HK - Market Strategy 04 (Apr 25 - Dec 27)

[winston]

STRATEGY – GREATER CHINA Alpha Picks: April Conviction Calls

The HSI and MSCI China index rose 0.8% mom and 2.0% mom respectively in March, after the DeepSeek fervour passed and investors locked in profits ahead of Trump’s tariff announcement in early-April.

In the face of geopolitical uncertainties and potential trade war escalations, we will keep our exposure to domestic demand and those with policy support.

New additions to our BUY list are CR Beer, Desay SV, JBM Healthcare, JD Logistics, Minth, WuXi App Tech and Xiaomi Corp.

Take profit on AIA, Hansoh Pharma, JD and Zijin Mining.

Source: UOBKH

https://research.uobkayhian.com/content ... e=hs_email

[winston]

<News Alert> China/HK equity strategy: Harsher-than-expected US reciprocal tariff

On April 3, US president Donald Trump said he will apply a minimum 10% tariff on all countries and slap additional duties on around 60 counties with the largest trade imbalances with the US

China specifically, a 34% tariff will be imposed on top of the existing 20%, according to Treasury Secretary Scott Bessent

We believe the reciprocal tariffs announced today are higher and broader than both market expectations and our own

China and HK markets will demonstrate relative resilience after digesting the initial sentiment impact today due to smaller revenue exposure to US and lower mkt correlation; consumption and property stocks may benefit on rising policy hopes

Source: DBS

https://www.dbs.com/insightsdirect/coun ... ecid=24654

[winston]

How to position?

Given that we expect negotiations will be lengthy and not straight forward, HK and China equity markets are likely to be clouded by external risks associated with the escalation of tariff disputes and US-China tensions in 2Q25.

This is likely to cap further valuation re-rating in the near term despite early signs of earnings improvements in the latest results announcement season.

We update our Hang Seng Index base / bull / bear case targets to 25,100 / 27,100 / 20,200 respectively.

We reiterate a barbell strategy focusing on quality yield stocks especially during the periods of tariff disputes and rotate to growth and high beta stocks during periods of trade truce and when negotiation and deals settled.

We maintain our preference for the three investment themes:

i) quality yield stocks to cushion market volatility while waiting for more clarity on tariff negotiations and supportive policy rollout. We prefer China Mobile (941 HK), China Telecom (728 HK), PetroChina (857 HK), CCB (939 HK), ICBC (1398 HK);

ii) internet and platform companies, which are key proxies to the acceleration and broadening of China AI adoption, and they are mainly domestically focused.
We prefer Alibaba (BABA US / 9988 HK) and Tencent (700 HK) as core holdings; and iii) policy beneficiaries, such as those could benefit from stronger emphasis on domestic consumption and technology innovation.

Source: OCBC

[winston]

<Research>Citi Bullish on CN Domestic/ Services/ Growth Stocks Under US Tariff Measures; Top Pick TENCENT

According to Citi's report, the tariff hike by the US on Chinese goods was beyond the broker's previous estimate as the total tariff rate could reach about 65%.

US Treasury Secretary Scott Bessent confirmed a 54% tariff rate on China (including 34% reciprocal tariffs and 20% fentanyl tariffs), and the earlier Section 301 tariffs could still be applicable with an effective rate of about 11% as of the end of 2024.

In Citi's prediction, the most vulnerable Chinese sectors may include communication infrastructure, machinery, solar, hardware, apparel and footwear.

The broker preferred Chinese domestic, services, and growth stocks.

It recommended overweighting the internet as well as technology and transportation sectors, together with selective consumer stocks.

China's technology stocks were inexpensive compared to the Magnificent 7 in the US. Citi's top picks included TENCENT (00700.HK) , ASMPT (00522.HK) , BYD COMPANY (01211.HK), AIA (01299.HK), HAIER SMARTHOME (06690.HK) and ANTA SPORTS (02020.HK).

