HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Foreign exchange gains/losses are major swing factors in FY22 results of many companies and we think investors may have overlooked their importance in driving FY23 earnings. </li>
<li>With Rmb/USD exchange rate appreciated YTD, reversing the 8.5% depreciation in last year, the demons of many companies in last year will become positive earnings contributor. </li>
<li>
<a href="https://www.smartkarma.com/entities/shenzhen-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen International (152 HK)</a>, <a href="https://www.smartkarma.com/entities/enn-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:316:1" rel="noopener">ENN Energy (2688 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway (548 HK)</a> and <a href="https://www.smartkarma.com/entities/kunlun-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:10054:1" rel="noopener">Kunlun Energy (135 HK)</a> are key beneficiaries, while <a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric (3899 HK)</a> may turned into exchange losses.</li>
</ul>


Foreign exchange gains/losses are major swing factors in FY22 results of many companies and we think investors may have overlooked their importance in driving FY23 earnings. 
With Rmb/USD exchange rate appreciated YTD, reversing the 8.5% depreciation in last year, the demons of many companies in last year will become positive earnings contributor. 

Shenzhen International (152 HK), ENN Energy (2688 HK), Shenzhen Expressway (548 HK) and Kunlun Energy (135 HK) are key beneficiaries, while CIMC Enric (3899 HK) may turned into exchange losses.


China Strategy: It Is the Foreign Exchange Impact, Stupid!

<ul>
<li>Although 5% GDP growth target for 2023 is at the low end of market speculation of 5.5-6%, we think this reflects the government's conservative stance amid post-COVID recovery. </li>
<li>A 0.2pp higher budget deficit and a special purpose bond quota of Rmb3.8trn suggested that government spending will stay as important economic driver.</li>
<li>Consumption is another major stimulus for economic growth, and more supportive measures will be rolled out - we have seen many cities planning to hand out consumption vouchers.</li>
</ul>


Although 5% GDP growth target for 2023 is at the low end of market speculation of 5.5-6%, we think this reflects the government's conservative stance amid post-COVID recovery. 
A 0.2pp higher budget deficit and a special purpose bond quota of Rmb3.8trn suggested that government spending will stay as important economic driver.
Consumption is another major stimulus for economic growth, and more supportive measures will be rolled out - we have seen many cities planning to hand out consumption vouchers.


China NPC: Implications of Government Working Report 2023

<ul>
<li>China's 0.4% GDP growth for 2Q22 is disappointing and worse than market expectation. To revive the economic outlook in 2H22, more policy measures are expected to be put in place. </li>
<li>Over the last two weeks, policies on expansion of highway network, increase in urbanisation level, support on auto consumption and promotion of sports activities have already been announced.</li>
<li>We identify <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>, <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>, <a href="https://www.smartkarma.com/entities/china-east-education-holdings" target="_blank" data-smartkarma-citation="entities:27843:1" rel="noopener">China East Education (667 HK)</a>, <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group (881 HK)</a> and <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> as beneficiaries.</li>
</ul>


China's 0.4% GDP growth for 2Q22 is disappointing and worse than market expectation. To revive the economic outlook in 2H22, more policy measures are expected to be put in place. 
Over the last two weeks, policies on expansion of highway network, increase in urbanisation level, support on auto consumption and promotion of sports activities have already been announced.
We identify China Communications Construction (1800 HK), Haier Smart Home (6690 HK), China East Education (667 HK), Zhongsheng Group (881 HK) and Anta Sports Products (2020 HK) as beneficiaries.


China Stimulus: Beneficiaries from a Policy Perspective

Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

<p>For our next Webinar, we are excited to welcome Analysts <a href="https://www.smartkarma.com/profiles/said-desaque" target="_blank" data-smartkarma-citation="accounts:1107" rel="noopener">Said Desaque</a> and <a href="https://www.smartkarma.com/profiles/osbert-tang-cfa" target="_blank" data-smartkarma-citation="accounts:3879" rel="noopener">Osbert Tang, CFA</a> , who will go over China's latest potential $220 billion stimulus through a massive sale of special bonds. The Analysts will each present their views on the situation and a Q&amp;A will follow.</p>
<h3>The webinar was hosted on Wednesday, 13 July 2022, 17:00 SGT/HKT.</h3>
<p>Subscribe to our podcast feed and listen to the session on the go:</p>
<p><iframe src="https://open.spotify.com/embed/episode/5vGxVSGzl0Izwsa0swFIBi?utm_source=generator" width="100%" height="232" style="border-radius: 12px;" frameborder="0" allowfullscreen="allowfullscreen" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture"></iframe>Said DeSaque is a professional economist with over 33 years of experience covering the global economy, with significant expertise in the US, China, Japan, and emerging markets. He worked with US investment banks for 25 years covering institutional investors in Europe, Middle East, Far East and Australia. He covers financial markets on a multi-asset basis, and has been an independent economist covering the global economy and financial markets for the past 8 years since founding DeSaque Macro Research in London.</p>
<p>Osbert Tang is an equity analyst with over 20 years of experience, focusing on China transport, infrastructure, industrials, and utilities. He has been based in Shanghai since 2003, where he accumulated more than 15 years of on-ground knowledge on the Chinese economy and financial markets, and has a wealth of contacts with China corporates and government entities.</p>

