Global economy to gain more traction in 2018
China economic outlook for 2018: new era of growth
Hong Kong economic outlook for 2018: economy strengthening on track
Investment themes for 2018
Dec 7,2017 Economic Acumen Commentary by CEBI Research Team
Hong Kong economy strengthening on track
Hong Kong (HK) economy gains strong traction again in 2017 as economic activities enjoyed an upswing of 3.9% YoY during 9M2017 driven by strong-than-expected growth in consumption, investment and exports. Inflation pressure remained mild as composite CPI for 10M17 dropped further to 1.4% from 1H17's 4.0% while the labor market remained resilient with the seasonally adjusted unemployment rate standing at 3.0%.
For 4Q2017, we expect to see a continuing buoyant growth as Hong Kong's economic recovery remains intact with which 4Q2017 and 2017 GDP growth will reach 3.4% and 3.8%.
For 2018, although the U.S adopts a gradual path of monetary tightening through rate hikes and shrinking of balance sheet which may cool down HK's overheated property market and exert some downward pressures on HK economy, strong economic fundamentals along with corporate tax cut for small enterprises, increased tourist visit and several investment themes such as the "Belt and Road" initiative, the "Guangdong-Hong Kong-Macao Greater Bay Area" initiative will be able to support healthy rebound of economic activities in HK. We remain optimistic towards HK economy with GDP growth to grow by 3.2% in 2018.
Nov 23,2017 Economic Acumen Commentary by CEBI Research Team
Global economy to gain more traction in 2018
In 2017, global economic recovery has been more impressive as global growth is skewed to the high side and a better-than-expected global growth outlook comes with heightened political risk. The global economy is strengthening gradually. The recovery momentum has been characterized by improving productivity growth and inflation. Pickups in investment, trade, and industrial production, coupled with stronger business and consumer confidence, lend great support to the recovery. Surging commodity prices also help exacerbate these trends since 2017.
As the global business cycle continues to evolve with global economies demonstrating a steady upswing in economic activities, a marked improvement in economic conditions of developed and emerging worlds attracts the attention of global central banks to watch out liquidity conditions and inflationary pressures.
The monetary stance of major economies becomes clearer and more transparent as the U.S. Fed will continue to tighten monetary policy on a gradual basis and the ECB begins to unwind its monetary stimulus through cutting bond purchases from January 2018. Only Japan shows no signs to retreat from expansionary monetary policy.
Stable tightening of liquidity to suppress potential hiking of inflation, improving financial market conditions and gradual restoration of confidence are at the root of sustaining the growth of economic activities. We expect the global economic recovery to gain more traction in 2018.
Nov 14,2017 Economic Acumen Commentary by CEBI Research Team
China’s economic momentum remains stable despite mild deceleration in October data
China's economic data for October faltered, with growth in fixed asset investment (FAI), retail sales, industrial production and external trade slowing in varying degrees. Despite a mild deceleration in October data, China's economy remains stable.
The latest economic indicators support our view that China economic growth will stay on the path of stable recovery with which the economy is undergoing readjustments while bracing for the new norm of slower expansion.
We expect 4Q2017 GDP growth to maintain a medium-high growth rate as China will further make great progress in structural reforms and the economy grows with more emphasis on quality and efficiency. In general, the overall macroeconomic conditions maintain a stable momentum and we believe the economy will expand by 6.6% YoY in 4Q2017 with which 2017 GDP growth will reach 6.8% YoY.
Nov 13,2017 Corporate research TMT
Razer Inc.-Unpacking the gaming company IPO
Razer Inc. (1337 HK) (“the Company”) is a leading lifestyle brand offering gaming hardware, software and services. In its coming IPO, the Company recorded an oversubscription of around 290 times. Apart from the recent stock rally, its overwhelmed order is probably due to the fast growing global gaming industry and the Company’s unique positioning. In this report, we will take a glance at Razer’s business model and the potential opportunities and risks of this newcomer of stock market.
Nov 9,2017 Economic Acumen Commentary by CEBI Research Team
China’s inflation edged up in October
China's October CPI inflation accelerated to nine-month high at 1.9% YoY (+0.1% MoM) from September's 1.6% YoY (+0.5% MoM) and the consensus estimate of 1.8%. For 10M17, CPI inflation fluctuated between 0.8% and 2.5%, with the YTD CPI inflation reaching 1.5%. The rise of inflation in October was attributable to the low base effect, higher food price and stable non-food prices.
Producers' prices posted positive growth of 6.9% YoY (+0.7% MoM) in October, which was in line with previous month's growth rate and beat the expectation of 6.6%, reflecting that price pressure was driven by stable economic recovery, a tight labor market, cuts on overcapacity and temporary disruptions to industrial production due to holidays.
The stable uptrend of CPI and PPI indicates that China's economic momentum remains resilient, supported by strong domestic demand and healthy global demand.
