中國A股投資地圖

1、9 December 2019 Equity Research Report2020: From good-to-have to must-haveA-share Investment Atlas2020: From good-to-have to must-haveA-share Investment AtlasEquity StrategyChinaCHINA INDEX TARGETSHSBCIndex Qianhailevel* 2020e UpsideHSBC Qianhai implied 12m forward PESHCOMPCHINA INDEX TARGETSHSBCInd

2、ex Qianhailevel* 2020e UpsideHSBC Qianhai implied 12m forward PESHCOMP2,878.13,40018.1%13.8xCSI 3003.849.84,60019.5%14.7xSZ Component9,688.011,50018.7%20.3xMSCI China78.49318.6%12.6x*As of 4 December 2019By sector, prefer financials, industrials; upgrade consumer discretionary to neutral; downgrade

3、IT to neutral onvaluationWe also address the top-10 questions from globalinvestors and present 12 bottom-up stockideasThe have to have in Source: MSCI, Wind, Refinitiv Datastream, HSBC Qianhai Securities estimatesWe Current sectorPrevious sector is to in in a of a We is to We also on 10 by 12 The ma

4、cro outlook. Global growth should remain sluggish in 2020 as the effect of monetary easing fades. HSBC economists forecast 5.8% GDP growth for China next year, down from 6.2% in 2019. Meanwhile, food inflation, driven by pork prices, is unlikely to peak until 2Q20, which is a concern in terms of eas

5、ing monetarypolicy.A new economic blueprint. The release of the next Five-Year Plan in autumn 2020 will be a big event. All signs point to a renewed focus on closing the technology gap with the US, particularly in semiconductors, AI, biotech and Blockchain. We expect this to be reflected in reforms

6、of the tech-heavy STAR market and ChiNextboard.The market. The A-share market has been largely range-bound since May. We also expect a slow start to 2020, with performance improving later in the year, helped by momentum from the release of the next Five-Year Plan. Overall, we forecast 9% top- down e

7、arnings growth, similar to 2019, while our bottom-up growth forecast is 12% for the quality names in CSI 300. Our call is supported by the news that, for the first time in 18 months, consensus Asia earnings numbers are being raised, rather than cut (The Flying Dutchman: Earnings cuts no more, 4 Dece

8、mber). Three factors underpin earnings growth the rise of new economy sectors, inflation not being all bad news for earnings, and the property sector bottoming out which could help with downstream earnings. Our end-2020e index targets are SHCOMP (3,400), CSI 300 (4,600), and SZ Component (11,500).Se

9、ctor calls. We think 1Q20 could see rotation into quality cyclical stocks in construction machinery, oil equipment, petrochemicals, airports, etc. We upgrade consumer discretionary to neutral on better earnings, but downgrade IT to neutral on valuation. We also downgrade utilities to underweight due

10、 to regulatory changes. allocationallocationConsDiscneutralunderweightConsStaplesneutralneutralEnergyneutralneutralFinancialsoverweightoverweightHealthcareneutralneutralIndustrialsoverweightoverweightITneutralMaterialsunderweightunderweightCommSvcsneutralneutralUtilitiesunderweightneutralRealEstaten

11、eutralneutralSource: HSBC Qianhai Securities estimatesSteven Sun*, CFA (S1700517110003)Head of Research, HSBC Qianhai Securities Limited HSBC Qianhai Securities Limited HYPERLINK mailto:stevensun stevensun+86 755 8898 3158Bob Liu* (S1700519060003)Head of A-share Equity Strategy HSBC Qianhai Securiti

12、es Limited HYPERLINK mailto:bob.h.liu bob.h.liu+86 755 8898 3179Kate Zhang* (S1700118050003) AssociateShenzhenEmployedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andis not registered/ qualified pursuant to FINRAregulationsDisclosures & DisclaimerThis report must be read with the disclosures and the a

13、nalyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.Issuer of report: HSBC Qianhai Securities LimitedView HSBC Qianhai Securities at:https: HYPERLINK / /Executive summary2020 could be a year of economic transformation and technological upgrading; the 14t

