In this briefing:
- Shanghai/Shenzhen Connect – $8.4 Bn Inflows in February (Kweichow Moutai, Aier Eye, Luxshare)
- China – Eurozone Negative Feedback Loop.
- Non-Performing Loans in China
- Sea Ltd Placement – Capitalizing on Momentum
- ’Fake News’ Threatens China’s Rally
1. Shanghai/Shenzhen Connect – $8.4 Bn Inflows in February (Kweichow Moutai, Aier Eye, Luxshare)
In our Discover SZ/SH Connect series, we aim to help our investors understand the flow of northbound trades via the Shanghai Connect and Shenzhen Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by offshore investors in the past seven days.
We split the stocks eligible for the northbound trade into three groups: those with a market capitalization of above USD 5 billion, and those with a market capitalization between USD 1 billion and USD 5 billion.
We note that offshore investors were buying all GICS sectors, and had a strong preference for Industrials, Consumer Staples, Consumer Discretionary, and Financials names. We estimate that total inflow into the A-share market via northbound trade amounted to USD 8.4 bn in February.
2. China – Eurozone Negative Feedback Loop.
Historically, Germany and China have depended on exports to lead growth. With the US unwilling to play the role of consumer of last resort and being determined to limit its current account deficit, this avenue is not available anymore. In the absence of a rethink by German policy makers as to how to make German growth more self -sustaining a deflationary feedback loop is developing between the EU and China.
3. Non-Performing Loans in China
We have all seen the think-pieces in western media talking about China’s economic slowdown. Much of content that western audiences understandably focus on is the effect the trade war has on the downturn. However, we ran across a piece of data entirely driven by China that gives us pause. The amount of non-performing loans has only continued to increase. Yet, according to a trusted source 2 trillion RMB has been shifted off of the books in China. This tells us that China cannot do enough to get rid of NPLs.
4. Sea Ltd Placement – Capitalizing on Momentum
Sea Ltd (SE US) is looking to raise about US$1.2bn in its upcoming placement. It will be larger than its IPO in 2017, which raised about US$880m.
The deal scores well on our framework owing to decent valuation, strong price and earnings momentum but had little track record for comparison. The company announced a strong set of FY2018/Q4 2018 results which had beaten estimates.
Even though, the deal size is large, representing 23.2 days of three-month ADV, there is enough time between the announcement to the end of the bookbuild to price in the impact of the placement.
5. ’Fake News’ Threatens China’s Rally
- Widely held view that Chinese eased ‘massively’ in January 2019 – it did NOT
- According to latest daily Open Market Operations little change through February
- Liquidity matters hugely (China contributes around one-fifth of Global Liquidity)
- We still expect PBoC easing over coming weeks and continue to favour Chinese markets
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