Oct 26,2017 Economic Acumen Commentary by CEBI Research Team
4Q2017 investment outlook under the vision of “new era” for China
The 19th CPC National Congress successfully concluded on October 24. This year CPC congress commenced with General Secretary and Chinese President Xi Jinping's report laying out major economic achievements during the past five years and his vision for an increasingly prosperous China as the country embarks on a journey to build a "great modern socialist country" for a "new era".
China's economy has been transitioning from a phase of rapid growth to a stage of high-quality development which help build a modernized economy. China will leverage the fundamental role of consumption in promoting economic growth and enhance the framework of regulation underpinned by monetary policy and macro-prudential policy. China will maintain a medium-high growth rate that makes great progress in structural reforms with which the economy grows with more emphasis on quality and efficiency.
Looking ahead in the fourth quarter and new few years, sustainable growth would be prioritized over breakneck economic growth and the government will further proceed with encouraging medium-high end consumption, strengthening supply-side structural reform through further reduction of industrial overcapacity, keeping up with deleveraging efforts, accelerating the implementation of China's Belt and Road initiative, speeding up the development of the Greater Bay area and Xiong'an New District, promoting greater sophistication in the industrial sector, deepening reforms in state-owned enterprises (SOE) as well as improving environmental protection.
Oct 25,2017 Sector Outlook China Banks
Behind the RRR new rule – “CCB may benefit most among major banks”
Just before the National Day vacation, the PBOC announced that it would widen the scope of targeted RRR cut and allow more lenders supporting the vulnerable sectors to enjoy at least 50bps discount in reserve. This is the first RRR relaxation in 18 months and we believe at least Rmb500bn will be unlocked from the system when the new rule becomes effective in January 2018. Four banks under our coverage are expected to benefit and CCB (939 HK) may be the only one among Big4 to enjoy the more preferential 150bps discount.
Oct 20,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen－China’s economy maintained the momentum of stable and sound development in 3Q2017
China's GDP grew 6.8% YoY in 3Q2017, in line with consensus but slower than 1H2017's 6.9%. The GDP of China in 9M2017 increased 6.9% YoY. Most economic indicators point to an even development in the economic segments, with which FAI continued to moderate while pickup trend was observed in retail sales, industrial production and external trade.
Major achievements have been made in economic development during the past five years, General Secretary and Chinese President Xi Jinping said in his remark delivered at the 19th National Congress of the Communist Party of China. Speaking at the opening session, Xi also laid out his vision for an increasingly prosperous China as the country embarks on a journey to build a "great modern socialist country". China's economy has been transitioning from a phase of rapid growth to a stage of high-quality development which help build a modernized economy. China will leverage the fundamental role of consumption in promoting economic growth and enhance the framework of regulation underpinned by monetary policy and macro-prudential policy.
We expect 4Q2017 GDP growth to maintain a medium-high growth rate as China will further make great progress in structural reforms including reduction of industrial production overcapacity and deleveraging with which the economy grows with more emphasis on quality and efficiency. In general, the overall macroeconomic conditions remain stable and we believe the economy will expand by 6.7% YoY in 4Q2017 with which 2017 GDP growth will reach 6.8% YoY.
Oct 13,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen－China’s trade remains sound and steady in 3Q2017
China's external trade demonstrated a sound and steady upward momentum in September. Exports (RMB) rose 9.0% YoY (-1.2% MoM), lower than consensus' 10.9% but higher than August's 6.9% while imports (RMB) grew 19.5% YoY (6.7% MoM), beating consensus' 16.5% and August's 14.4%. 9M2017 trade growth maintained robust growth with exports and imports, in Yuan terms, surging by 12.4% and 22.3%.
The acceleration of trading activities are mainly supported by buoyant global demand for goods from China, and surging imports driven by domestic demand and rising commodities prices.
Looking ahead, a brighter international outlook will continue to support China's external trade sector, with International Monetary Fund (IMF) raised its forecasts for global growth to 3.6% and 3.7% in 2017 and 2018 respectively, reflecting that the global economic recovery is on track.
Oct 12,2017 Sector Outlook HK Property
Views on policy address-Farmland conversion to unlock hidden value
HK CE Carrie Lam presented her maiden policy address on 11 October. Her housing policy focuses on increasing subsidized housing and strengthening housing ladder. No further cooling measures or re-sell restrictions is suggested. But she also didn’t touch on the topic of farmland conversion and developers’ share price weakened as a result. However, we believe it’s just a matter of time as it is the less controversial way to increase land supply. We expect Henderson (12 HK), SHKP (16 HK) and NWD (17 HK) will benefit from their sizeable farmland reserve.
Oct 3,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen－Upbeat September PMI signals strong momentum in China’s economy
In September 2017, China's manufacturing PMI edged up to 52.4 percent from August's 51.7 percent, beating market consensus of 51.1 percent and hitting the highest level since April 2012.