14、h Five-Year Plan will be released at the Fifth Plenum inautumnWe answer the top-10 questions global investors have beenasking and present 12 bottom-up stock ideasIntroduce end-2020e index targets for SHCOMP (3,400), CSI 300 (4,600), and SZ Component (11,500), implying 18-20%upsideWhy we are positive

15、 on China in 2020The A-share market has been trading sideways since May, and with good reason. First, economic growth continues to decelerate and corporate earnings have been revised down throughout the year. Second, economic stimulus has been largely absent as the government has been preoccupied wi

16、th structural issues and reforms, especially on the supply side for financial sectors. Third, inconveniently, inflation has climbed due to high pork prices in 2H19, leading to lingering stagflation concerns, as indicated by the widening gap between headline Consumer Price Index (CPI) readings and Ch

17、inas 10-year Treasury bond yields. There is also renewed concern on when China and the US could reach the widely-anticipated Phase-1 deal and whether trade tensions could escalate post 15 December. Lastly, blue-chip consumer, healthcare and high-growth tech stocks have all risen sharply and are trad

18、ing materially above their trend valuations. Hence, we expect the A-share market to remain range-bound in 1Q20.That said, one of the key lessons we have learned as equity strategists in the past few years is not to let prevailing market circumstances and sentiment direct our views. We believe the fo

19、llowing factors will be key drivers for the market in 2020:Global investors contemplating DM-EM rotationWe see indications that more global investors will be contemplating rotation trades into emerging markets from developed markets next year. EM markets last outperformed in 2016 and 2017, supported

20、 by stronger earnings growth during this period. However, a strengthening dollar, geopolitical uncertainties and dwindling investor confidence contributed to a decline in performance and fundamentals from 2018 onwards.Nearly 60 years of historical market data may play a role, too. We note that over

21、1960-2018 the S&P 500 index had risen by an average of over 15% in the year preceding an election year, but increased only 6-7% in an election year. Asset allocators are likely to be thinking about whether to increase their EM allocations. China is a big part of this pie, accounting for over one-thi

22、rd of the MSCI EM Index, with A-shares representing a weighting of over 4%. For reference, global funds that track MSCI increased allocations to the US equity market from 30% at the end of 2018 to 48% at the end of September 2019. The allocation to China was cut from 3% to 1.7% during the same perio

23、d.China: Focus on domestic reform agenda and the new Five-Year PlanBoth the Chinese and US governments could switch their focus to their respective domestic agendas next year. While there is still uncertainty about the timing and content of the Phase-1 trade deal, the general aim seems to be on de-e

24、scalating tensions next year. The market is hoping that both countries will give themselves time to work out their remaining differences.Chinas agenda next year will centre on economic transformation and technology upgrades, while the US is likely to focus on the presidential election. The Fourth Pl

25、enum of the 19th Central Committee of the CPC, which concluded in late October 2019, laid out 100 reform tasks in 13 categories. Significantly, on 26 November, the Leadership Group for Deepening Chinas Reform paid tribute to the groundbreaking Third Plenum that took place back in 2013. That plenum u

26、nveiled a series of reforms aimed at overhauling the economy and promised a greater role for the free market. The Leadership Group emphasised that it would use that meeting as a model for how to push forward with reforms. We believe this is important as China will soon start the drafting process for

27、 the 14th Five-Year Plan (2021-25), which will be officially unveiled at the Fifth Plenum in autumn 2020.When it comes to growth, policymakers are putting more emphasis on quality than quantity, hence the absence of extensive stimulus this year despite market expectations. China is doubling-down on

28、efforts to close the technology gap with the US in areas such as semiconductors, AI, Blockchain, and biotech. In line with this focus on tech, China will continue to align its regulations, build infrastructure, and reform capital markets (e.g., the launch of the Nasdaq-like STAR market in July and r

