20210203-招银国际-February_Monthly_Strategy__Follow_the_tide_9页_1mb

CMB International Securities | Equity Research | Market Strategy Summary

Core Content

This market strategy report from CMB International Securities provides insights into the performance and outlook of the Hong Kong stock market in February 2021. It emphasizes the role of Southbound trading, the impact of PBoC policy, and the valuation of Hong Kong stocks relative to A-shares. The report also outlines preferred sectors and potential new Southbound-eligible stocks, while highlighting key risks.

Main Points

1. Strong Southbound Inflows

• Southbound net buying in January 2021 reached HK$311 billion, a 1,013% YoY increase.
• This surge is attributed to the PRC government's policy change allowing annuities funds to invest in HK stocks via Stock Connect.
• Southbound inflows have been a key driver for the HK market's strong performance in 2021, with January alone accounting for 46% of the full year 2020's inflows.

2. China Tightening Not a Major Concern

• The Hang Seng Index (HSI) retreated 6.2% in early January due to fears of PBoC liquidity tightening.
• However, the report argues that monetary tightening is unlikely in Q1 2021 given signs of economic slowdown.
• PBoC governor Yi Gang stated that the central bank would not exit supportive measures prematurely.

3. Valuation Check

• The HSI is trading at 13.1X of 2021E P/E, near a decade-high.
• H-shares are relatively cheaper than A-shares, which trade at a 36% premium.
• While valuations are elevated, they are not yet "frothy," and the market may continue to see moderate expansion.

4. Preferred Sectors

• Short-term: Internet, Consumer, and Financials sectors are highlighted.
  • Internet sector is favored due to its popularity among Mainland investors.
  • Consumer sector is expected to benefit from ongoing economic recovery.
  • Solar glass sector is suggested for buying on dips due to high profit margins.
• Medium-term: Financials (Insurance and Brokerage sectors) are undervalued and could benefit from re-rating as the market improves and bond yields rise.

5. New Southbound Stocks

• The HSCI index review on 26 February 2021 is expected to add several stocks to the Southbound list.
• Notable potential additions include companies in the property management and healthcare sectors, such as CR Mixc Lifestyle Services (1209 HK), S-Enjoy Service (1755 HK), and Henlius Biotech-B (2696 HK), all with a BUY rating.
• Some stocks may be removed due to lower market caps or other criteria.

6. Key Risks

• Policy to Cool Markets: If the HK market overheats or Mainland investors become too speculative, the PRC may take measures to cool it down.
• USD Rebound: A rebound in the USD could exert downward pressure on EM stocks, including Hong Kong.

Summary Table

Conclusion

The report suggests that despite recent corrections, the HK market remains supported by strong Southbound inflows and policy-driven optimism. Investors should focus on the Internet, Consumer, and Financials sectors, with particular attention to potential new Southbound-eligible stocks. However, caution is advised due to the risk of policy tightening and the potential for USD rebound to impact EM stocks.