China's non-manufacturing sector also expanded at the fastest pace since June 2014, with its September's PMI reaching 55.4 percent, up from 53.4 percent in August.
The steady uptrend in both manufacturing and non-manufacturing sectors adds to strong economic resilience of China's economy.
China's macro environment will continue to exhibit stable growth with which economic indicators will generally improve for 3Q2017 and the uptrend will continue in a steady and gradual manner underpinned by accelerating consumption and investment as well as stable export growth. Our forecast of GDP growth for 3Q2017 is 6.8% YoY.
Sep 26,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen－Eurozone embedded into brighter outlook
German Chancellor Angela Merkel secured a 4th term in Germany's election though her victory was clouded by her weakened parliamentary bloc and a surge in support for the far-right party.
At the start of 2017, political risks arising from elections in the Netherlands, France and Germany were considered the major hurdle facing the Eurozone. There had been fears that radical changes in government could create more policy uncertainties, hampering economic recovery. Amid diminishing political risks in the Eurozone following a series of elections that saw populist politicians defeated, the cyclical rebound of the Eurozone economy is set to turn stronger and more sustained.
The latest victory of Angela Merkel signals the market that Germany, Europe's largest economy, will continue to support the structural reforms and strengthen economic recovery within the zone in the post-Brexit era.
Deeper co-ordination and integration of economic policy within Eurozone is expected, thus demonstrating real economic convergence within the zone. Annual GDP growth for Eurozone is projected to rise from 2016's 1.7% to 2.0% in 2017.
Sep 21,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen－Normalization of balance sheet kicks off in October
At the conclusion of the FOMC meeting on 20 Sep, 2017, the Fed unanimously voted to left target range of the FFR unchanged, at 1.0% to 1.25%. It also unveiled the timeline to gradually unwind USD4.5tn in U.S. Treasury and mortgage-backed securities which accumulated during and after the 08 financial collapse. The Fed will start cutting its massive size of balance sheet in Oct initially by USD10bn per month.
After launching two rate hikes in 1H2017, the Fed aims to maintain the gradual path of monetary tightening in an attempt to strike a balance between robust economic recovery and surging price level. Normalization of balance sheet is a complement rather than a substitute to monetary policy tightening through rate hikes. Paring down the massive size of the Fed balance sheet does tighten the money supply, but the gradual pace with relatively small size of unwinding is expected to have a mild impact on financial markets.
The U.S. economy has been reviving in a robust pace with unemployment rate reaching a 16-year low. The upbeat momentum of the U.S. economy and equity market, accompanied by a stable global economic recovery, will likely to afford more rate hikes in 2018 and 2019.
Sep 20,2017 Corporate Research China Banks
Downgrade CRCB (3618 HK) to Hold – “Lackluster interim”
Chongqing Rural Commercial Bank (“CRCB” 3618 HK) reported a disappointing interim. Although the bank managed to deliver inline profit growth, overdue ratio almost doubled and NPL ratio increased. CRCB also suffered a drastic QoQ NIM decline while large banks showed margin rebound. We lift the valuation discount in model and arrive at new TP of HK$4.60. Downgrade to Hold.
Sep 20,2017 Sector Outlook China Banks
1H17 review – “The strong getting stronger”
The interim results has proved our preference on large banks correct. Big 5 and CMB reported solid results with margin rebound and asset quality recovery. But smaller banks saw QoQ margin decline, climbing NPL ratio and even balance sheets shrinkage. Going forward, we believe large banks will continue delivering better results under the deleveraging. We keep Bank of China (“BOC” 3988 HK) and China Construction Bank (“CCB” 939 HK) as our top pick, but downgrade CRCB (3618 HK) to Hold because of its asset quality deterioration and drastic margin contraction.
Sep 12,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen－Renminbi remains strong despite China unwinds forex reserve requirement
PBOC confirmed to scrap reserve requirements of 20% for financial institutions settling foreign exchange forward renminbi positions. Rules to put aside the reserves have been launched before in an attempt to curb speculation in renminbi. The loosening of the substantial supervision reflects PBOC's willingness to relax the regulatory grips, as depreciation sentiments fade away after a recent rally of renminbi of 6% during 9M17.
We believe strength of renminbi will remain intact on robust momentum of China's economy and weakening of USD due to uncertainties over the rate hike schedule and U.S. economic policy outlook.
The key to a healthy appreciation of the renminbi lies in improving its onshore and offshore circulation, managing appreciation expectations and enhancing transparency of the regulatory framework.
We expect a freer renminbi market without reserve constraint will allow China to promote in further opening of its forex market and improve the fundamental value of the renminbi through encouraging more organic market growth and diversifying cross-border channels for trade and investment.
Aug 28,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen－Global economy: keeping the momentum forward
Regulatory accomplishments through financial reforms in post-crisis period become the main contents of keynote speech of leading central bankers in the world.
