HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>2Q22 is a tough quarter for China's consumer discretionary companies. <a href="https://www.smartkarma.com/entities/anta-sports-products-ltd" target="_blank" data-smartkarma-citation="entities:10261:1" rel="noopener">Anta Sports Products (2020 HK)</a> has experienced improvement in recovery in May and Jun, but we see FILA stay challenging.</li>
<li>In its FY22 result, <a href="https://www.smartkarma.com/entities/bosideng-international-holdings-ltd" target="_blank" data-smartkarma-citation="entities:6537:1" rel="noopener">Bosideng International Holdings (3998 HK)</a> demonstrated its resilience in gross margin despite higher input costs. More positive developments are brewing in 2H of this year.</li>
<li>
<a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd" target="_blank" data-smartkarma-citation="entities:7196:1" rel="noopener">Haier Smart Home (600690 CH)</a> has its business rebounding after the lockdown and healthy performance in overseas market should partly mitigate the lockdown-induced weakness in 2Q22.</li>
</ul>


2Q22 is a tough quarter for China's consumer discretionary companies. Anta Sports Products (2020 HK) has experienced improvement in recovery in May and Jun, but we see FILA stay challenging.
In its FY22 result, Bosideng International Holdings (3998 HK) demonstrated its resilience in gross margin despite higher input costs. More positive developments are brewing in 2H of this year.

Haier Smart Home (600690 CH) has its business rebounding after the lockdown and healthy performance in overseas market should partly mitigate the lockdown-induced weakness in 2Q22.


China Consumer Discretionary: Darkness Before Dawn

<ul>
<li>Infrastructure, new energy, consumer discretionary and, to a lesser extent, transportation and logistics are sectors that will benefit from extensive government economic supportive policies over the last few days. </li>
<li>Acceleration of special purpose bonds will drive <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a>. We see <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power (916 HK)</a> and <a href="https://www.smartkarma.com/entities/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric (1072 HK)</a> benefit from new energy initiatives.</li>
<li>
<a href="https://www.smartkarma.com/entities/li-ning-co-ltd" target="_blank" data-smartkarma-citation="entities:6047:1" rel="noopener">Li Ning (2331 HK)</a> will be the near-term winner in the consumer discretionary space and so as <a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd-b3ef445f-0f54-4586-8c58-9073de98d60e" target="_blank" data-smartkarma-citation="entities:31105:1" rel="noopener">Haier Smart Home Co Ltd (6690 HK)</a>.</li>
</ul>


Infrastructure, new energy, consumer discretionary and, to a lesser extent, transportation and logistics are sectors that will benefit from extensive government economic supportive policies over the last few days. 
Acceleration of special purpose bonds will drive China Communications Construction (1800 HK). We see China Longyuan Power (916 HK) and Dongfang Electric (1072 HK) benefit from new energy initiatives.

Li Ning (2331 HK) will be the near-term winner in the consumer discretionary space and so as Haier Smart Home Co Ltd (6690 HK).


Roundup of Government Economic Supportive Policies: Key Winners

<ul>
<li>More policy measures will be rolled out by the Chinese government to support domestic consumption in 2022; and the growing nationalistic trend will benefit leading domestic brands. </li>
<li>Within the consumer discretionary sector, we identify <a href="https://www.smartkarma.com/entities/anta-sports-products-ltd" target="_blank" data-smartkarma-citation="entities:10261:1" rel="noopener">Anta Sports Products (2020 HK)</a>, <a href="https://www.smartkarma.com/entities/bosideng-international-holdings-ltd" target="_blank" data-smartkarma-citation="entities:6537:1" rel="noopener">Bosideng International Holdings (3998 HK)</a> and <a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd-b3ef445f-0f54-4586-8c58-9073de98d60e" target="_blank" data-smartkarma-citation="entities:31105:1" rel="noopener">Haier Smart Home (6690 HK)</a> as the prime beneficiaries of this trend.</li>
<li>All of them are leaders in their respective sub-segment, have exemplary competitive edges against foreign players and are investing heavily in technology and distribution to solidify their moats. </li>
</ul>


More policy measures will be rolled out by the Chinese government to support domestic consumption in 2022; and the growing nationalistic trend will benefit leading domestic brands. 
Within the consumer discretionary sector, we identify Anta Sports Products (2020 HK), Bosideng International Holdings (3998 HK) and Haier Smart Home (6690 HK) as the prime beneficiaries of this trend.
All of them are leaders in their respective sub-segment, have exemplary competitive edges against foreign players and are investing heavily in technology and distribution to solidify their moats. 


