China - Market Strategy 04 (Aug 18 - Jan 23)

[winston]

Warning shot from China’s earnings season for stock bulls as UBS, JPMorgan see bumpy second-half ride

Of the listed companies that have published their guidance so far, only 42 per cent have forecast positive interim earnings

Stock recovery from a two-year low in April at risk from downside surprises, on top of a housing market crisis and a host of macro worries

by Zhang Shidong and Yaling Jiang

Source: SCMP

https://www.scmp.com/business/china-bus ... e=homepage

[behappyalways]

According to Refinitiv data, 204 out of 242 dollar-denominated bonds issued by Chinese property firms are trading well in distressed territory below 50 cents on the dollar, hammering funds and limiting patience to wait for a recovery.

Fund managers shun China property bonds on default risks
https://www.reuters.com/markets/asia/fu ... 022-09-02/

[winston]

These Stocks Still Offer Tremendous Value for Investors Over the Long Term

by Brian Tycangco

So if you’re invested in China, don’t let the media scare you. The worst-case scenario is unlikely to come true. And with this signal flashing, Chinese stocks should do well from here.

Source: DailyWealth.com

https://dailytradealert.com/2022/09/14/ ... long-term/

[winston]

Investors in stocks await policy hints

A key strategy is to bet on more stimulus for the property market.

Steps to complete stalled housing projects that can in turn support the banking sector by reducing loan risks and boosting mortgage demand.

Expectations also low for an imminent shift away from the zero-Covid policy.

Source: Bloomberg

https://www.thestandard.com.hk/section- ... licy-hints

[winston]

China Strategy - What to focus on the upcoming 20th Party Congress?

The 20th Party Congress, which is the most important political event of the decade in China, is scheduled to be held on 16 October 2022.

The Party Congress will elect the new Politburo and its Standing Committee, i.e. top leadership, for the next five years.

Given that top government positions are usually held by members of the Politburo and its Standing Committee, we believe the Party Congress is set to launch a new political business cycle.

While a drastic shift in policy immediately after the Party Congress is not expected, better policy implementation and coordination, and more clarity on policy direction are anticipated after the reshuffling of top leadership and local officials is completed.

Despite the relatively limited data points, performance of Chinese equities has been supportive after the Party Congress over the past two decades.

Looking ahead, growth recovery and equities market performance will hinge on two major developments –
i) whether there will be any potential fine-tuning in the dynamic zero Covid-19 strategy and
ii) whether there will be more easing and holistic approach in managing the slowdown in real estate sector.

Market has low expectations for a significant turnaround in the dynamic zero Covid-19 strategy immediately after the Party Congress and is expecting a potential change around March next year given many key events will be held in the next few months and a relatively low vaccination rates for the high-risk group.

Should there be faster-than-expected and/or more meaningful adjustment to the dynamic zero Covid-19 strategy, it could be a positive catalyst.

The timing and magnitude of potential fine-tunning (or the exit roadmap) of the dynamic zero Covid-19 strategy should be something to watch out for.

We view the onshore A-share equities should be better positioned in light of the Party Congress given it is more sensitive to improving onshore liquidity and an expected better policy implementation and coordination.

It is also less correlated to external equities markets, and therefore the associated external risks such as the aggressive policy tightening by major central banks in developed markets and rising US-China tension.

In light of the expectation that the long-term strategic focus will remain intact, we continue to prefer sectors and industries that align with policy directions, e.g. selective infrastructure and construction related industries (including renewables but cautious on building materials) and autos, new energy vehicles (NEV) and their supply chains (such as battery and lithium).

We remain selective on the consumer sector and the re-opening plays. We prefer the telecom sector as an alternate quality defensive dividend play. Chinese banks and real estate are expected to underperform the broad market. Furthermore, recent developments between the US and China could potentially increase tail risk for Chinese banks.

While there is a low expectation of a major turnaround of the dynamic zero Covid-19 strategy right after the 20th Party Congress, the re-opening momentum has gathered pace for Hong Kong (HK). Hong Kong Special Administrative Region (HKSAR) government has just announced further relaxing the hotel quarantine arrangements for HK inbound travellers. Hence, selected HK travel and retail plays could potentially benefit from the expectation of further re-opening in HK.

