• With the overseas liquidity support and attractive valuation, recommend to overweight 3033.HK and 3194 HK.
• Chinese financial sector is highly likely to realize high-profit surprises in the second half of the year. Remain upbeat on 2822.HK, which is heavily invested in core assets.
• The inflation may last for months, so Gold is still attractive for its role of “store of value”.
Money market & Fixed Income
We expect RMB to have the appreciation momentum in the short-term, but it will return interval fluctuations in the medium and long term.
- Economic growth: China’s economic growth continues in spite of the marginal decrease in the growth rate.
- Rate spreads: the US-China 10-year rate spreads have gradually widened recently. We expect that the absolute level of spreads remains at a high level in the short-to-medium term, and it tends to be narrow with US recovery and easing exit of the Fed in the long term.
- Exports: China's export boom continues due to the reopening of global economies and the slow recovery of overseas supply. The recent strength of the RMB has restrained the willingness of enterprises to do exchange settlement. The delayed demand for exchange settlement helps support the RMB exchange rate in the short term.
- Fund flow: Foreign funds continue to flow into RMB assets such as Chinese government bonds and A-share leaders, which formed positive feedback on the RMB exchange rate.
Currently, foreign investors are the second-largest holders of Chinese rate bonds (government bonds of 11.2% and policy bank bonds of 5.5%), and Chinese rate bonds account for 85.6% of foreign Chinese bond exposures. As an asset with almost risk-free, stable interest income, and low correlation, China's rate bonds can provide good risk diversification and a margin of safety for asset allocation.
Related ETFs:
- 3053.HK CSOP Hong Kong Dollar Money Market ETF
- 9096.HK CSOP US Dollar Money Market ETF
- 3122.HK CSOP RMB Money Market ETF
- 3199.HK CSOP Bloomberg Barclays China Treasury + Policy Bank Bond Index ETF
A shares
A-shares rose sharply in mid-to-late May, mainly driven by looser liquidity and expectations of RMB appreciation. However, because of this year's neutral monetary policy and tight credit, the liquidity-led bull market is difficult to sustain.
History told us that liquidity is not the dominant factor in the performance of A-shares. Even though currency and liquidity are both tight, good profit growth can still boost an index bull.
ChiNext has the best earning performance is A-sharemarket. At the beginning of June, the market raised the consensus earnings forecast for the ChiNext Index, making it more attractive at the current valuation level. The growth momentum of ChiNext is relatively high, but earnings forecast are highly volatile. We maintained the overweight rating on 3147.HK.
The CSI 500 Index has a robust and stable performance, and we continue to recommend increasing holdings of 3005.HK.
- Fundamental: The CSI 500 Index is heavily weighted in cyclical, consumption, and technology sector, benefiting from the current economic recovery cycle and technology industry policy dividends;
- Fund Flow: Compared with large-cap stocks such as the CSI 300 Index, the CSI 500 Index has relatively low foreign fund inflow and is less affected by the long-term trend of overseas liquidity tightening. Its pricing power is still in China's domestic market, and China's macro policies remain neutral and stable.
- Valuation: The equity risk premium of the CSI 500 Index is significantly higher than the low point of 2005-07, and the valuation still has room to rise.
In addition, grouping stocks still in correction this year, the market generally do not hold high expectation on these sectors. But the large financial sector is highly likely to realize high-profit surprises in the second half of the year. Remain upbeat on 2822.HK, which is heavily invested in the large financial sector, and it is recommended to buy on dips.
In addition, science and technology innovation is the top priority of the "14th Five-Year Plan", and industrial policies in the chip and biomedical industries are released consecutively. Benefiting from the policy dividend, 3109.HK may have allocation value in the second half of the year
Related ETFs:
- 2822.HK CSOP FTSE China A50 ETF
- 3149.HK CSOP MSCI China A Inclusion Index ETF
- 3005.HK CSOP CSI 500 ETF
- 3147.HK CSOP SZSE ChiNext ETF
- 3109.HKCSOP STAR 50 Index ETF
Hong Kong stocks
It is expected that the Fed will not start to announce the Taper action until the end of this year, and overseas liquidity will continue to benefit the Hong Kong stock market. Both the Hang Seng Index and the Hang SengTECH Index have liquidity support.
In terms of valuation, according to CICC research, although the absolute valuation of HK tech stocks is high, it is still relatively cheap compared with peers. The PEG of the Hang Seng TECH Index is 0.88x, which is lower than 1.76x for the A-shareChiNext and 1.62x for the US Nasdaq.
In terms of sentiment, China's anti-monopoly policy on Internet platforms has continued to advance as the largest source of sentiment shock, but the negative market sentiment has gradually weakened. We expect the anti-monopoly policy to have a limited impact on technology giants. Therefore, we maintain our investment recommendation for 3033.HK.
Related ETFs:
- 3033.HKCSOP Hang Seng TECH IndexETF
- 3037.HKCSOP Hang Seng Index ETF
Thematic
In the post-pandemic era, the digital transformation of enterprises in the ToB field is accelerating and is expected to be the key to the next round of technological dividends. As the infrastructure and necessary conditions for the digital wave, 5G and cloud computing have great industrial value. In addition, according to the financial report for the first quarter, the capital expenditures is growing rapidly for the leading cloud computing companies in China and the United States. We maintain the recommendation to allocate 5G, cloud computing and other technology sectors.
With the support from the long-term goal of carbon neutrality and carbon emissions peak and solar grid parity, China's photovoltaic industry has a high investment value. Although the recent increase in raw material prices has caused disturbances to the entire industry, we believe that it mainly reflects strong demand and redistribution of profits in the industrial chain. The industry leader will gain more market share. We are optimistic about 3134.HK, which covers the entire photovoltaic industry chain and takes the lead in China's photovoltaic industry.
Related ETFs:
- 3167.HK ICBC CSOP S&P NEW CHINA SECTORS ETF
- 3193.HK CSOP Yinhua CSI 5G Communications Theme ETF
- 3194.HK CSOP Global Cloud Computing Technology Index ETF
- 3134.HK CSOP Huatai-PineBridge CSI Photovoltaic Industry ETF