20180104-招商证券_香港_-2018_outlook__The_Best_Way_to_Predict_the_Future_is_to_Create_it_139页_4mb

2018 Outlook: The Best Way to Predict the Future is to Create it

Core Content Summary

The document provides an outlook on the global economy and the Hong Kong stock market for 2018, with a focus on major economies including the US, Eurozone, Japan, and China. It outlines key macroeconomic trends, monetary and fiscal policies, and sector-specific investment opportunities.

Key Trends in Major Economies

1. Global Economic Recovery

   • Most major economies showed synchronized recovery in 2017 with stronger growth, lower inflation, and declining unemployment.
   • Growth momentum is expected to continue in 2018.
   • Monetary policies across the Fed, ECB, BoJ, and PBOC are converging, with a scaling back of monetary easing.
   • Fiscal policy is expected to be limited except for the US, which benefits from tax reform.

2. Political Risks

   • US mid-term elections in November 2018 could introduce uncertainty.
   • Several elections in the Eurozone may affect the economic outlook.
   • Brexit remains a significant political risk.

3. US Economy Outlook

   • The US is expected to outperform other major economies.
   • GDP growth is projected at 2.2% in 2017 and 2.5% in 2018.
   • CPI is forecasted to rise to 2.2% in 2018 from 2.1% in 2017.
   • Strong job market supports consumption growth, though we anticipate a slight moderation to 2.4% in 2018.
   • Tax reform is expected to boost economic growth by around 0.4 ppts over the next 2-3 years.
   • The Fed is expected to maintain a rate hike schedule of 3 hikes in 2018, with balance sheet normalization continuing at a moderate pace.

4. Eurozone Outlook

   • Expected to grow at 2.3% in 2018 with CPI at 1.4%.
   • Economic growth is driven by private consumption and investment, with a slight moderation in private consumption to 1.7%.
   • Investment is expected to remain steady at 3.9% in 2018.
   • ECB is expected to end its QE program in September 2018 but maintain an accommodative stance.
   • High debt levels and banking fragility remain key risks.

5. Japan Outlook

   • Japan is expected to grow at 1.4% in 2018 with CPI at 0.8%.
   • Moderate growth is supported by exports, which have been increasing due to global recovery and a weak yen.
   • Private consumption is projected to moderate from 1.4% to 0.9% in 2018 due to weak wage growth.

Hong Kong Equity Market Outlook

• The Hong Kong stock market rallied nearly 30% in 2017, driven by global recovery, liquidity, China's improving economic outlook, and southbound flows.
• HSI earnings growth turned around sharply after negative growth in 2015/16, with a CAGR of ~16% from 2009-2014.
• For 2018, the market consensus expects a deceleration in earnings growth to ~10%.
• HSI is currently trading at 12x forward PE, slightly above the 3-year average of 11x, but lower than MSCI developed markets at 17x.
• The stock market is expected to remain within a range of 26,000 to 31,000, implying a forward PE of 11x to 13x.

Sector Preferences

1. China Banks

   • Favorable due to rising yields and compelling valuations.

2. IT Sector

   • Positive outlook due to earnings feasibility.

3. Consumption Upgrade Theme

   • Beneficial for housing, home appliances, transportation, communication, and healthcare sectors.

4. Environmental Protection Industry

   • Preferred for long-term growth potential.

Key Risks

• US: Tax reform implementation, mid-term elections, global political turbulence, and financial uncertainty.
• Eurozone: Banking fragility, political uncertainties, high debt levels, and potential for faster monetary tightening.
• Japan: Unexpected yen strength due to increased overseas risks.
• Global: Uncertainties from political events and potential changes in monetary policy.

Investment Strategy

• Macro Environment: A synchronized global recovery, converging monetary policies, and favorable forex conditions.
• Sector Focus: Emphasis on IT, consumption upgrade, and environmental protection industries.
• Valuation Consideration: Continued support for the Hong Kong market is dependent on solid earnings growth momentum.

Key Figures and Data

• US GDP growth: 2.2% (2017e), 2.5% (2018e)
• Eurozone GDP growth: 2.3% (2018e)
• Japan GDP growth: 1.4% (2018e)
• HSI earnings growth CAGR: ~16% (2009-2014)
• HSI 2018e earnings growth: ~10%
• HSI forward PE: 12x (current), expected to range between 11x and 13x
• US corporate tax cut: from 35% to 21% starting 2018
• US public debt/GDP ratio: ~98% (2017), expected to rise
• Eurozone public debt/GDP ratio: ~91.3% (2016), expected to fall to ~89.0% (2018)
• ECB asset purchase program: reduced to EUR 30 billion per month from January to September 2018

Summary

The 2018 outlook highlights a global economic recovery with the US leading in growth, while the Eurozone and Japan maintain moderate expansion. China is expected to focus on quality growth. The Hong Kong equity market is anticipated to remain range-bound, supported by earnings growth and valuation. Investment preferences lean towards China Banks, IT, consumption upgrade, and environmental protection sectors. Key risks include political uncertainties, high debt levels, and potential shifts in monetary policy.