Global re-inflationary expectations are rising, and pro-cyclical assets of Hong Kong stocks soar

Looking back on February, the Hang Seng Index rose first and then fell. After reaching the month's high of 31085 on February 17, the Hang Seng Index pulled back sharply in the second ten days due to global inflation concerns and the proposed increase in stamp duty in Hong Kong, China, to close at 28980 points at the end of the month.

As far as the industry is concerned, Hong Kong stocks led the rise in February, with the largest increases in raw materials (24.2%), energy (16.5%), telecommunications (10.6%) and real estate construction (10.4%). In the previous month, essential consumption (- 7.6%), information technology (- 4.9%) and health care (- 2.8%) fell sharply.

Since the second half of last year, the global economy has gradually recovered from the impact of the epidemic and started a new replenishment cycle. As the overseas epidemic gradually improved, the number of newly diagnosed cases peaked and the rate of vaccination accelerated steadily; at the same time, Biden's $1.9 trillion fiscal stimulus package was voted by the US House of Representatives on February 27th.

Driven by these multiple factors, global inflation expectations have rebounded, coupled with the impact of the epidemic has disrupted or restricted the global supply of industrial products, and the prices of global commodities such as copper and oil have risen one after another.

On the market side, A shares and the Hong Kong stock materials and energy industries both recorded big gains, with Hong Kong stocks rising even more.

Why is that?

The reason why the pro-cyclical asset growth of Hong Kong stocks is higher than that of A shares is due to the lower valuations of Hong Kong stocks.

Haitong said that the reason why pro-cyclical assets of Hong Kong stocks rose faster than A shares was that Hong Kong stocks had lower pro-cyclical asset valuations and higher AH premiums of related stocks, so funds went south to buy cheaper Hong Kong stocks.

First of all, in the case of fundamental convergence, the valuation of the Hong Kong stock cycle industry is significantly lower than that of A shares. As of 2021-2-26 (the same below), the PE (TTM) of the Hong Kong stock materials industry is only 16.6 times, significantly lower than that of the A-share materials industry. The PE (TTM) of the Hong Kong stock energy industry is only 16.6 times, which is also lower than that of A-share energy industry.

From the AH premium rate: the current AH premium index is 137.5 points, that is, the AH premium rate is 37.5%.

If we take a specific look at the materials and energy stocks in the AH premium index, we can find that the premium of some A-share cyclical stocks over Hong Kong cyclical stocks is higher than that of AH as a whole. For example, COSL AH premium rate is 136.4%, Shanghai Petrochemical 133.4%, Jinyu Group 112.9%, Petrochina 87.9%, China Coal Energy 87.5%.

Therefore, due to the existence of AH spreads, when pro-cyclical asset prices start, Hong Kong stocks tend to rise more than A-shares. At the same time, pro-cyclical assets of Hong Kong stocks are in a "valuation depression". In February, especially after the year, funds moved southward to add positions in the Hong Kong energy and materials sector. as of 2021-2-26, southward capital flowed into the energy sector of HK $28.29 billion and into the materials sector of HK $17.16 billion.

Pay attention to the opportunities of the main line of science and technology consumption and underestimate the opportunities for growth in the sector.

In sharp contrast to the continuous rise in the first ten days, Hong Kong stocks began to show a continuous pullback in late February.

From a news perspective, Chen Maobo, financial secretary of Hong Kong, China, said on February 24th that he would increase stamp duty on shares from 0.1% to 0.13% for the first time in nearly 30 years, adding to recent rising interest rates and inflation concerns. Hong Kong stocks fell nearly 3% on the day.

However, Haitong believes that the increase in stamp duty has little impact on the actual transaction costs of Hong Kong stocks, mainly affecting investor sentiment and not changing the medium-and long-term upward trend of Hong Kong stocks. At present, Hong Kong stock valuations are at a historically moderately high position, and they are still relatively low relative to US stocks and A-shares.

According to the data, as of February 26, the Hang Seng Index of Hong Kong stocks PE (TTM, the same below) is 16.0 times, PB (LF, the same below) 1.38 times, in the bottom-up 88.6%, 54.8% quantiles since 2005, while the S & P 500PE is 38.9 times, PB 4.2 times, 99.6% and 99.3% quartiles since 2005, A shares Shanghai and Shenzhen 300PE 16.3 times, PB 1.8 times It is in the bottom-up quartile of 76.1% and 56.5% since 2005.

Haitong said that from the perspective of the main line of investment, two types of opportunities are still worthy of attention:

Pay attention to science and technology and the main line of consumption

In the medium and long term, China's economy is in the process of transformation and upgrading, and science and technology plus consumption is the direction of transformation, so the fundamentals of science and technology and consumption are stronger, while Hong Kong stocks have scarce assets such as the Internet and consumer services, which are attractive to domestic capital to a certain extent.

Second, underestimate the opportunities for industry growth.

Among the companies listed at the same time in AH, the value sectors such as Hong Kong stock finance, real estate, cycle and so on have a large discount to A shares. These low valuation sectors may benefit from the global economic recovery, and AH spreads are expected to converge.

In addition, Haitong also said in the research report "Prospect of pro-cyclical products 2021" released earlier:

In 2021, we expect domestic and foreign economies to recover and pro-cyclical products to benefit. It is mainly reflected in the following directions:

(1) crude oil: the improvement of supply and demand promotes the upward fluctuation of oil prices, focusing on private refining and oil service.

(2) Nonferrous: lithium, which is restarting the upward cycle; gold, which benefits from inflation and depreciation of the US dollar; and pays attention to Ganfeng Lithium, Zijin Mining Group, Chifeng Gold and so on.

(3) Coal: the coal price is expected to be high before and after 2021, and the annual average price is slightly lower than that in 2020. Pay attention to three main lines: 1) Australian import restrictions + customs clearance of Mongolian coal epidemic is blocked, short-term supply of coking coal is tight, at the same time, coke production capacity continues to fall to the ground, and the supply and demand pattern is getting better. It is suggested that we should pay attention to Huaibei Mining and Jinneng Technology, which benefit from rising coal prices in the short term and have growth in performance. 2) speed up the national reform, it is recommended to pay attention to Shanxi coking coal, Datong coal industry and southwest leading Panjiang shares; 3) power coal prices hit new highs this year, the fundamentals of the industry continue to improve, and the valuation is still at the bottom of history. It is recommended to pay long-term attention to undervalued blue chip China Shenhua Energy Aqih, Shaanxi coal industry.

(4) Real estate: tighter marginal liquidity and tighter financing supervision, promote the optimization of industry production capacity, and pay attention to Vanke A, Poly Real Estate, Country Garden Services Holdings, Poly property and so on.