The U.S. Fed Chair Janet Yellen hinted in her Jackson Hole address that financial reforms are crucial to enhancing the healthiness of global economy. While the ECB President Mario Draghi hinted that the global recovery is firming up and Eurozone's economic uptrend is in sight. However, more time is needed to meet inflation target, indicating that the ECB might not begin tightening monetary policy soon.
Global liquidity remains abundant amid gradual path of the U.S. monetary tightening and continuation of credit loosening in Eurozone.
Though regional imbalances still exists, the global economy is in a broad-based upturn. As recovery momentum in different economies continue to diversify, more complex economic situations and marked variations in monetary policies are likely to be seen in the future.
Aug 24,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen－An important step in telecom sector reform
China Unicom (CU)’s Shanghai-listed unit (600050 SH) announced that strategic investors will provide no more than RMB61.7bn of a total RMB78bn it aims to generate through a private placement, as the company fleshed out the details of the plan following a green light from regulators. In our view, this marks an important step in the government’s efforts to bring in private capital into state firms, laying a foundation for and deepening the reform of State-owned enterprises. More private capital participation can be expected in other sectors, with the aim to create synergies from closer cooperation with strategic investors and achieve better corporate governance.
Aug 17,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen－Domestic consumption to remain uptrend
Entering the 2H17, China's economy shows signs of slowdown in economic activities as the lagged impacts of curbing industrial overcapacity, deleveraging and the tightening of property market begins to weigh on growth. The softening of July's economic indicators reignited concerns about the trajectory of China's economy in 2H2017. Domestic demand, especially domestic consumption, remains sluggish as China's July retail sales growth slowed to 10.4% from June's 11.0%.
Since economic conditions have demonstrated signs of slowdown, more stimulus may be employed in coming months to invigorate growth with which the government may beef up its policy to spur domestic consumption.
We are still bullish on China's consumption growth, as we believe that the market potential is largely untapped and China is trying to shift to a consumption-driven economy. Judging from the recent fluctuations in retail sales growth and the overall economic condition, we expect that retail sales will expand by 10.6% YoY in 2H17.
Aug 16,2017 Sector Outlook China Banks
1H17 preview - Expect inline results with better NPL ratio
China banks will kick start the interim reporting from mid-August, and our coverage are set to deliver 1-11% net profit growth. NPL ratio is expected to drop slightly as corporate earnings improved. Large banks with strong deposit base will report NIM rebound, while the smaller lenders may struggle due to deleveraging squeeze. Although regulatory scrutiny may further step up, the undemanding valuation and love from Southbound fund should support the sector in terms of trading. Buy: CCB, BOC and CRCB.
Aug 9,2017 Corporate Research China Environmental Protection
Everbright Greentech Result comments 1H17 - In line withexpectation
CEGL’s total revenue for 1H17 increased by 69% YoY to HK$2,047mn. EBIT increased by 60% YoY to HK$713mn, and net profit increased by 57% YoY to HK$457mn, accounting for 53% of our full year profit estimate for FY17. The result is pretty much within our expectation, with major growth driver coming from increased revenue contribution of operation projects (YoY 81% to HK$710mn) and increase in construction revenue (YoY 63% to HK$1,304mn). For 1H17, CEGL’s projects portfolio has reached 73 (2016end: 63), with 27 projects in operation, 12 projects in construction and 34 projects in planning. As CEGL’s projects implementation remained in our expectation, we maintain our target price of HK$6.68.
July 27,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen - Fed keeps rates on hold
At the conclusion of its two-day meeting on 26 July, the U.S. Federal Reserve (the Fed) has kept the target range of the Fed fund rates within 1.0% and 1.25%. After launching two rate hikes in 1H2017, the Fed aims at maintaining a slow path of monetary tightening amid sluggish wage growth and relatively stable pricing pressures. It also indicates that it is close to unwinding the $4.5 trillion in U.S. Treasury and mortgage-backed securities accumulated during and after the financial crisis in 2008.
The Fed still maintains the stance that economic activities have been expanding moderately, with improvement in the labor market and the rising price level to be the signals supportive of the future rate hike.
The U.S. economy has been reviving in a solid pace. Sustainability of the upbeat momentum of the U.S. economy and equity market, accompanied by a stable pace of global economic recovery, will likely to substantiate one more rate hike in 4Q2017 and the commencement of the balance sheet downsizing in late 3Q2017.
July 17,2017 CEB International Research
Company initiation - China’s economy trended upwards in 1H2017
The first half of 2017 was marked by stable recovery of economic activities in China, whose major indicators are showing signs of improvement. With a solid growth of 6.9% YoY (up 1.7% QoQ) in both 2Q2017 and 1H2017, China's economic activities continue to edge up strongly.
The latest data support our view that China's economy will stay on the path of recovery. The pickup trends observed in most economic indicators will continue, including those of external trade, investment, and industrial output.
