China - Market Strategy 05 (Jan 23 - Jun 24)

[winston]

Japan’s fading rally drives some investors to cheap China shares

By John Cheng & Ishika Mookerjee

Headwinds are growing for Japanese equities including deteriorating global growth and concern the era of yen weakness that has bolstered exporters’ earnings may be nearly over as the central bank comes under pressure to tighten policy.

Conversely, optimism is building that Beijing’s efforts to bolster the economy and local equity markets will help end a slump that has made Chinese equities among the world’s worst performers this year.

Another risk for Japanese shares is the heavy positioning by global funds. Overseas investors have bought a net US$30.7 billion (RM145.2 billion) of local stocks this year through Oct 27, on track for the biggest year of purchases since 2013.

Any downdraft in Japanese stocks may accelerate if the yen starts to strengthen. The currency has plenty of room to appreciate as it’s tumbled almost 13% this year and is close to a three-decade low.

Companies in the CSI 300 Index will see earnings grow an average 22% over the next 12 months.

The CSI 300 Index is trading at 10.5 times forward earnings, below its five-year average of 12.4 times. The Topix trades at 14.3 times, in line with its five-year mean.

Source: Bloomberg

https://theedgemalaysia.com/node/688866

[winston]

Global funds dumped another US$3bil in China stocks in Oct -Morgan Stanley

China and Hong Kong equities saw a combined $3.1 billion in net outflow from active long-only funds last month, a third consecutive month of net selling exceeding $3 billion.

European funds have offloaded about half of their holdings accumulated since late 2020 and that there had also been an acceleration in outflows from U.S.-domiciled funds in October.

Source: Reuters

https://www.thestar.com.my/business/bus ... an-stanley

[winston]

China needs to be careful in efforts to kill market bears or it may frighten away the bulls

The state security ministry statement was more of a pledge of allegiance to the top leadership than a working plan to hunt down unwelcome bears

It is common sense that buying and selling are two sides of one coin in any market, and there will be no point to go ‘long’ if going ‘short’ is banned

by Zhou Xin

Source: SCMP

https://www.scmp.com/comment/article/32 ... e=homepage

[winston]

Falling US Treasury yields to aid China’s flagging stocks as foreign investors prepare to reallocate funds

The CSI 300 Index of yuan-traded stocks jumped by at least 70 per cent in the two previous downward cycles of Treasury yields over the past decade

Foreign investors have poured about US$646 million into A shares so far this month after record net withdrawals of US$23.7 billion in the past three months

by Zhang Shidong

Source: SCMP

https://www.scmp.com/business/china-bus ... cb84f141a9
i

[winston]

"China Put” to the Rescue: Time to Buy?

There has been nothing but disappointment from China this year, as it seems.

The Hang Seng Index is down 12% since the beginning of 2023, and CSI 300 (A-shares) is down 7.7% YTD (as of 18 October 2023). However, our research team noticed something recently that may change the fate of China’s ailing stock market.

“The Chinese government does recognize the urgency to restore investor confidence asap, and is now taking actions accordingly”, from our internal research on Oct 18.

Such actions include Central Huijin’s purchase of bank stocks, possible plans for a “market stabilization” fund, and directives for state-owned companies to buy back shares.

Central Huijin is part of the Chinese “National Team” that purportedly support the stock market by buying up the shares. This, along with the economic stimulus, are collectively known as the “China Put”, the assurance by the Chinese government to stop a crisis whenever necessary. Historically, the National Team’s buying usually means the market bottom is near.

On one hand, we think the China Put is kicking in. On the other hand, the Chinese economy was also better than expected in the third quarter.

Recently, several investment banks like JP Morgan, UBS, and Nomura, have turn positive and upgraded their China GDP forecasts.

On top of this, the U.S.-China relations are also improving, with a potential Biden-Xi meeting at this week’s APEC.

Our top fund pick for the “China Put” is the Hang Seng China Enterprise Index ETF (2828.HK).


