Daily Brief China: Hong Kong Hang Seng Index, Xiaomi Corp, China Longyuan Power, ABM Investama, China Shineway Pharmaceutical and more

• The Hang Seng Index (HSI INDEX) is a blue-chip index that represents the performance of the large cap stocks listed in the Hong Kong Stock Exchange.
• The index is undergoing some significant composition changes and the index provider currently uses a highly subjective constituent selection process which is quite challenging to decode.
• In this insight, we take a look at Quiddity’s approach to solving this Hang Seng constituent selection puzzle and the historical performance of past rebalance events.

• Likely new 4G restrictions will delay Huawei’s ability to launch mid-range offerings at volume. Xiaomi stands to gain 1.2ppts of share in 2024 vs. our prior forecast. 
• However, new limits are long-term negative, as it (1) raises the chance for cascading limits on China 3Cs; (2)  triggers reduced 3C electronics demand; (3) weaker industry electronics demand.
• The impact of the latest set of restrictions will likely prove net negative, in our view, as a result we re-iterate our SELL rating and HK$7.3 TP.

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• January 2023 confirmed a high probability bullish outlook when all 3 pillars were definitively triggered. 
• Monthly Relative Strength Index (RSI) has an incredible multi-year history of confirming large upswings in 916 HK. January completed the 5th such bullish confirmation since 2014. Multi-month target at 12.945. 

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.

• Shineway released good turnover data in 22Q1-Q3. Due to large market demand for COVID-related TCM, 22Q4 performance would remain strong growth momentum, leading to positive outlook of 2022 annual report.
• With the peak of respiratory disease outbreak past and COVID-19 also begins to be under control, demand for related TCM would weaken. Accordingly, the pullback of share price could begin.
• Strong performance of Shineway’s share price may not be sustainable in long term. Shineway is no longer cheap at current valuation. While short-term catalysts remain, future upside may become limited.