A continued macro turnaround is highly likely and we expect 2H17 GDP growth to remain robust as China makes great progress in structural reforms including reduction of industrial production overcapacity and deleveraging with which the economy grows with more emphasis on quality and efficiency.
The overall macroeconomic conditions remain stable and we believe the economy will expand by 6.6% YoY in 2H2017 with which 2017 GDP growth will reach 6.7% YoY.
July 5,2017 CEB International Research
Company initiation - China Everbright Greentech Limited (1257 HK)
China Everbright Greentech Limited (“CEGL”) is a leader in the fast-growing China environmental protection (EP) industry. Its business includes biomass power generation, hazardous waste treatment (HWT), solar energy and wind power generation. Efficient participant in EP industry.CEGL operates in fast-growing industries supported by favorable governmental policies. Investment in the PRC EP industry is expected to grow at a CAGR of 17.5% from Rmb1,600.0bn in 2017 to Rmb3,049.4bn in 2021. The company’s business has been growing quickly in number of projects, power generation and waste treatment capacity. With efficient management, utilization ratio of its biomass projects reached over 86.8% in 2016. Unique biomass business model. As the only company to employ integrated biomass and waste-to-energy (WTE) business model in China, CEGL can provide one-stop services for local governments to handle both biomass waste and household waste at the same location. In our view, these integrated projects provide an ideal option especially in places where standalone WTE projects are not commercially viable. Competitive advantages in HWT sector. The company’s HWT projects are located in eastern China where generation of hazardous waste is highest. With careful project selection and strong technical capabilities, CEGL ranks third nationwide and first in eastern China in terms of aggregate disposal designed capacity for all projects in operation, under construction and at the planning stage as of Dec 31, 2016. Initiate with BUY rating on attractive valuation. CEGL operates in two fastest growing subsectors (Biomass and HWT) in China’s EP sectors. We project its 2017E and 2018E net income to be HK$857mn (+36% YoY) and HK$1,025mn (+20% YoY). We believe the company’s share is trading at an attractive valuation of 12.5x 2017PE as compared to an industry average of 13.5x. Our DCF-derived fair value for the company is HK$6.68 (24% upside), implying a 2017E and 2018 P/E multiple of 16.1x and 13.5x.
July 4,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –“Bond Connect” : a wider path for international investors
The People's Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA) announced that trail operation of Northbound Trading of "Bond Connect" will commence on 3 July 2017.
The Northbound Connect allows foreign investors to participate in PRC domestic bond market, following two stock connect schemes with the Shanghai and Shenzhen stock exchanges and their Hong Kong counterpart.
Such a direct access to China's RMB $67 trillion (USD $9.9 trillion) bond market is a milestone of China's further liberalization of its capital account and is an important step in the country's financial market reform.
June 29,2017 2H2017 Market and Investment Outlook
2H2017 Market and Investment Outlook
Global economy in 2H2017 appears to embrace more volatilities in financial markets with continued acceleration of global economic activities, amid continued mix of monetary policies , massive tax cuts in the US, political instability in Korean Peninsula and Middle East as well as Brexit talks.
China’s economic growth will be more balanced for 2H17 on the acceleration in private consumption and investment, together with improvement in export growth. Our GDP growth forecast for 2017F is 6.7% YoY by to taking into account of the moderating economic recovery. Current accommodative macroeconomic policies will be fine-tuned to sustain growth in 2H17.
Despite the rally in 1H17, HK stock market is still considered as a potential laggard, with the HSI and HSCEI currently trading on 2017 PER multiples of 12.4x and 8.3x, which are still below their respective 15-year average. We forecast that the HSI and HSCEI will reach 27,000 and 11,800, with PER multiples of 13 and 9.4 respectively by end-2017.
CEB International Research
June 15,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –Fed’s second rate hike in 2017: two down, two more to go
The Federal Reserve (Fed) has raised the benchmark short-term interest rate by 25 bps for the second time in 2017.
Though the Fed reaffirms that gradual adjustments in Fed rate is a sensible route, a balance sheet normalization program will be implemented this year, provided that the economy evolves broadly as anticipated.
In view of current US labor market condition and inflation, we expect two more rate hikes in 2H17 and commencement of downsizing the balance sheet in 4Q17.
June 8,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –Hong Kong economic recovery on track despite headwinds
Entering into 2017, HK economy regains traction after experiencing a slower growth of 2% in 2016. The economy enjoyed an upswing of 4.3% YoY during 1Q17 driven by strong-than-expected growth in consumption, investment and exports. Inflation pressure remained mild as composite CPI for 4M17 dropped further to 0.9% from 1Q17's 1.4% while the labor market remained resilient with the seasonally adjusted unemployment rate standing at 3.2%.