29、eforms to be rolled out for the ChiNext board early next year). We also note that the five-year cycle of Chinas major capital market reforms since 1999 to 2019 overlap with the telecoms upgrade cycle, from the introduction of the internet in 1999 to the 5G trial in 2019.China: More progress expected

30、 on financial sector supply-side reformsThe market has been disappointed by the absence of large-scale economic stimulus since 2Q19. But we are detecting signs from our global marketing trips that some investors have started to view this as a positive. This is because Chinas government has instead p

31、rioritised lowering leverage in the broader economy, preventing systemic risk in the financial system, and engineering new growth drivers through scientific innovation and technological upgrades.A lot has been done in the past four years. In 2016 and 2017 the focus was on supply-side reform for indu

32、stries suffering from overcapacity (e.g., steel and cement). In 2018 it was the turn of the financial sector, as seen by the cleaning-up of the shadow-banking sector, tighter regulations on wealth management products, and the closing of thousands of P2P lending platforms. This year has seen heighten

33、ed efforts to bail out and recapitalise small- and medium- sized city commercial banks such as Baoshang, Jinzhou and Shengjing Bank, as well as orderly credit defaults on the corporate bond market and tighter controls on local government debt.For 2020, we expect more of the same. The emphasis will r

34、emain on improving the capital adequacy ratios of the smaller city and rural commercial banks to reduce risk and improve service to the private sector. Deleveraging is likely to continue, but mainly for the SOEs, while policymakers will continue to encourage more credit to flow into small and medium

35、-sized private companies. In our view, 2020 will likely be a year of more material progress in terms of lowering systemic risk in the financial system. This, in turn, could gradually lead to a lower country risk premium, more active equity and bond inflows from foreign investors, and better performa

36、nce by the equity market.A-shares from good-to-have to must-have; RMB400-500bn of pent-up demandAs an asset class, we think the A-share market has gone from good-to-have to must-have. More and more global investors are thinking of taking a broader approach that looks beyond Chinasweighting in the MS

37、CI EM index. Since 2016, foreign holdings of A-shares have risen from RMB0.7trn to RMB1.7trn, despite uneven market performance. As of 3Q19, foreign investors were holding 8% of the A-share floatable market cap, or over 3% of total market cap. Foreign investors are now the No 1 institutional investo

38、rs in the A-share market, ahead of insurance companies and mutual funds.Although MSCI has not started the consultation process for further expanding the A-share inclusion factor from the 20% level, we believe an ad hoc consultation process cannot be ruled out before the end of next year, contingent

39、on Chinese regulators addressing key concerns raised by MSCI. More importantly, as we expect no further expansion of A-share inclusion in 2020, we think the pent-up demand from active funds could at least partially offset the expected material decline of passive fund inflows next year.According to M

40、SCI, the scale of active funds to passive funds is roughly 77%/23% for the over USD1.5trn of funds tracking the MSCI EM Index. The A-share market now has a 4% weighting in this index, which implies inflows of over USD60bn inflows. Similarly, the A-share market accounts for 3.6% of the FTSE EM Index,

41、 which implies some USD40bn of inflows, assuming that USD1trn of assets track this index.Adding these two means over USD100bn or RMB700bn of inflows into A-shares due to global index inclusion. At the same time, northbound inflows from Hong Kong via the Stock Connect scheme have totaled RMB500bn sin

42、ce May 2018. This includes mainland China funds investing from Hong Kong through Stock Connect, which could be a significant portion. Overall, we estimate the pent-up demand for A-shares from foreign investors could be RMB400-500bn.9-12% earnings growth next year to support market upside; style rota

43、tion in 1QOur top-down earnings growth forecast for the A-share market next year is 9%, and our bottom- up earnings growth forecast for CSI 300 is around 12%, while we think the SME and ChiNext boards could deliver double-digit earnings growth in 2020e. This is the primary reason why we are forecast

44、ing index upside of between 18% and 20%, assuming also some modest re-rating due to the improved risk profile of the macro economy and better risk appetite from both institutional and retail investors.We point to three factors that will likely support earnings growth the rise of the new economy sect