Source: UOBKH

[winston]

China’s ‘silver-haired’ investors exit the game with no one waiting in the wings

Nostalgia for high-earning, fast-paced early years of China’s stock market not enough for veteran traders to hold onto their shares

With diminishing prospects of returns and competing uses of their time and money, potential investors both young and old are unlikely to dive in

by Mandy Zuo

Source: SCMP

https://www.scmp.com/economy/china-econ ... n_business

[winston]

G Sachs Lowers HK Stocks to Underweight, Expects CSI 300 to Rise 16% in 2024

Goldman Sachs released its 2024 outlook report on Chinese stocks, maintaining an Overweight rating on A-shares, lowering its rating on offshore Chinese stocks to Equalweight, and downgrading Hong Kong stocks to Underweight.

It expected the EPS of Chinese stocks to grow by about 10% next year, and believed the MSCI China and CSI 300 indices would rise by 12% and 16% to 66 and 4,200 points respectively.

The broker believed that although America-based and actively-managed funds have reduced their holdings of Chinese stocks, emerging market and Middle East funds will be able to make up for it.

Goldman is more bullish on offshore Chinese stocks outperforming A-shares in the next quarter, as the former are more attractively valued.

However, A-shares are less affected by geopolitical factors and liquidity, so it is more bullish on A-shares overall.

Goldman said China's economy will grow by about 5.3% this year and slow down to 4.8% next year.

The broker believed that consumer goods would continue to be under pressure due to the property market and geopolitical pressures, while the consumer services sector would improve steadily. It therefore rated the food and beverage and retail sectors as Overweight.

However, the broker has downgraded the banking sector to Underweight, as the pressure on net interest margins and non-performing loans is likely to cause further downward revisions by the market to their forecasts, given the current state of the Chinese housing market.

Goldman also said that although earnings growth in the technology sector is expected to fall to 13% next year from 35% this year, it believed that the fundamental outlook for the mass-market and low-penetration consumer sectors remained favourable.

Meanwhile, the technology hardware sector is expected to benefit from the rebound in global demand, and the broker rated this sector Overweight.

Source: AAStocks Financial News

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

[winston]

Funds bet on ‘cheapness’ history, Beijing policy spark to reverse US$140 billion rout in Chinese stocks

Valuations of MSCI China Index stocks have slipped back to level last seen in late 2018, from where the market rallied: Cambridge Associates

Cambridge Associates has peers Franklin Templeton and Abrdn in the bullish camp

by Jiaxing Li

Source: SCMP

https://www.scmp.com/business/markets/a ... ese-stocks

[winston]

Some fund managers see merit in China’s deeply discounted stocks

Asset managers point to volatility in US stocks and sudden policy impetus in China as reasons to return to the country.

Fidelity International is highlighting China’s looser monetary policy and the government’s recent 1 trillion yuan (S$185 billion) borrowing-and-spending sovereign bond plan.

The MSCI China index is down 11 per cent so far this year, while US stock indexes S&P 500 and Nasdaq are up 15 per cent and 32 per cent, respectively. Japan’s Nikkei has gained 25 per cent.

Morgan Stanley estimates long-only foreign investors now have their deepest underweight positions in China and Hong Kong equities in years. These funds have offloaded nearly US$10 billion worth of Chinese equities in the past three months, the largest cumulative outflows since 2018, the bank said.

Chinese stocks have cheapened as a result, to a price-to-earnings ratio of 11 per cent, the lowest among major Asian markets.

Sussex Partners says clients who used to say “we don’t want any allocation to China” are now thinking of contrarian entry points into the market and of re-engaging.

IMF also upgraded its 2023 China economy growth forecast to 5.4 per cent last week.

Cambridge Associates says some Middle East investors find China’s cheap valuations alluring and are allocating money there.

Source: Reuters

https://www.businesstimes.com.sg/compan ... discounted

[winston]

Chinese machinery, textile and electronic stocks with US trade exposure, seen gaining after Xi-Biden meeting

As US-China relations improve, speculation has arisen the meeting may pave the way for reduced tariffs and an end to the technology curbs

Top picks include Zhejiang Cayi Vacuum Container, Amlogic, chip maker for set-top boxes and smart televisions, and lighting component maker Guangzhou Haoyang

by Zhang Shidong

Source: SCMP

https://www.scmp.com/business/china-bus ... 4114c4b043