For 2H17, we expect to see a continuing buoyant growth despite overhangs. HK's economic recovery remains intact where the theme for 2H17 will be the shift to the balance of growth drivers, with more consumption contributing to economic growth. However, with more expected U.S rate hikes and the possible move to shrink its balance sheet in 2H17, HK's overheated property market is likely to cool down, which will exert some downward pressures on HK economy.
With potential threats, we remain cautiously optimistic towards HK GDP growth given a robust performance in 1H17. For 2017 as a whole, we forecast HK economy to grow by 2.7%.
June 6,2017 Economic Acumen Commentary by CEBI Research Team
Sector initiation - China banks
The 1Q17 results confirm our views that China banks will pick up their growth momentum this year as both margin contraction and asset quality problem have been stabilized for most lenders. While the deleveraging theme still weigh on their valuation, policies impact may have been exaggerated, especially for those funded by sticky low-cost deposit. That leads to our preference for banks with strong deposit franchise and more capital buffer. BUY: CRCB (3618 HK), CCB (939 HK) and BOC (3988 HK).
June 1,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –Stablization of Renminbi in sight
In 2016, China's dismal economy, weakening global economic outlook and strong dollar gave rise to the volatility of renminbi with depreciation around 7%, raising concerns over the continuation of depreciation in 2017. However, since entering 1H17, the PBOC's moves to curb capital outflow and stronger-than-expected China's economic activities have resulted in a modest rebound of renminbi by almost 2%.
We expect further liberalization of exchange rate will increase the role of market forces in both the currency and capital markets. China's economy has shown signs of stabilization, and renminbi will receive more support from the acceleration in economic activities in 2H17.
With more US rate hikes ahead, continued divergence in credit loosening of major economies, and surging momentum of China's economic recovery, we forecast that renminbi will fluctuate by 2.0% from its current level (CNY 6.8170 per USD) between CNY 6.6807 and CNY 6.9533 per USD by end-2017.
May 25,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –Global market: A promising prospect amidst heightened economic and political risks
In 1H2017, global economic growth is skewed to the high side and a better-than-expected global growth outlook comes with heightened political risk. This comes not only from the outcome of 2016's shocks (Trump's victory and the Brexit), but also from growing breadth of Eurozone recovery after Macron win. Buoyant financial markets, the cyclical recovery in external trade and rebound in commodities prices have edged down fears of deflation, thus elevating growth momentum.
For 2H2017, navigating the maze of economic and political risks in global economy remains as the biggest challenge. Credit expansion continues to be the key to fuel economic growth but monetary stances of major central banks complicate the global liquidity flow.
Amid the continued mix of monetary policies, massive tax cuts in the US, political instability in the Korean Peninsula as well as Brexit talks, 2H2017 appears to embrace more volatilities in financial markets with continued acceleration of global economic activities.
May 16,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –One Belt, One Road: bracing for “project of the century”
On 14 May, President Xi delivered a keynote speech at the BRF for International Cooperation in Beijing, defining the Belt and Road as "project of the century" that should be built into a road of peace and prosperity, opening up innovation that connects different civilizations.
Countries from Asia-Pacific region and Eurasia can cooperate to seek ways to advance policy coordination, facilities connectivity, unimpeded trade, financial integration so as to achieve regional economic integration and promote prosperity of Asia and Europe. Chinese presence in regional economy and trade will be bulked up.
China will contribute an additional 100bn yuan to the Silk Road Fund to support the Initiative.
We expect that China will further support the Initiative, pursue deepen cooperation with more countries on a broader scale, and encourage further investment on the Initiative from multiple sectors such as banking, insurance, infrastructure and energy sectors.
May 11,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –Proactive deleveraging to minimize financial risks
President Xi has determined to further elevate financial risk control by minimizing major symmetric risks. Six tasks have been listed to maintain financial security, portending a tightened regulation and de-leveraging in coming months.
A host of tightening measures rolled out to curb financial risks triggers the concerns regarding contraction of credit and market liquidity as SSE and SZSE declined by over 6.9% and 8.3% while the margin trading balance dropped by around 34.5bn to below 900 bn yuan last month.
Despite short-term growth is compromised, the effort to deleverage the financial system proactively and gradually will help curb asset bubbles, refuel the real economy and put the economy on a sounder footing longer-term.
May 4,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –The Fed held current rates steady
At the conclusion of its two-day meeting on May, The Fed has left the target range of the Fed fund rates unchanged within 0.75% and 1.00%. Fluctuating financial market, unequal pace of global economic recovery, mild inflation and recent slump in both economic and job growth have all prompted US government to hold on further normalization of monetary policy.
The Fed still sees that economic activity has been expanding moderately, while improved employment and rising inflation is becoming definitive signals to support the gradual rate hike.
In spite of short-term turbulence, growth momentum of US economy remains intact. The ongoing upbeat momentum, if with the stabilization of global economic recovery, may hint that Fed is on track for a rate increase in June.