45、ors, inflation not being all bad news for earnings, and the property sector bottoming out which could help with downstream sectorearnings.That said, we previously called for sector rotation into financials, especially banks, and cyclicals like industrials for 4Q19, primarily on valuation concerns. T

46、his theme appears to be playing out towardsyear-endandcouldcontinueinto1Q20.Wedowngradestaples,mainlyF&B,toneutral for 4Q19 and the IT sector to neutral for 2020 after a sharp rise in share prices in 2H19. Having said that, we still expect tech (IT, healthcare and high-end manufacturing) to enjoy a

47、multi-year boom. Potential catalysts for 2020 could be: 1) the probably roll-out of IPO-registration reform for the ChiNext board towards the end of 1Q20; 2) the 5G capex guidance will be officially released by telecom operations at annual results in late March 2020 and 3) pork-price-driven headline

48、 inflation peaks and comes down in2Q20.But there are risks aheadIn line with our cautiously optimistic view of 2020, we also highlight a few potential risk factors:First and foremost, credit defaults could still be a recurring theme, owing to a slowing economy, continued de-leveraging efforts, and l

49、ess government support for highly indebted corporates. According to Wind, there have been 164 bond defaults this year, or over RMB130bn as of early December. This is similar to the level seen in 2018, at 130 bond defaults or RMB124bn. One-third of these bonds, or 50, are issued by A-share listed com

50、panies,hencethere is a potential contagion effect on the equity market. That being said, we still think the risk is controllable due to their relative size (at less than 1% of the onshore bond market), although it could dampen market sentiment from time totime;Second, we may see market jitters as th

51、e room for policymaking and execution error is fairly limited. The government needs to strike the right balance among various competing priorities and goals such as economic growth, inflation, exchange rates, and prevention of systemic risk in the financial system;andThird, external uncertainties co

52、uld continue in 2020, such as renewed trade tensions, unpredictable geopolitical events, and the US market likely correcting from its record high at end-2019.A quick look at the top-10 questionsHere we summarise the 10 most-asked questions raised by investors during our rounds of global marketing th

53、roughout 2019. Some are related to Chinas macro situation, economic transformation and policy outlook, others are about the dynamics of the equity market, such as the MSCI inclusion outlook, and the balance concerns specific sector and investment ideas.Question 1: What about DM-EM rotation in 2020?2

54、019 has been an eventful year, featuring a global economic slowdown and simmering trade frictions. Many investors are becoming increasingly interested in looking at DM-EM rotation in 2020. Our analysis from a fundamental and growth perspective shows an earnings growth recovery in the A-share market

55、along with attractive valuations. Global funds are currently underweight in China, where there is plenty of room to attract inflows from foreign active funds.Question 2: How can capital markets help economic transformation in 2020?The roll-out of the new Five-Year Plan during the Fifth Plenum will s

56、et goals anchored to innovation and technological upgrades. We see this as a blueprint for economic transformation and a stimulus for accelerated reforms in the capital market. Following the launch of the STAR market, the anticipated roll-out of registration-based IPOs on the ChiNext board will faci

57、litate further change and support high-tech strategic industries. The spillover effects should allow the market to play a greater role and attract more new economy stocks to the A-share market and help to raise more funds to support early-stage growth companies.Question 3: When will the A-shares ear

58、ning cycle bottom out?Although the economic slowdown in China is expected to persist into 2020, we still see a structural recovery in A-share corporate earnings. We identify three major catalysts: the rise of the new economy driven by tech and consumption, price hikes due to inflation and the bottom

59、ing out of the property sector. We think A-share earnings growth will improve from 8.5% in our index target model for 2019 to an estimated c9-12% in 2020e.Question 4: What will be MSCIs next move in terms of A-share inclusion?The final step of the second phase of MSCI A-share inclusion was implement

60、ed on 26 November, increasing the inclusion factor from 15% to 20%. As a result, we do not expect further action on A-share inclusion in 2020. However, there is likely to be an ad hoc consultation process in late 2020 after certain technical issues are addressed. More importantly, we estimate the pe