In this briefing:
- Shanghai/Shenzhen Connect – $8.5 Bn of Inflow in January (Kweichow Moutai, Gree, Midea)
- 2019 Semiconductors: 5%+ Decline
- HK Connect Discovery – January Snapshot
- China Economics: The Bubble that Bursts the Demand
- Share Classifications: Jan 2019 Month-End Snapshot
1. Shanghai/Shenzhen Connect – $8.5 Bn of Inflow in January (Kweichow Moutai, Gree, Midea)
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 Consumer Staples, Financials and Consumer Discretionary names. We estimate that total inflow into A-share market via northbound trade amounted to USD 8.5 bn in January.
Stocks with strong inflows (by quantum) were Kweichow Moutai Co Ltd A (600519 CH), Gree Electric Appliances Inc Of Zhuhai (000651 CH), and Midea Group Co Ltd A (000333 CH). Please read this note together with our coverage for December flow and our coverage for January northbound flow.
2. 2019 Semiconductors: 5%+ Decline
An earlier post outlined the general direction of the Objective Analysis 2019 forecast but didn’t provide any numbers. In this post I explain the 5%+ decrease in revenues that the market will experience and how and why various elements play into that number.
3. HK Connect Discovery – January Snapshot
This is a monthly version of our HK Connect Weekly note, in which I highlight Hong Kong-listed companies leading the southbound flow weekly. Over the past month, we have seen the flow turning from outflow to inflow. Our previous insights published in Jan can be found in the links below. In this insight, we will focus on the month flow to get a bigger picture vs the weekly flow.
Our January Coverage of Hong Kong Connect southbound flow
- HK Connect Discovery Weekly: CR Beer, Great Wall Motors, and Kingsoft (2019-01-07)
- HK Connect Discovery Weekly: China Tower, Tencent, New China Life (2019-01-11)
- HK Connect Discovery Weekly: Tencent, Kingsoft, and Yichang HEC (2019-01-18)
- HK Connect Discovery Weekly: CRRC, Car Inc/ UCar (2019-01-25)
4. China Economics: The Bubble that Bursts the Demand
China’s 4Q GDP grew just 6.4% in Q4, 2018, the lowest since the Global Financial Crisis (GFC). We do not believe the number matched the market expectation, however. Since the GFC, every rebound of the Chinese economy has been accompanied with the rebound of the real estate sector (such as in 2009, in 2012 and in 2016). However, this time is different, in our view. The real estate sector only grew 2% in Q4, 2018, the lowest in 4 years.
If the Chinese government had relaxed its regulation on this sector, China would have grown higher, but that would be at the expense of bigger bubble-driven growth, in our judgment. As we argued before, the consumption growth is closely-corelated with the wealth effect from real estate market. Accordingly, as to the questions such as why the Chinese economy has slowed down, and why Chinese consumption has declined, we believe the answer lies in the real estate sector. As a result, this has become a matter of real estate bubble versus consumption, the debacle we believe will last at least this year.
In addition, the industrial-value added growth, infrastructure investment, electricity generation and retail sales as well, have all marginally rebounded in December. China’s growth may finally rebound in the second quarter of 2019.
5. Share Classifications: Jan 2019 Month-End Snapshot
This month-end share class summary is a companion insight to Travis Lundy‘s H/A Spread & Southbound Monitors and Ke Yan‘s HK Connect Discovery Weeklies.
This share class monitor provides a snapshot of the premium/discounts for various share classifications around the region, and comprises four sets of data:
1. 82 ADRs
2. 104 Korean Prefs
3. 22 Regional Dual Classes
4. 7 Foreign/Local Thai shares
The average premium/discount for each set over a one-year period is graphed below.
![](http://www.smartkarma.com/assets/plugins/a3-lazy-load/assets/images/lazy_placeholder.gif)
Source: CapIQ
For a granular breakdown of each data set, PDFs are attached at the bottom of this insight.
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