20171214-中国银河国际证券-Strategy_Notes_7页_372kb

Strategy Notes Summary - 14 December 2017

Core Content Overview

This report provides an analysis of recent developments in the Stock Connect program, focusing on the HSBC share ownership changes, tech stock selling, and the overall market concentration of Stock Connect holdings in the Hong Kong market. It also includes insights into the buying and selling activity by Southbound investors in November 2017.

Key Developments in Stock Connect

• Ping An Asset Management has increased its holdings in HSBC through Stock Connect, becoming its second-largest shareholder with a 5.04% stake (1,008 million shares).
• The total holdings by Southbound investors in HSBC are 1,099.56 million shares (5.5% of the company), with Ping An holding 1,008 million shares (5.0%) and other Southbound investors holding only 91.6 million shares (0.5%).
• This indicates that Mainland investors collectively hold a small portion of HSBC shares, and other Southbound investors have a minimal stake.
• The underweight position of Mainland investors in HSBC and the expected interest rate hikes by the Fed may provide structural support to HSBC's share price in the short term.

Tech Stock Activity

• Sunny Optical, AAC Technologies, and SMIC saw aggressive profit-taking by Stock Connect investors in the past, leading to significant share price declines.
• AAC Technologies has seen buying activity in recent weeks, which may support its share price.
• Sunny Optical and SMIC continue to experience selling pressure, which may hinder any rebound in share prices.
• SMIC and Sunny Optical are still among the most actively traded tech stocks by Southbound investors, though the selling trend remains strong for Sunny Optical.

Most Aggressive Net Buying

• HSBC is the top net buyer, with 3,622.5 HK$ million net purchases since 6 December.
• Other notable net buyers include:
  • Tencent (992.7 HK$ million)
  • ICBC (341.4 HK$ million)
  • China Merchants Bank (279.9 HK$ million)
  • China CITIC Bank (243.4 HK$ million)
  • AAC Technologies (220.2 HK$ million)
  • Great Wall Motor (208.1 HK$ million)
  • China Resources Beer (164.9 HK$ million)
  • Legend Holdings (156.5 HK$ million)
  • MGM China (113.2 HK$ million)
  • Healthcare stocks (e.g., Shanghai Fosun Pharmaceutical)

Most Aggressive Net Selling

• Sunny Optical is the top net seller, with 416.0 HK$ million sold since 6 December.
• Other significant net sellers include:
  • Geely Automobile (404.1 HK$ million)
  • Sunac China (344.4 HK$ million)
  • Ping An Insurance (253.6 HK$ million)
  • China National Building Materials (228.1 HK$ million)
  • MELCO International (193.9 HK$ million)
  • China Life Insurance (133.8 HK$ million)
  • China Everbright Ltd (100.4 HK$ million)
  • China Molybdenum (86.5 HK$ million)
  • China Eastern Airlines (86.0 HK$ million)
  • China Cinda Asset Management (62.1 HK$ million)

Stock Connect Concentration by Market Cap

• The Stock Connect holdings are heavily concentrated in large-cap stocks such as:
  • HSBC (88.3 HK$ billion)
  • CCB (68.6 HK$ billion)
  • Tencent (67.1 HK$ billion)
  • ICBC (63.8 HK$ billion)
• Tencent has slipped to No.3 due to its poor share price performance.
• The top 30 Stock Connect positions are dominated by financial institutions, utilities, and healthcare companies.

Stock Connect Ownership Concentration

• The top 30 companies with the highest level of Stock Connect ownership include:
  • Digital China Holdings (42.23% of market cap)
  • New China Life Insurance (34.25% of market cap)
  • Great Wall Motor (29.25% of market cap)
  • Xinjiang Goldwind (28.71% of market cap)
  • Shanghai Electric (23.50% of market cap)
• Companies with high ownership include those with a steep A-H share price premium and automotive firms.

Summary of Key Insights

• HSBC is the most actively traded stock via Stock Connect, with Ping An Asset Management as the primary buyer.
• Tech stocks like Sunny Optical and SMIC have seen net selling, while AAC Technologies has experienced some buying.
• Mainland investors have a limited role in HSBC ownership, with less than 5% of shares held.
• Structural support for HSBC may come from expected interest rate hikes.
• Stock Connect remains skewed towards large-cap financial institutions.
• Switching behavior among investors is observed, such as from Geely to Great Wall.
• Healthcare, non-bank financials, and IPPs are gaining interest from Southbound investors.

Conclusion

The Stock Connect program continues to play a significant role in shaping Hong Kong stock market dynamics, particularly in financials and large-cap stocks. While HSBC is a major beneficiary of Southbound investment, the tech sector shows signs of profit-taking and selling pressure, especially in Sunny Optical and SMIC. Investors should remain cautious about the volatility in tech stocks and monitor the impact of macroeconomic factors, such as interest rate hikes, on the Stock Connect portfolio.