to gauge any guidance from historical performance.

Chinese onshore equities market has been more responsive to Chinese easing cycles since 2015 and the onshore A-shares mid-caps (i.e., CSI500) delivered the strongest outperformance three-months after the rate cuts announcement.

During the previous US rate hike cycle in 2015-18, HK and Chinese equities markets delivered negative returns one-month prior to and one-month after the hike in end-2015 with Hang Seng Index performed the best among the three indexes.

Heading into the rate hike cycle, HK and Chinese equities posted double-digit positive returns 3-month post the last rate hike in Dec-18 on improving growth outlook.

We maintain our preference to the onshore A-share market and we also prefer Hang Seng Index (HK equities) owing to its relatively high exposure to the financials sector which would benefit from the US Fed rate hike cycle.

Our pecking order at the index level is CSI300 (the onshore A-share market) > Hang Seng Index (HK equities) > MSCI China (the offshore Chinese equities market).

Despite that there are several challenges and overhangs in place in the near-term for the offshore MSCI China index, valuation has become more attractive with forward P/E multiple has retrenched to below historical average level and is trading at a discount to MSCI Emerging Market.

In the near-term, MSCI China could stay range-bound in light of Chinese New Year holiday and the market would wait for more pro-growth supportive policies in the upcoming NPC.

In the medium-term, we are getting more constructive on MSCI China after the upcoming results season in March as the pressure of earnings downward adjustment moderates and further supportive policies and measures to support growth.

We prefer HK financials and key investment themes that could benefit from policy tailwinds:
i) de-carbonization,
ii) onshore sourcing and import substitution,
iii) new infrastructure, and iv) domestic consumption.

In the near-term, there would be trading opportunities for Chinese banks (for its relatively high dividend yield in the coming results announcement in March), a relief rebound in Chinese properties (to rotate out from low quality developers), and selected infrastructure and building materials.

Source: OCBC

[winston]

HSBC Global Research Expects HSI to Grow 17% by End-22; Focus on Themes Like Energy Transition, Future Cities

HSBC Global Research published the China market research report, anticipating the Chinese government to roll out more targeted economic easing measures, including additional support for green investment, small-scale enterprises and manufacturing sector, as well as tax discounts and subsidies, so as to facilitate innovations and technological advancement.

The 2022 outlook of the equity market of China, therefore, will likely improve, with the Chinese and Hong Kong stock markets expected to potentially grow by 9% and 17% throughout the year, respectively, the report added.

HSBC Global Research forecast China's GDP to expand by 5.6% in 2022, with the 2022 year-end target for the HSI set at 28,030.

The broker further highlighted multiple investment themes to focus on in 2022, including:-
1. Energy Transition (favoring CHINA RES POWER (00836.HK) and CHINA POWER (02380.HK)
2. Automation, New Generation Consumption (such as EV) and Transports (such as automative driving and vehicle lens))
3. Demographics, future cities (high-speed railways) and digital finance, etc.

Source: AAStocks Financial News

[behappyalways]

Chinese Tech Stocks Suffer Biggest 2-Day Rout Since July Amid Fears Beijing Will Unleash More Crackdowns
https://www.zerohedge.com/markets/chine ... leash-more

[behappyalways]

China crackdown risk roars back in probe of Jack Ma's empire
https://www.theedgesingapore.com/news/c ... mas-empire

[behappyalways]

Panic selling grips Chinese stocks in biggest plunge since 2008
https://www.theedgesingapore.com/news/c ... lunge-2008

[behappyalways]

Golden Dragon China Index Crashes 13% After JPM Downgrades Chinese Internet Sector, Tells Clients To Avoid For 6-12 Months
https://www.zerohedge.com/markets/golde ... ctor-tells

Panic selling grips Chinese stocks in biggest plunge since 2008
https://www.theedgesingapore.com/news/c ... lunge-2008

[behappyalways]

Relentless selling in China stocks evokes memories of 2008 crash
https://www.theedgesingapore.com/news/c ... 2008-crash

[behappyalways]

China stocks jump most since 2008 after state council vows support
https://www.theedgesingapore.com/news/c ... ws-support

[winston]

Root cause of China sell-down

by Goola Warden

On March 10, 2022, the SEC identified the first five US-listed Chinese ADRs that will be subject to forced delisting with a three-year countdown upon finalisation.

In a report dated March 14, JP Morgan says other Chinese ADRs that do not satisfy the rules could be included in the future as well following the aforementioned treatment.

Over and above this risk, institutional investors are already nervous over rising interest rates, inflation and now the Russo-Ukraine War.

Source: The Edge

https://www.theedgesingapore.com/capita ... rketreport