April 27,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –China’s Payment Sector: Precision Marketing being a Future Trend
The third-party mobile payment is under an explosive growth with nearly RMB 39tr of transaction size in 2016. With increasingly advanced fintech and diversified offline payment scenarios, payment system has, to a certain extent, replaced our wallet.
Alibaba and Tencent account for 86% share jointly, dominating the third-party payment market. However, as the PBOC released regulation on QR code payment in June 2016, banks have strengthened deployment in mobile payment, which is likely to challenge the dominance of Alibaba and Tencent.
It is expected the payment sector consolidation will be accelerated due to the PBOC's centralized deposit policy of funds of pending payments of clients, pushing payment firms to convert into professional financial institutions through pursuing differentiated development and expanding precision marketing with the help of big data analysis.
April 18,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –A Good Start for China’s National Economy in 1Q17
China posted a solid GDP growth of 6.9% YoY for 1Q17 (up 1.3% QoQ), exceeding market consensus and the highest since 4Q15.
March's macro indicators rebounded across the board on higher-than-expected recovery in investment, consumption and external trade. The latest data for March support our view that China economic growth will stay on the path of recovery.
We believe more policies will be formulated to support economic growth, foster job creation, and enhance economic performance.
As economic policies would remain accommodative throughout 2017, and lagged impacts of previous stimulus measures on consumption and investment are likely to be seen in 2Q17 and 3Q17, we expect China's economic growth to improve going forward.
April 7,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –China’s property market under rebalancing
China's property market sees signs of stabilization with more curbs on house purchases and tightening mortgage rules. Deceleration in home prices growth largely reflects the mismatch between demand and supply.
Amid slowing growth prospects of residential property sales, growing inventory levels and tightening onshore liquidity, the downside risks of the sector are surging with further price correction around the corner.
We expect that the existing tightening measures in the sector may remain in force as China is seeking stable development in property market this year after the roller-coaster ride in 2016, and measures will be implemented to prevent price surges in metropolises and growing inventories in small cities.
March 29,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –China NEVs: long term growth momentum remains intact
China NEVs market realized rapid growth for the year of 2016. Total NEV production and sales reached 517k and 507k units, corresponding to a growth of 51.7% YoY and 53.0% YoY, respectively.
Subsidy cheating on NEVs has sparked tightening policy by government. Past development pattern of subsidy stimulus has shown its weakness.
Although subsidy cut can be painful in the short term, the improved regulatory system and the point-based system can be good to the future of the industry.
With the promulgation of access policy for NEVs and batteries, supply-side reform will push the industry to concentrate. Leading players can seize more market shares, while the overall growth momentum remains intact.
March 23,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –Global economy: recovery with diverging policy outlook
The global economy is strengthening, though the recovery remains uneven. Ongoing divergence of recovery is contributing to marked variations in economic conditions and international monetary policies outlook across different economies.
More hikes will be considered by Fed. In contrast, the ECB is to keep policy rates at present or lower levels.
Although the world economy is stepping into tightening cycle, global liquidity maintains abundant amid strong economic growth in the U.S. and credit loosening in Eurozone and Japan.
With rising confidence driven by better growth prospects amid the pursuance of quality growth through more stimulus measures in China, investors will likely increase asset allocations within the China and Hong Kong markets.
March 16,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –Fed’s 2017 rate hike: one down, three more to go
The Federal Reserve (Fed) has raised the benchmark short-term interest rate by 25 bps for the first time in 2017.
The Fed emphasizes a gradual route for rate hikes based on improvement in economic fundamentals of the economy.
The U.S. economy has been reviving swiftly. Based on the current development, we expect three more rate hikes in 2017.
March 6,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –China’s NPC: focusing on long-term gains
Premier Li Keqiang sets GDP growth target for 2017 at 6.5%, slightly lower than the 6.5%-7% in 2016.
The Chinese government will revitalize growth through quality instead of quantity and ensure that benefits of economic growth will be shared by a larger population.
China's efforts to build a moderately prosperous society, promote social and economic development, enhance economic stability at home, deepen economic structural reforms, ameliorate social inequality and effectively strengthen environmental protection would become the major agendas in 2017.
March 2,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –Proactive fiscal policies crucial to growth
China is likely to broaden policy actions on the fiscal front to stabilize growth.
More fiscal stimulus packages will be introduced in 2017 to support agendas improving the general livelihood of the citizenry, accelerating urbanization, and facilitating the "ecological" programs spanning across social housing, infrastructure FAI, education, healthcare, and environmental protection.
Entering 2017, proactive fiscal programs to support domestic demand and the 13th FYP to transform China into a "moderately prosperous society" will be the keys to revive growth via structure reforms and more sustainable economic growth.
February 23,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –China’s 2017 NPC conference preview: more structural reforms on the way
he fifth Session of the 12th National People's Congress (NPC) is scheduled to be convened in Beijing on March 5, 2017.