For our next Webinar, we are excited to welcome Analysts Said Desaque and Osbert Tang, CFA , who will go over China's latest potential $220 billion stimulus through a massive sale of special bonds. The Analysts will each present their views on the situation and a Q&amp;A will follow.
The webinar was hosted on Wednesday, 13 July 2022, 17:00 SGT/HKT.
Subscribe to our podcast feed and listen to the session on the go:
Said DeSaque is a professional economist with over 33 years of experience covering the global economy, with significant expertise in the US, China, Japan, and emerging markets. He worked with US investment banks for 25 years covering institutional investors in Europe, Middle East, Far East and Australia. He covers financial markets on a multi-asset basis, and has been an independent economist covering the global economy and financial markets for the past 8 years since founding DeSaque Macro Research in London.
Osbert Tang is an equity analyst with over 20 years of experience, focusing on China transport, infrastructure, industrials, and utilities. He has been based in Shanghai since 2003, where he accumulated more than 15 years of on-ground knowledge on the Chinese economy and financial markets, and has a wealth of contacts with China corporates and government entities.

Smartkarma Webinar | Understanding China's Latest Stimulus

<ul>
<li>China may bring ahead quota for special purpose bond issuance in 2023 to 2H22. This may potentially at Rmb1.5trn (US$220bn), which will provide big boost to the economy.</li>
<li>For 5M22, the three most important areas of spending of local government bond proceeds are urban construction and industrial park, social services and transport infrastructure.</li>
<li>
<a href="https://www.smartkarma.com/entities/china-state-construction-int-l-holdings" target="_blank" data-smartkarma-citation="entities:10038:1" rel="noopener">China State Construction Int'l (3311 HK)</a>, <a href="https://www.smartkarma.com/entities/anhui-conch-cement-co-ltd" target="_blank" data-smartkarma-citation="entities:159:1" rel="noopener">Anhui Conch Cement (914 HK)</a>, <a href="https://www.smartkarma.com/entities/china-railway-group-ltd-h" target="_blank" data-smartkarma-citation="entities:264:1" rel="noopener">China Railway Group (390 HK)</a>, <a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture (586 HK)</a> and <a href="https://www.smartkarma.com/entities/anta-sports-products-ltd" target="_blank" data-smartkarma-citation="entities:10261:1" rel="noopener">Anta Sports (2020 HK)</a> are the top picks.</li>
</ul>


China may bring ahead quota for special purpose bond issuance in 2023 to 2H22. This may potentially at Rmb1.5trn (US$220bn), which will provide big boost to the economy.
For 5M22, the three most important areas of spending of local government bond proceeds are urban construction and industrial park, social services and transport infrastructure.

China State Construction Int'l (3311 HK), Anhui Conch Cement (914 HK), China Railway Group (390 HK), China Conch Venture (586 HK) and Anta Sports (2020 HK) are the top picks.


China Stimulus: These Are the Key Beneficiaries

China

China Communications Construction is a multinational engineering and construction company primarily engaged in the investment, design, construction, and operation of large-scale infrastructure assets, including ports, roads, bridges, railways, and airports. It also provides dredging services and equipment manufacturing. The company is headquartered in Beijing, China, and was established in 2005.

China Communications Construction (1800 HK)

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China Communications Construction (1800 HK)

China Strategy: It Is the Foreign Exchange Impact, Stupid!

Shenzhen Intl, ENN Energy, Shenzhen Expressway and Kunlun Energy are the key beneficiaries of the reverse in Rmb/USD depreciation trend in FY23,...

Osbert Tang, CFA

China NPC: Implications of Government Working Report 2023

A 0.2pp higher budget deficit and a Rmb3.8trn special purpose bond quota suggested government spending will remain important economic driver. More...

Osbert Tang, CFA

China Stimulus: Beneficiaries from a Policy Perspective

Added to the beneficiaries from special purpose bonds issue, we identify more beneficiaries based on the latest government policies for stimulating...

Osbert Tang, CFA

Smartkarma Webinar | Understanding China's Latest Stimulus

On 13 July, 5pm SGT, join our Webinar on China's latest potential stimulus, featuring Analysts Said Desaque and Osbert Tang.

Smartkarma Research

China Stimulus: These Are the Key Beneficiaries

Potential massive special purpose bond issuance by local governments in 2H22 (brought forward from 2023) will provide a much-needed boost to the...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

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