China Consumer Discretionary: Beneficiaries of The Nationalistic Trend

<ul>
<li>The sharp surge in Omicron-driven local cases has driven more stringent measures by local governments. On ground in Shanghai, we see more tightened measures being implemented over the weekend. </li>
<li>The measures will reduce a lot of foot traffic and lower discretionary spending appetite in Mar, and this will negatively weigh on many 1Q22 results to be announced in late-Apr. </li>
<li>We advocate a long staples, short discretionary strategy in the near term. Also, travel sector will be hit, and on net-net basis, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> looks to be a loser.</li>
</ul>


The sharp surge in Omicron-driven local cases has driven more stringent measures by local governments. On ground in Shanghai, we see more tightened measures being implemented over the weekend. 
The measures will reduce a lot of foot traffic and lower discretionary spending appetite in Mar, and this will negatively weigh on many 1Q22 results to be announced in late-Apr. 
We advocate a long staples, short discretionary strategy in the near term. Also, travel sector will be hit, and on net-net basis, Meituan (3690 HK) looks to be a loser.


China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

Asia Pac ECM and Index Rebal, Shenton Research

Ke Yan, CFA, FRM

Asia Pac ECM and Index Rebal

Asia Pac IPO & Placement Research, China Biotech

DZT Research

DZT Research is an independent Asia Pacific equity specialist. Our quantitative research covers index rebalancing flows, alongside exchange data analytics accross Asia Pacific. On the equity capital markets side, we focus on Asia Pacific ECM, especially biotech and TMT. Our lead analyst is frequently cited by international media.

Quantitative Analysis

<ul>
<li>We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of July 17th.</li>
<li>The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.</li>
<li>We highlight flows for Knowledge Atlas, Alibaba, Ntes, Iluvatar Corex, Gigadevice, Kingboard Laminates, Tencent, Sinopec, Hua Hong Semi.</li>
</ul>


We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of July 17th.
The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.
We highlight flows for Knowledge Atlas, Alibaba, Ntes, Iluvatar Corex, Gigadevice, Kingboard Laminates, Tencent, Sinopec, Hua Hong Semi.


HK Connect Flows Weekly (Jul 17th): Knowledge Atlas, Alibaba, Ntes, Iluvatar Corex, Gigadevice

China

ANTA Sports designs, develops, manufactures, and markets professional sports products, including footwear, apparel, and accessories. The company operates a multi-brand portfolio that includes ANTA, FILA (in China), DESCENTE, KOLON SPORT, and JACK WOLFSKIN, and is the largest shareholder of Amer Sports. It was founded in 1991 and is headquartered in Jinjiang, Fujian, China.

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ANTA Sports (2020 HK)

China Consumer Discretionary: Darkness Before Dawn

The Covid-induced lockdowns have brought headwinds to China consumer discretionary names in 2Q22, but we are seeing a gradual recovery with...

Osbert Tang, CFA

Roundup of Government Economic Supportive Policies: Key Winners

We expect the government economic supportive policies released in the last few days to drive the infrastructure, new energy, consumer discretionary...

Osbert Tang, CFA

China Consumer Discretionary: Beneficiaries of The Nationalistic Trend

We identify Anta Sports, Bosideng and Haier Smart Home as the beneficiaries of rising nationalistic trend of China's consumer discretionary sector...

Osbert Tang, CFA

China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

Omicron combating measures have been stepped up over the weekend and this will make a dent on the Mar operations of many companies. This will be...

Osbert Tang, CFA

HK Connect Flows Weekly (Jul 17th): Knowledge Atlas, Alibaba, Ntes, Iluvatar Corex, Gigadevice

We analyzed southbound Hong Kong connect flows in the past week and highlighted flows for Knowledge Atlas (2513 HK), Alibaba (9988 HK), Ntes (9999...

Ke Yan, CFA, FRM

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