汇丰银行-中国-股票策略-A股投资地图：牛市正在放缓但仍有一些上行空间-2019.4.4-36页.pdf

Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:HSBC Qianhai Securities Limited View HSBC Qianhai Securities at:https:/ Equity Research Report HSBCChinaConference201915-17May,ShenzhenRegister now The rally still has legs but caution needed as the risks are also rising We lower our China COE to 9%(from 10%):risk-free rate to 2.5%(from 3.0%)and equity risk premium to 6.5%(from 7%)Increase our end-2019e index targets,implying upside of 10-13%;prefer the consumer staples and industrials sectors and increase our weighting on real estate to neutral Still upside,but caution needed.The A-share market has been the best-performing equity market globally in 2019,with its major indices up between 30%and 42%y-t-d in USD terms.Entering the earnings season,A-share earnings growth forecasts for 2018,2019 and 2020 have been revised down 2ppts in the last month,and 3-5ppts in the last three months.So its fair to say the current stage of the rally is not being driven by an improvement in fundamentals,given the softer economic growth.However,we think there is still more upside due to greater policy support,increased participation by foreign investors following MSCIs decision to quadruple the A-share weighting in its global benchmarks and the enthusiasm of domestic retail investors.In particular,the progress of the Science and Technology Innovation Board has been an upside surprise.Raise 2019e index targets.We raise our end-2019e index targets:SHCOMP 3,500(from 3,100),CSI300 4,500(from 3,800),and SZ Component 11,500(from 9,500),implying upside of 10-13%from the current level.Our index revisions are driven by two factors,one positive and the other negative.The major positive driver is a lower cost of equity(COE),discussed below;the major negative is the downward earnings revisions.On a sector basis,we raise real estate to neutral given inexpensive valuation and improved financing conditions,lower healthcare and utilities to neutral given higher valuations,stay overweight consumer staples and industrials,underweight materials and consumer discretionary,and remain neutral on other sectors.We also offer 11 bottom-up stock ideas and four screens.New COE.We last reviewed the A-share COE in January 2018 and believe it is time to revisit the subject.Following the same methodology and analytical framework used by our Global Equity Strategy team,we set the COE for A-share companies at 9.0%(down 100bps),the risk-free rate at 2.5%(down 50bps)and equity risk premium at 6.5%(down 50bps).These changes are driven by richer market liquidity,lower market volatility and rising levels of foreign ownership.Risks:Stock sales by major shareholders,poor economic and earnings data.The launch of the Science and Technology Innovation Board Chinas NASDAQ in-the-making is a big step forward,but volatility could rise immediately after launch.CHINA INDEX TARGETS Index level*HSBC Qianhai2019e Upside HSBC Qianhai implied 12m forward PE SHCOMP 3,177 3,500 10.2%13.3x CSI300 3,971 4,500 13.3%13.3x SZ Component 10,260 11,500 12.1%18.8x MSCI China 85 94 10.4%15.0 x As of 2 April 2019.Source:Wind,MSCI,Refinitiv IBES,HSBC Qianhai Securities estimates 4 April 2019 A-share Investment Atlas Equity Strategy China Steven Sun*,CFA(S1700517110003)Head of Research,HSBC Qianhai Securities Limited HSBC Qianhai Securities Limited +86 755 8898 3158 Kate Zhang*(S1700118050003)Associate Shenzhen *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations The bull is slowing,but theres still some upside left Equity Strategy China 4 April 2019 2 Investment strategy We raise our year-end index targets SHCOMP to 3,500(from 3,100),CSI300 to 4,500(from 3,800),and SZ Component to 11,500(from 9,500).This implies upside of 10-13%from the current level.The major event and market driver for 2Q is arguably the imminent listing and trading of the Science and Technology Innovation Board(STIB).As of 2 April,six batches of 37 companies have filed for an IPO at the Shanghai Stock Exchange(SSE).Progress has so far been ahead of schedule.Our index revisions are driven by two factors one positive,the other negative:COE(positive driver):The risk-free rate and equity risk premium have been coming down for over a year.We discuss the decision to officially lower our HSBC Qianhai Securities A-share COE to 9%(from 10%),the risk-free rate to 2.5%(from 3.0%)and equity risk premium to 6.5%(from 7%)in the next chapter.Earnings revisions(negative driver):A-share earnings growth has been revised down 3-5ppts in the past three months,and 2ppts in the past month.In terms of sector allocation,we continue to prefer consumer staples and industrials given the improving fundamentals and good sentiment.We are underweight materials and consumer discretionary,move healthcare and utilities from overweight to neutral due to higher valuation,and move real estate from underweight to neutral given the improved financing