Strategic viewpoint

The Hang Seng Index closed slightly higher this week, up 0.18%. On the industry side, only two industries recorded increases this week, namely, non-daily consumer goods and finance, with increases of 2.17% and 1.46% respectively. Hong Kong stocks, southward capital inflows continue, as of this week southward capital inflows have been seven consecutive weeks of net inflows, we can see that the market optimism is still heating up.It is worth noting that WH Group Limited, which is listed in Hong Kong, has been continuously bought by southward funds, driven by rising pork prices and easing trade frictions between China and the United States, and its shareholding has increased to 8.10% from 2.14% at the beginning of the year.

This week's meeting of the Politburo sent an important message. Different from the previous meeting, in the context of the higher-than-expected economic data in the first quarter, the current meeting of the political Bureau of the CPC Central Committee did not mention "six stability." instead, it was replaced by the general idea that "macro policies should be stable, micro policies should be alive, and social policies should support the bottom." In terms of micro policies, it is expected that more targeted policies will be introduced to support and guide the transformation and upgrading of the private economy and small and medium-sized enterprises.In addition, "high-quality development" has become the key word of this meeting, so it can be seen that the pursuit of "quantity" is no longer the primary consideration of future policies, and the promotion of "quality" has also been placed in an important position in policy implementation.

On the other hand, the higher-than-expected first-quarter economic data released last week did not bring significant gains to the market, and we think that the rebound since the beginning of the year seems to have reflected the higher-than-expected economic data in the first quarter.The better-than-expected economic start in the first quarter also makes it impossible for monetary policy to continue to be loose for some time in the future, and the implementation of monetary policy in the future will be further adjusted according to the trend of the economy.The reverse repurchase and MLF of the central bank last week also show that there will not be a looser monetary environment for some time to come. However, the positive direction of fiscal policy will not change, and it is expected that tax and fee reductions will be gradually implemented this year, which will be of great help to the improvement of corporate profit expectations in the future. In terms of real estate, the real estate sales data picked up again in March, while "housing speculation" was again included in the report, continuing to emphasize the "need to adhere to the positioning that houses are used for living, not for speculation". And "one city, one policy" will become the long-term regulation and control mechanism of the main responsibility of the government in the future.It also indicates that the central government will not easily return to the old way of real estate stimulating the economy, so the real estate market is unlikely to rise on a large scale.

We believe that the sharp rise in the market since the first quarter is more due to the valuation repair brought about by market sentiment and the optimistic expectation that the domestic economy has bottomed out under the policy stimulus.Although the relevant leading indicators, such as social finance, M1/M2 and PMI, have hit bottom and rebounded, it is still necessary to observe the overall rebound in corporate profits of synchronous indicators, and there are no obvious upward signs at present. It is expected that the growth rate of corporate profits in the second quarter will remain low, and it is expected that the market will be more repeated for some time to come. The second-stage rally will be driven by improved corporate fundamentals, so in the short term, there may be some risks in the market.

Market review

As for Hong Kong stocks, this week, the Hang Seng Index rose 53.5 points, or 0.18%, to close at 29963.26 points, with a total weekly turnover of HK $409.773 billion, while the Hang Seng China Enterprises Index rose 108.79 points, or 1.18%, to 11768.63 points.

As for A shares, this week, the Shanghai Composite Index rose 2.58% to close at 3270.80 points, the Shenzhen Composite Index rose 2.82% to close at 10418.24 points, and the gem Index rose 2.93% to close at 1715.80 points.

1. Market trends

1.1 impact of major news

(1) Major economic data this week: GDP increased 6.4% year-on-year in the first quarter of 2019, expected 6.3%, and 6.4% in the fourth quarter of last year. Industrial production increased 8.5% in March compared with the same period last year, 3.2 percentage points higher than in January-February, and expected 6%. In the first quarter, the added value of industries above scale increased by 6.5% compared with the same period last year; in March, the total retail sales of consumer goods increased by 8.7% compared with the same period last year, with an expected 8.2%. In the first quarter, retail sales of consumer goods totaled 9.779 trillion yuan, an increase of 8.3 percent in nominal terms over the same period last year. This week, the central bank launched a cumulative reverse repurchase operation of 300 billion yuan, achieving a net investment of 300 billion yuan. 200 billion yuan MLF operation will be carried out this week, and another 366.5 billion yuan MLF will expire. Measured from the full caliber, the central bank invested a net 133.5 billion yuan this week. There will be 300 billion yuan reverse repurchase due on the open market next week.