Source: AAStocks Financial News

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

[winston]

HK investors brace for Black Monday in wake of Wall Street bloodbath

The benchmark Hang Seng Index could drop to as low as 21,500, 5.9 percent below last Thursday's close of 22,849, back to a level seen in mid-February of the year.

Investors will continue to rush to safe-haven assets like gold, yen and US Treasuries.

Gold could climb further to as high as US$3,300 (HK$25,740) per ounce, as the investor interest in stocks weaken amid the tariff shock and concerns over inflation.

Source: AP

https://www.thestandard.com.hk/section- ... -bloodbath

[winston]

Market News on 9 APR 2025

Dow tumbles more than 300 points Tuesday as tariff-induced sell-off resumes (CNBC)

U.S. to move forward with sweeping 104% tariff on China, official confirms (Investing.com)

Trump trade fight: Customs starts collecting new tariffs on imports from 86 countries at midnight (CNBC)

China’s Offshore Yuan Hits Record Low After PBOC Eases Grip (Bloomberg)

China says it will 'fight to the end' after Trump threatens 50% additional tariffs (CNBC)

Tengku Zafrul to lead Malaysia's delegation to Washington for tariff discussions (TheStar)

Northern Solar joins forces with China Power unit to bid for LSS Petra projects (Business Today)

Yong Tai forms JV with Taghill to develop two serviced suite blocks in Melaka (The Edge)

Fajarbaru Awarded RM63.7 Million Construction Job By S P Setia (Business Today)

MBSB withdraws RM116m lawsuit against KNM (The Edge)

Matrix Concepts says major shareholders to inject Selangor property business (The Edge)

Auditor flags going concern for Subur Tiasa Holdings (The Malaysian Reserve)

ACE Market-bound MSB Global's IPO oversubscribed by 6.46 times (The Star)

Tuesday, 8 Apr 2025 Entitlement Announcement

6:27PM AEONCR Final Dividend

[winston]

HK stocks to face pressure if China concept stocks forced to delist from US, analysts warn

Many of the delisted Chinese stocks would rush to list in Hong Kong, which could drain substantial market funds from the local bourse.

Also, their valuation would drop significantly should there be a massive selloff following a forced delisting.

There were 286 China concept stocks listed on the US exchanges with a total market capitalization of US$1.1 trillion (HK$8.58 trillion) as of March 7.

Source: The Standard

https://www.thestandard.com.hk/breaking ... lysts-warn

[winston]

China Strategy - Higher volatility warrants a defensive bias

While value could have started emerging, we believe it warrants a more defensive stance as the US-China negotiation path remains highly uncertain and dependant on further actions by both countries.

We expect HK and China equity markets are likely to be clouded by external risks associated with the escalation of tariff disputes in 2Q25 and is likely to extend to 3Q25.

This is likely to cap further valuation re-rating in the near term despite early signs of earnings improvements in the latest results announcement season.

In the near term, we prefer the onshore A-share market during periods of tariff disputes as it has proven to be more resilient during the Trump 1.0 tariff disputes in 2018-2020 along with the support from the “national team”.

At the sector and industry level, we prefer domestic-focused ones and avoid export-focused industries and those with higher US revenue exposure.

We reiterate a barbell strategy focusing on quality yield stocks especially during the periods of tariff disputes and rotate to growth and high beta stocks during periods of trade truce and when negotiation and deals settled.

We maintain our preference for the three investment themes.

First, we prefer quality yield stocks to cushion market volatility while waiting for more clarity on tariff negotiations and supportive policy rollout. Aside from telcos which have stable and highly visible cash flow to support dividend, we also like selected China state-owned (SOE) banks with strong capital position which would have relatively lower dilution from recapitalisation, and selected utilities.

While China’s three major oil companies offer more than 8% forward dividend yield, if global demand slow further, oil price will be subjected to further downward pressure. Hence, we maintain our preference on China Mobile (941 HK), China Telecom (728 HK), CCB (939 HK), ICBC (1398 HK) and China Resources Power (836 HK), but remove PetroChina (857 HK).