conditions.We retain our neutral stance on the other sectors.We also think the launch of the STIB will create opportunities in the IT,telecom,high-end manufacturing and biotechnology industries but may increase market volatility after the first batch of listings.In terms of stock ideas,we highlight 11 stocks in conjunction with our fundamental analysts.We also present four thematic stock screens to assist in stock picking.Executive summary We raise our end-2019e index targets:SHCOMP 3,500(from 3,100),CSI300 4,500(from 3,800),and SZ Component 11,500(from 9,500),implying upside of 10-13%from the current level Major positive driver:lower COE.Major negative driver:downward earnings revisions Sector-wise,we prefer consumer staples and industrials;we also offer 11 bottom-up stock ideas and four screens Our index revisions are driven by two factors one positive,the other negative 3 Equity Strategy China 4 April 2019 The story of the year The A-share market has been the best-performing equity market globally in 2019,with major A-share indices up 30-42%y-t-d in USD terms.That said,its still below the level a year ago.Simply put,the A-share market has yet to fully recover the lost ground.The past month has been particularly eventful for the domestic A-share market,especially on the regulatory and policy fronts.MSCI decided to quadruple the A-share inclusion factor to 20%and rebalancing will be done in three phases this year (see A-share Strategy:More opening and not just about MSCI,1 March 2019).The annual policy gathering the Two Sessions concluded on 15 March in Beijing.The market got a nice surprise as the government announced a RMB2trn tax cut,including an RMB800bn reduction in VAT payments and lower corporate contributions to social security funds(see China Strategy:2019 Two Sessions).The regulatory framework for the STIB Chinas NASDAQ in-the-making was announced and six batches of 37 companies filed for IPO by 2 April(see The Science and Technology Innovation Board:Opening the door to the future-a primer,4 March 2019).Meanwhile,Sino-US trade discussions have continued and both sides have come closer to reaching a deal,although the actual timing and venue for a Trump-Xi summit remain unclear.According to Xinhua,representatives from the US had arrived in Beijing for the eighth round of talks over 31 March to 1 April.Testing investor sentiment We have done more than 100 one-on-one marketing meetings in the US,China and Hong Kong so far this year.It appears that foreign investors and Hong Kong-domiciled funds were generally positioned for the A-share rally earlier than domestic investors.This can be seen from the strong northbound Stock Connect inflows,at over RMB128bn y-t-d.Inside China,the rally has been driven mainly by speculative short-term domestic investors and retail flows.In addition,the margin financing balance has rebounded over 25%,or by around RMB740bn to RMB930bn,since Chinese New Year in mid-February.Not surprising there has been some profit-taking.For example,from 1 March to 2 April,foreign investors have sold in 13 out of the 23 trading days,at an average of RMB2.1bn per day,and recorded a single day outflow of RMB10.8bn on 25 March.Despite this,we continue to think that this year will be much better than 2018 and this rally may still have legs.We remain firm believers in the key market drivers we laid out in our year outlook report in December 2018 when PE and PB ratios were at 10-year lows tax cuts,accelerating A-share market reforms and greater MSCI inclusion(see A-share Investment Atlas:2019 outlook,3 December 2018).We now look at these drivers in more detail.More help is on the way Policy support:More counter-cyclical policies are on the way to help support the economy.This time around the policies are anchored around reinvigorating the supply of credit to the private sector and generating demand through tax cuts and structural reforms.The policy rethink since November 2018 was primarily due to the fact that the private sector was squeezed too hard in 2018,particularly in the area of peer-to-peer lending.The policy combination of loose monetary policy,ample liquidity/credit and expansionary fiscal policy in the form of aggressive tax cuts is likely to continue,which would be positive for the A-share market.Its still down around 5-12%in USD terms from a year ago Most domestic institutional investors missed the early part of the rally Equity Strategy China 4 April 2019 4 Earnings and valuations:Given the sharp market rebound,valuation levels have recovered significantly,but in our view remain attractive,especially for blue-chip companies:11.9x forward PE for SHCOMP vs.12.8%consensus EPSg in 2018-20e,12.3x for CSI300 vs.13.1%consensus EPSg,17.0 x for SZ Component vs.25.2%consensus EPSg and 25.3x for ChiNext vs.33%consensus EPSg.Based on PE,valuations are 7-30%lower than the past 10-year average and 40-60%higher than the lowest valuation in the past 