“The coordinated announcements by the People’s Bank of China, China Securities Regulatory Commission, and National Financial Regulatory Administration to introduce a comprehensive stimulus package on 24 September reflected Beijing’s stronger sense of urgency and more proactive easing stance to defuse deflation risks and restore market confidence. The scale and pace of policy easing has exceeded conservative market expectations.”
“The unexpected lowering of the downpayment ratio for second home purchases to 15% from 25% in alignment with first home mortgage may signal a notable policy shift away from the longstanding stance of “housing is for living only”. The enhanced RMB300bn relending facility for affordable housing should help accelerate the destocking of unsold inventory.”
“We stay neutral on mainland China and Hong Kong equities and see tactical opportunities from undervalued quality industry leaders with strong earnings and high potential to enhance shareholder returns by increasing dividends payout and share buybacks. The Hang Seng Index and MSCI China Index are trading at 9.4x and 9.5x 12-month forward earnings, respectively, representing steep valuation discounts to the to the MSCI World’s 20x forward P/E and S&P 500’s 21.7x forward P/E.”
“We expect broader-than-expected policy stimulus could support a near-term tactical rally of mainland China and Hong Kong stocks like the market rebound in April-May 2024. However, the sustainability of the tactical rally will depend on the improvement in activity data and earnings momentum following the policy announcement.”
“We like quality Chinese SOEs paying high dividends, blue chip internet leaders with solid earnings and big valuation discounts to their global peers. In Hong Kong, we favour undervalued high dividend stocks in the insurance, telecom, and utilities sectors and select oversold property developers with strong balance sheets.”
“On fixed income, we expect the low-for-longer rate environment will support Chinese IG bonds but we see limited downside space for 10-year CGB yield from the current historical low of 2.0%. We stay neutral on Chinese local currency bonds and hard currency bonds. We maintain our neutral view on USD-RMB with end-2024 forecast of 7.20.“