Second, we prefer HK-listed internet and platform plays, which are mainly domestically focused and are key proxies to the acceleration and broadening of China’s artificial intelligence (AI) adoption, which is a structural trend.

We prefer Alibaba (9988 HK) and Tencent (700 HK) as core holdings. Trading at 9.5x forward P/E, share price of Alibaba is pricing in zero value to its cloud business, its investment in associated companies and its net cash position. Given the company has low single-digit US revenue exposure, we believe value has emerged on the back of a high single-digit eCommerce and teens level Cloud revenue growth.

Tencent is trading at 14x forward P/E with low single-digit US revenue exposure (via international game revenue). Its sizeable games business makes it relatively more defensive among its peers.

Third, we prefer policy beneficiaries, such as those could benefit from stronger emphasis on domestic consumption and technology innovation. We expect policymakers will step up support on domestic consumption. Some of the consumer names also offer decent dividend yield, such as Kweichow Moutai (600519 CH) at 3.6% 2025 dividend yield.

For dual-listed stocks (i.e. China ADR and HK-listed), we prefer HK-listed ones owing to rising US-China geopolitical tensions. Also, for the HK-listed stocks that are eligible for trading under Stock Connect program, they could potentially benefit from the Southbound inflow.

The ADR de-listing back in 2021-22 triggered an average drawdown of about 21-22% for China ADR.

Given many of the large-cap China ADR have dual-listing and the HK-listed ones now account for about 60% of combined market cap, the impact of a potential de-listing should be more manageable than previous round.

As such, China ADR which do not have a dual-listing in HK are likely to have larger impact if the de-listing is announced and implemented.

Source: OCBC

[winston]

Multi-billion US dollar exodus hits China ETFs

Outflows from US-listed emerging market ETFs that invest across developing nations, as well as those that target specific countries, totalled US$5.57bil in the week ended April 11, the most in a year.

Of that total, US$3.69bil came from China.

Meanwhile, Chinese ETFs listed on the mainland saw nearly US$24bil in net inflows last week, eclipsing a prior record of around US$23bil set in October, as state-backed funds purchased the products to support the stock market. —

Source: Bloomberg

https://www.thestar.com.my/business/bus ... china-etfs

[winston]

<Research>Daiwa: CN Mutual Funds' Allocation to HK Stocks Rises to 14.9% in 1Q, Setting New High, Expects Reinvestment in High-div. Stocks in Utilities/ Staples This Quarter

The allocation proportion of Chinese mutual funds to Hong Kong equities climbed to a new high, with redemption pressures easing significantly as the stock market rebounded and nonferrous metals, autos and media being the most favored sectors of the funds, Daiwa released a research report saying.

In contrast, Chinese mutual funds notably increased their positions in Hong Kong stocks in 1Q25, in line with the trend of significant southbound capital inflows into Hong Kong equities over the same period.

The proportion of Hong Kong stock shareholding to total heavyweight stock investment by mutual funds rose to an all-time high of 14.9% as of 1Q25, compared with 11% in 4Q24.

TENCENT (00700.HK) , BABA-W (09988.HK) and XIAOMI-W (01810.HK) have ranked among the top 10 heavyweight stocks list for equity-oriented mutual funds, while only two Hong Kong stocks, naming TENCENT and MEITUAN-W (03690.HK) were on the list in 4Q24.

The allocation proportion to non-ferrous metals also climbed by 1.3 ppts in 1Q24, thanks to soaring gold and copper prices. CHIFENG GOLD(600988.SH) , KUAISHOU-W (01024.HK) , BYD COMPANY (01211.HK) and SHANDONG GOLD(600547.SH) were among the top buys this quarter.

In the face of the rapid escalation of the US-China tariff war since April, mutual funds are expected to adopt a more balanced sector and market allocation strategy in the current quarter, with a possible pivot back to high-dividend stocks in utilities and staples, as well as the A-share market as a whole.

However, the broker believed that the expansion of Chinese mutual fund allocations to the Hong Kong stock market has been a long-term trend, mainly for investment portfolio diversification purposes.

Source: AAStocks Financial News

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