Brief China: HLX02: Innovation Could Overtake and more

In this briefing:

1. HLX02: Innovation Could Overtake
2. January Headline Data for China
3. China Housing In The Guangdong – Hong Kong – Macau Greater Bay Area (GBA)
4. Baking in a Trade Deal and China Fade the Fact Levels
5. HK Connect Discovery Weekly: China Tower, Geely, COFCO Meat (2019-02-15)

1. HLX02: Innovation Could Overtake

The oncology treatment landscape in China is evolving rapidly as the government has prioritized access to innovative drugs to meet this significant unmet need. In particular, investors considering the Shanghai Henlius Biotech (1566213D HK) listing should be aware of the emergence of a drug that potentially is superior to Roche Holding AG (ROG SW)‘s Herceptin (and Shanghai Henlius’ HLX02) for the treatment of patients with HER2-positive breast cancer (and ultimately HER2-positive gastric cancer). While there should be good demand for cheaper alternatives to Herceptin, the availability of a superior alternative potentially shortens the lifecycle of Herceptin biosimilars. 

China has only recently “modernized” its drug approval and reimbursement, so there is little precedent to rely upon to estimate the speed and magnitude of changes in the market. As brokers rollout forecasts for the company and HLX02, investors should ask if the numbers somehow reflect this risk.

We do not have a view of the offering, but tag this Insight as Bearish because we are highlighting a potential risk.

2. January Headline Data for China

Sometimes at Balding’s World we explore worm holes of Chinese data. Yes, granular data is awesome, but the global economic calendar should not be overlooked nor headline data taken for granted. To that end today we take a look at some key figures to recently emerge.

3. China Housing In The Guangdong – Hong Kong – Macau Greater Bay Area (GBA)

The long-awaited outline of the development plans for the Guangdong – Hong Kong – Macau Greater Bay Area (GBA) was announced Monday evening local time. In this note, we look at the China housing market dynamics in the key 8-9 cities on the mainland and the land acquisition activity by the major developers.

4. Baking in a Trade Deal and China Fade the Fact Levels

Shanghai composite breakout above 2,650 is a bullish catalyst for HK and pushing into secondary resistance. Typically, a re test of the breakout zone is often seen.

Shanghai A50 futures face a formidable barrier that has capped rally attempts for the last 7 months.

H share and the HSI are both exhibiting signs of distribution into strength. Choppy rising patterns warn that the rise is getting extended with breadth starting to struggle.

Tencent is exhibiting upside momentum deterioration amid divergence.

We question just how much trade deal euphoria is now priced into the HK market (and for that matter global cycle) and must take into account odds of a deadline extension deflating the current rally as the reality sets in that major trade issues remain unsettled.

Any trade deal would give us an exhaustive spike higher while an extension would knock us back to re cycle supports.

5. HK Connect Discovery Weekly: China Tower, Geely, COFCO Meat (2019-02-15)

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this week’s HK Connect Discovery, we highlight the continuous inflow to China Tower prior to lock-up expiry,  positive news development for automobile stocks, and the pork cycle beneficiary.