Source: OCBC

[winston]

HSBC sees bright spots in China stocks from internet to solar

by Jeanny Yu

HSBC identified four sectors that look promising:-
1. Internet firms with better-than-expected earnings growth
2. Developers to win from major industry consolidation
3. Renewable firms blessed with favourable policies and
4. Consumer goods producers that benefit from demographic shifts

Most funds are underweight and valuations are low, and we argue investors should be overweight this market.”

Source: Bloomberg

https://www.theedgemarkets.com/article/ ... rnet-solar

[winston]

After trillion-dollar rout, China stock investors clamour for market intervention as social media posts show frustration at widening losses

Traders returned from the golden week holiday only to take another beating as markets struggle for footing

After almost two years of relentless sell-off, many China-focused funds are on the brink of capitulation, strategist Hong Hao says

by Jiaxing Li

Source: SCMP

https://www.scmp.com/business/markets/a ... 06d82132df

[winston]

Top Chinese hedge fund says bull market near, time to buy

Rebuilt net-long positions in the mainland-traded A-share market to 40 percent as of the end of last month. The firm had kept equities low since June before adding exposure late last month.

About 78 percent of hedge funds say stocks have fully priced in all negative factors and the benchmark Shanghai Composite Index has bottomed out at around 3,000.

Corporate profits probably hit a low in the third quarter, property sales could rebound as soon as next month as regional policies become clear, and covid restrictions could somehow ease after the Communist Party Congress this month.

Shanghai Yunhan Asset Management Co., started buying stocks in sectors such as oil, shipping and medical equipment last month, after cutting equities to zero at the end of June.

The company chose not to short stocks “because we knew this was the final round of declines”.

Source: Bloomberg

https://www.thestandard.com.hk/breaking ... -buy%C2%A0

[winston]

China traders see tech focus, more Covid gloom

There were strong comments in specific areas, such as technology, the environment and national security, that could indicate support in some market sectors.

There was a lot of emphasis on technology and innovation.

“There may be continued policy support to boost home sales, although it’s unlikely for authorities to aid private developers’ debt directly or rein in defaults”.

Source: Bloomberg

https://www.theedgesingapore.com/news/c ... ovid-gloom

[winston]

China Strategy – First take on the 20th Party Congress

The long-awaited 20th Party Congress commenced last Sunday (16 October) & will conclude on 22 October.

President Xi delivered an opening remark, also known as the Political Report, summarising the achievements over the past five years & setting out the blueprint for the future with a more balanced tone.

Overall, the Report did not have any major surprises & did not offer any new direction about dynamic zero Covid strategy.

The new Politburo & its Standing Committee (i.e. the top leadership) will be unveiled at the first plenary session of the 20th Party Congress (which is likely to be on 23 October).

The new economic team will be put in place at the National People’s Congress in March 2023. The ongoing 20th Party Congress may not be an inflection point for major policy changes as the Party Congress is more about leadership reshuffling and long-term target & strategy setting, not about short-term policy adjustments. However, there are several key takeaways worth highlighting.

With no major policy changes & a dynamic zero-Covid strategy that will remain in place, we maintain our view on the equity markets - we prefer the onshore China A-share market over the offshore Chinese equities market.

With long-term strategy and focus remains intact, investment themes and industries that are aligned with policy directions would benefit from policy tailwinds, such as, “Common Prosperity” (e.g. consumer), decarbonisation (e.g. renewables, NEV and its supply chain), industrial automation and technology upgrades.

However, we are selective in the technology space amid rising US-China tension. As we expect no imminent material change to the dynamic zero-Covid strategy, we will be selective on the “re-opening” plays and focus on those that have demonstrated resilience and can thrive despite challenges from Covid-19 associated lockdowns and rising input costs.

Near-term market volatility would warrant quality defensive dividend plays, to which we continue to prefer the telecom sector.

The telecom sector has strong cash flows and a compelling dividend outlook with dividend yield comparable to Chinese banks, which should help mitigate market volatility.

Source: OCBC