(2) the political Bureau of the CPC Central Committee shall hold a meeting to analyze and study the current economic situation and make arrangements for the current economic work. The meeting pointed out that it is necessary to promote the healthy development of the capital market through key institutional innovation, Science and Technology Innovation Board should really implement the securities issuance and registration system with information disclosure as the core, and the macro policy should be based on promoting high-quality development and pay more attention to the improvement of quality. more attention should be paid to stimulating market vitality, proactive fiscal policy should be strengthened to improve efficiency, and prudent monetary policy should be loosened and tightened appropriately. Adhere to the positioning that houses are used for living, not for speculation, and implement the long-term regulation and control mechanism of one city, one city, and the main responsibility of the city government.

(3) regular meeting of the Monetary Policy Committee of the Central Bank of China in the first quarter: at present, China's economy is developing healthily, economic growth remains resilient, and the financial market is expected to improve; adhere to counter-cyclical regulation, and further strengthen the coordination among monetary, fiscal and other policies. A prudent monetary policy should be loosened and tightened moderately, the general floodgate of the money supply should be properly controlled, the "flooding" should not be carried out, and the liquidity should be kept reasonably abundant. The growth rate of broad money M2 and the scale of social financing should match the nominal growth rate of GDP. We will comprehensively use a variety of monetary policy tools to keep the RMB exchange rate basically stable at a reasonable and balanced level, maintain a balance between interest rates, exchange rates and balance of payments, promote stable and healthy economic development, and stabilize market expectations.

(4) solicit opinions from within the NDRC to promote the renewal of consumption of automobiles, home appliances and consumer electronics. According to people familiar with the matter, the measures to promote renewed consumption of cars, especially in the field of new energy vehicles, are very strong in the draft. At the same time, we will increase support in the renewal policy of old cars, the upgrading of rural vehicle consumption, the car rental market, car consumption finance and so on.

(5) in the automobile industry, the Bureau of Statistics: the decline in automobile production and consumption is expected to narrow or even pick up slightly; recently, automobile consumption has slowed down, and at present, automobile production and sales have entered a short period of adjustment.

(6) in the pharmaceutical industry, the draft law on vaccine management was submitted to the 10th meeting of the standing Committee of the 13th National people's Congress for further consideration. According to the draft of the second examination, if the vaccine produced or sold is fake medicine, the fine shall be a fine of not less than 15 times and not more than 30 times the value of illegally produced or sold vaccines; if the value of the vaccine is not less than 500000 yuan but less than 1 million yuan, a fine of not less than 5 million yuan and not more than 30 million yuan shall be imposed concurrently.

(7) in terms of the game industry, the State Administration of Press, publication, Radio, Film and Television issued a document, and the game version number was officially restarted. Compared with the old version, the new version of the application form still has the basic information of the game publishing service unit, the basic situation of the game work, the basic situation of the game operating organization and the review report of the game publishing service unit. however, some of the information of the publishing unit and the operating unit is supplemented.

1.2 Corporate dynamics

Yanzhou Coal (HK.01171)

In terms of the historical cycle, April was supposed to be the off-season for coal. However, on the demand side, hydropower declined in April compared with the same period last year, thermal power continued to generate power, the demand for coal for electric power exceeded expectations, and the coal inventory of power plants reached the lowest level since January, so it is possible to replenish the stock in advance; at the same time, the tide of real estate and infrastructure in the lower reaches has resumed, and cement, glass and other industries are active in purchasing coal, driving the demand for non-electric coal.

From the supply side, affected by the mining accident at the beginning of the year, Shaanxi and Inner Mongolia are gradually recovering from a series of stop-production investigations, but affected by the continuous safety inspection and the slow resumption of production in most private mining industries, it is expected that it is difficult to have a substantial increase in output, and it will take quite a long time to fully restore production capacity; at the same time, the Daqin line, the main transport channel of coal, is in the spring maintenance period, bringing about the impact of volume reduction. In addition, under the "double control" of energy consumption, the import of low calorific value Indonesian coal decreased, coupled with Australia's coal restriction policy, coal imports decreased greatly. Domestic and international supply has contracted, and the short-term supply side is expected to be tight.

With the combination of the two, the coal market is not weak in the off-season, and prices in the coastal coal market have an upward momentum. Although the proportion of medium-and long-term agreements signed by coal enterprises and power generation groups has increased, a stable long-term agreement will promote the stabilization of short-term coal prices, but the trend of long-term prices still depends on supply and demand. At present, the valuation of the coal industry is still historically low, and it is possible to make up for it in the later stage.We believe that Yanzhou Coal shares are expected to be boosted during the gradual recovery of production in Shaanxi and Inner Mongolia and the gradual relaxation of the margin of environmental production restrictions.

