20220317-招银国际-Macro_Strategy_Seeing_Bottom_amid_a_Strong_Policy_Commitment_16页_923kb

Macro Strategy Summary

Core Content

This document provides a comprehensive macroeconomic and sectoral outlook for the Chinese and Hong Kong markets, emphasizing the strong policy commitment by Chinese policymakers to stabilize the financial market and economic growth. The recent meeting of the Financial Stability and Development Committee (FSC) is seen as a pivotal moment, potentially signaling a market bottom and setting the stage for a moderate re-rating. The document also outlines the key risks and catalysts affecting various sectors, including the impact of geopolitical tensions, inflation, and regulatory changes.

Main Views

• HK Market: The market is believed to be bottoming out and may experience a moderate re-rating in the coming months. A rebound is expected if geopolitical tensions ease and inflation moderates. Investors are advised to look for long-term market share gainers.
• Macro Policy: The Chinese government has committed to monetary and fiscal support, with expectations of MLF rate cuts and LPR reductions. These measures aim to stabilize the market and improve investor confidence.
• Property Sector: Supply-side reforms are expected to accelerate, leading to a decline in non-state-owned enterprises. Long-term market leaders such as Longfor, CR Land, and COLI are recommended.
• Technology Sector: Recent selloffs are seen as overdone. While geopolitical risks remain, the sector is expected to benefit from positive sentiment and growth drivers like VR/AR, 5G, and semi-localization. Sector leaders such as Xiaomi, Will Semi, and Maxscend are highlighted.
• Software & IT Services: The sector is vulnerable to U.S. sanctions and lockdowns. While some companies may see a short-term rebound, the long-term outlook is uncertain due to ongoing geopolitical and macroeconomic challenges.
• Renewables Sector: Positive sentiment is expected to boost the sector, particularly wind power, as China accelerates its renewable energy development. Oil & gas companies face cost pressures, while wind power companies are likely to benefit.
• Capital Goods: The policy signal is expected to stabilize market sentiment. H-shares are viewed as more attractive compared to A-shares, with Zoomlion-H and Weichai Power-H recommended.
• Auto Sector: The NEV sector is expected to become more attractive as market volatility subsides and sentiment improves. NEV sales have exceeded expectations, with a strong growth outlook.

Key Information

• Market Valuation: The Hang Seng Index (HSI) is at a decade low, with forward P/E at 8.9x and P/B at 0.75x.
• Policy Impact: The FSC meeting and subsequent policy actions are seen as critical in stabilizing the market and reducing policy risks.
• Sector Outlook:
  • Banking & Insurance: Positive policy signals are expected to drive upward re-rating. PSBC (1658 HK) and PICC P&C (2328 HK) are top picks.
  • Consumer Discretionary: Sportswear and catering are neutral, while home appliances and apparel are negative.
  • Consumer Staples: Dairy, beer, and e-cigar sectors in HK and A-shares are recommended.
  • Internet: Positive sentiment is expected, with Kuaishou, Tencent, NetEase, and Meituan as top picks.
  • Renewables: Wind power is expected to grow significantly, with companies like China Long Yuan (916 HK) and Goldwind (2208 HK) likely to benefit.
  • Auto: NEV sales have exceeded expectations, with a full-year forecast of 5 million units.

Risks and Challenges

• Geopolitical Risk: The Russia-Ukraine conflict and potential U.S. sanctions on China remain concerns.
• Inflation and Commodity Prices: Inflationary pressures and commodity price volatility are still present.
• Policy Uncertainty: While the government has made strong commitments, the actual implementation may fall short of expectations.
• Economic Risks: The impact of the Omicron wave and continued lockdowns on the Chinese economy and markets remains a challenge.

Conclusion

The Chinese government's strong policy commitment and the current low valuations of the HK market suggest a potential rebound. However, the path to recovery is not without challenges, including geopolitical tensions, inflation, and regulatory risks. Investors are advised to focus on sectors with strong fundamentals and clear policy support, such as banking, insurance, and renewables, while being cautious about the technology and software sectors due to their volatility.