10 years.Fund flows:We conservatively estimate RMB500bn of foreign investment will flow into the A-share market due to MSCIs further inclusions.The regulators are more bullish and forecast RMB600bn of inflows,essentially double the amount last year(see A-share Strategy:More opening and not just about MSCI).Our estimate does not include inflows from FTSE and Dow Jones Index inclusion,as well as an enlarged QFII quota(from USD150bn to USD300bn).Mutual funds:The equity allocation of domestic mutual funds has rebounded but we see room for this to rise further.Stock-only mutual funds on average had 85.6%in stocks(NAV weighted average:86.3%)in their portfolios and blended funds 49.5%(NAV weighted average:63.7%).Only 54%of stock and blended funds have added positions since Chinese New Year in February.A-share reform:The roll-out of the STIB in Shanghai is an important step forward.If rolled out to the broader market,we believe this could prove to be the boldest reform yet in Chinas capital markets.Premier Li Keqiang did not mention“China Manufacturing 2025”an initiative to upgrade the countrys industrial base in his report in March.The STIB will serve a similar purpose of boosting the development of these strategic industries,but through a more market-driven approach.More risks=greater caution Although we see more upside by the end of the year,we also think it is time to exercise more caution because of the potential risks facing the A-share market,including:Share sales:Controlling shareholders or related parties reducing their shareholdings.Sales of more than RMB100bn have been announced y-t-d.Dynamics are dramatically different from 4Q last year,when a quarter of A-share companies were buying back shares from the market.The Social Security Fund has also reduced some of its positions.Earnings revisions:Further downside revisions to earnings during the results season(which ends on 30 April).Earnings growth have been revised down 2ppts in the last month and 3-5ppts in the past three months.The STIB:Trading on the new board could begin as early as June.There is considerable uncertainty with regard to secondary market trading volatility,especially in the first five trading days for the first batch of listings.If volatility is excessive,then we could reasonably anticipate that regulators will take cooling measures.This could create uncertainty in the broader A-share market.Valuation levels have recovered significantly We also think its time to exercise more caution 5 Equity Strategy China 4 April 2019 Lowering the COE to 9%We last reviewed the A-share COE in early 2018(see A-share Investment Atlas:Climbing over the wall of worry,27 April 2018)and now revisit the subject.Following the same methodology and analytical framework used by the HSBC Global Equity Strategy team,we set the COE for A-share companies at 9.0%(down 100bps):risk-free rate at 2.5%(down 50bps)and equity risk premium at 6.5%(down 50bps).The lower risk-free rate is driven by significant liquidity injections over the past year the central bank has cut the reserve requirement ratio(RRR)five times which is also reflected in lower government bond yields,deposit rates and SHIBOR.1.The lower equity risk premium is driven by lower market volatility in the A-share market relative to that of the US market(almost 10%).2.A lower COE is also justified by the fact that foreign investors are now collectively the single biggest A-share institutional investors,holding almost 7%of the A-share free float at the end of 4Q18.We estimate another RMB500bn of inflows this year from foreign investors through greater MSCI inclusion,Stock Connect and the QFII/RQFII schemes.Increasing our index targets We continue to believe this year will be much better than 2018,and this rally may still have legs.We remain firm believers in the key market drivers we laid out in our year outlook report(see A-share Investment Atlas,3 December 2018 and A-share Strategy:Not a 2018 dj vu,18 February 2019).We see some near-term profit-taking pressure after a strong rally over such a short period,and earnings are still under pressure.However,given the inexpensive valuation,improving economic conditions,rising level of participation by foreign investors and enthusiasm at the domestic retail level,we see further upside.We increase our end-2019e A-share index targets as follows:SHCOMP to 3,500 from 3,100,SZ Component to 4,500 from 3,800,and CSI300 to 11,500 from 9,500,implying 10-13%upside from the current level.Investment strategy We lower the COE for A-shares to 9.0%(from 10.0%):risk-free rate to 2.5%(from 3.0%)and equity risk premium to 6.5%(from 7.0%)Refresh our end-2019e index targets:SHCOMP 3,500(from 3,100),CSI300 4,500(from 3,800),and SZ Component 11,500(from 9,500),implying 10-13%upside from current levels We overweight consumer and industrial sectors;we present 11 HSBC Qianhai covered A-share stock ideas and four stock screens We continue to thin