Ganfeng Lithium (HK.01772)

The company is the third largest producer of lithium compounds in the world and the largest producer of lithium metal in China, providing more than 40 lithium compounds and metal lithium products in five major categories. Business spans all important aspects of the value chain, such as upstream lithium extraction, mid-stream lithium compound and metal lithium processing, as well as downstream lithium battery production and recycling.

For Ganfeng Lithium, the industrial layout of the upstream global lithium mine will bring it cost advantages, such as the Argentine Salt Lake project between the company and the American lithium industry will be put into production in 2020 and 200000 tons of lithium extraction capacity will be formed by 2025. Although multi-party capital entered the industry in the second half of last year, resulting in overcapacity of lithium salt, falling prices, and affecting reported net profits, from the current situation, the price of lithium raw materials has remained relatively stable, and the market has digested the cost-side negative.

Sales of mid-stream lithium compounds remain relatively stable, accounting for 65.10% of the company's total revenue in fiscal year 2018, which is the company's pillar business. In January 2019, the state introduced a policy aimed at "continuously optimizing the subsidy structure for new energy vehicles." it is reported that the rapid growth in demand for lithium batteries in electric vehicles has led to an urgent demand for lithium compounds, which is expected to reach 526 kilotons in 2022, with a compound annual growth rate of 18%. Electric vehicles are expected to account for 54% of the global demand for lithium compounds in 2022.

In addition, the company's lithium battery business has a bright future, and a solid-state lithium battery production line may be completed in 2019.The solid-state lithium battery submitted by Ganfeng Lithium for inspection in 2018 has good safety, high energy density and long cycle life. We have reason to believe that relying on the development of electric vehicle business, solid-state lithium battery will become the future business increment of the company. Lithium batteries account for 7.20% of revenue in 2018, up from 6.80% in 2017.

two。 Market data analysis

2.1 list of major indices

In terms of valuation, this week, the Hang Seng Index PE reached 11.68, higher than the-1 standard deviation, while the Hang Seng state-owned enterprise PE reached 9.68, also higher than the-1 standard deviation. The PB of Hang Seng Index is 1.39, slightly higher than-1 standard deviation, while the PB of Hang Seng state-owned enterprises is 1.20, slightly higher than-1 standard deviation, but still at a low level.

Main index comparison

2.2 Overview of industry data

Among the constituent stocks of the Hang Seng Index this week, the top three gainers were Geely Automobile 7.22%, China Life Insurance Company Limited 4.04% and WH Group Limited 3.25%. The top three stocks that fell were Hong Kong And China Gas-2.43%, Sino Land Co. Ltd.-2.50% and Sino Biopharmaceutical-2.50%.

In the Hong Kong stock industry, the top two sectors of growth were non-daily consumer goods and finance, with increases of 2.17% and 1.46% respectively. In addition, the optional consumer sector remains at the top of the list in terms of valuation, followed by daily consumption and information technology.

2.3 Market sentiment

This week, the turnover of the Hang Seng Index was HK $409.772 billion, down from HK $557.812 billion last week. The proportion of short selling in the whole market reached 16.97%, up from 14.51% last week.The top three short sellers are household and personal goods, insurance Ⅱ and consumer service Ⅱ, which are 33.65%, 24.82% and 21.23%, respectively.

This week, the Hang Seng AH share premium index was 126.62, up slightly from last week.In terms of peripheral market sentiment, the VIX index continued to decline this week, closing at 12.09 on Thursday, and market panic remained stable.

3. Analysis of capital flow between the two places

In terms of capital flow, this weekThe cumulative net inflow of southbound capital reached 3.575 billion yuan (RMB), down from 4.406 billion yuan (RMB) last week.Of this total, the net inflow of Hong Kong stocks in Shanghai was 2.093 billion yuan (RMB), down from 2.42 billion yuan (RMB) last week, while the net inflow of Hong Kong stocks in Shenzhen was 1.482 billion yuan (RMB), down from 1.986 billion yuan (RMB) last week.

In terms of individual stocks on the board of Hong Kong stocks.，From the perspective of the degree of activity of southward capital buying and selling, this week, the financial, optional consumer and real estate sectors were more active, with the top three net buyers Ping An Insurance, China Pacific Insurance and WH Group Limited respectively. The top three net sellers were Geely Automobile, China Construction Bank Corporation and China Life Insurance Company Limited.

5. Risk hint

Economic stall and decline in the coming months, policy tightening, geopolitical risks and a sharp devaluation of the RMB