We believe the annual government report will address strategic economic topics, provide guidance for future policy orientation and lay out more extensive reforms in economic structure.
The government will proceed with further economic rebalancing; much emphasis will be placed on deepening supply-side reforms, strengthening environmental protection and promoting PPP projects. A balanced and sustainable economic growth is prioritized, with which China's GDP growth for 2017 is expected to be 6.5%.
January 25,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –Robust growth for environmental protection and alternative energy sectors in 2016-20
China’s economy has been developing swiftly since the reform and opening-up policy in late-1970s, but it came at the price of environmental pollution.
Although investment in environmental protection has constituted 1-2% of China’s GDP since 2000, quality of environment was not satisfactory. In 2H16, the 13th Five-Year Plan (FYP, 2016-20) for environmental protection (EP) and alternative energy sector were promulgated. In 2017, we expect these policies to be gradually implemented.
With more public-private partnership (PPP) projects in place, we expect investment in China’s EP sector to grow at a CAGR of 18.0% from RMB 1,355.9bn in 2016E to RMB 2,628.8bn in 2020E.
We believe non-fossil energy will account for 15% of China’s primary energy consumption by 2020F. Total installed capacity of renewable energy power plants will reach 680 GW, generating 1.9m GWH of power to account for 27% of total national power generation.
January 20,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –As expected, China’s growth slowed in 2016
In 2016, China extended further into the "new normal" of slower economic growth. China's GDP growth in 4Q16 and 2016 was 6.8% and 6.7% YoY, as compared to 6.9% in 2015.
FAI, retail sales, and external trade demonstrated a slowdown to varying degrees.
China is committed to pursuing reforms for a more sustainable future; meanwhile, stimulus measures are launched to reinstate momentum. China's push for pervasive changes in the social and economic realms will replace growth engines with new ones while alleviating the country's long-standing overcapacity issues.
Overall, China's economic growth has stabilized and the forward-looking economic indicators point to a sustainable growth in domestic demand. We reassert our view that China's GDP growth will reach 6.5% YoY for 2017E.
January 6,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –2017 China property market outlook：slower growth in property market expected
The year of 2016 was a fruitful year for the property developers on surging sales and prices. However, tightening policies launched since September and CEWC’s emphasis on the residential use rather than speculative buying in the property market have marked the beginning of a new tightening cycle.
With the expectations of slower residential property sales, high inventory levels, and tighter onshore liquidity, the downside risks of the sector are rising and further price correction will soon occur. While we expect existing tightening measures in the sector to remain in place, the government may roll out short- term, fine-tuning policies to ensure a soft landing in the property sector.
Considering the effect of decreasing investment in the property sector, we set our forecast for China’s 2017E GDP at 6.5%.
January 5,2017 Economic Acumen Commentary by CEBI Research Team
Economic Acumen –2017 China’s economy and market prospect
We expect China's 2016E GDP growth to be 6.7%. For 2017E, we expect growth to slow to 6.5% to reflect the impacts of structural reforms and monetary normalization in the U.S.
We believe the government will continue its ambitious reforms in 2017 to transform China into a "moderately prosperous society". An accommodative stance in fiscal and monetary measures will be maintained.
The Hong Kong market has been downgraded partly on slower EPS growth in 2016. With the market concerns diminishing and corporate earnings improving in 2017, we estimate the HSI and HSCEI to reach 24,138 and 10,238 by end-2017E, equivalent to a 12.0x and 8.0x 2017E P/E.
CEB International Research 2017 Market and Investment Outlook
2017 Market and Investment Outlook - Entering a new era of investment cycle
The world and China are confronted with by a series of challenges in 2016 including stagnant growth in economy, Brexit, election of the new U.S’s Republican President, and depreciation of RMB. Impact of tighter U.S. monetary policy as well as other administrative measures will toughen the global business conditions in 2017. However, we expect the Chinese economy to turn more stable after the economic cycle had bottomed in 3Q16.
In 2017, economic recovery across the global economy will be uneven, with Europe and Japan lagging behind and the U.S. enjoying a stable improvement. Emerging Asia markets will focus on structural reforms and cultivating growth potential. We expect the emerging markets will continue to demonstrate below-trend growth as more structural reforms take place.
For China, maintaining a “new norm” of high-quality growth through comprehensive economic structural reforms will be the emphasis of 2017. We expect more accommodative stimulus will be implemented to support recovery in consumption and investment. China’s economy is expected to maintain a healthy growth of 6.7% and 6.5% in 2016E and 2017E.
Although the U.S is ready for further rate hikes, the continuous credit loosening by Eurozone and Japan has caused a flood of liquidity that will likely enter the Hong Kong market. With continued strength of USD-pegged HKD, surging market liquidity in the Hong Kong capital market will be the major driver of the stock market. In general, we remain bullish on China and Hong Kong’s equity markets in 2017.
