HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Disappointing FY22 result from raw milk company <a href="https://www.smartkarma.com/entities/austasia-group-ltd" target="_blank" data-smartkarma-citation="entities:36655:1" rel="noopener">AustAsia Group (2425 HK)</a> should be well expected, but the issue is its guidance that FY23 industry outlook will stay challenging. </li>
<li>Raw milk price is still coming down and 1H23 dairy product demand recovery is slow. Capacity influx will disrupt demand-supply balance, but feed costs pressure seems to have moderated. </li>
<li>Consensus profit projections for the sector are overly optimistic and there is earnings downgrade risk after FY22 result announcement. We will shy away in the near term.</li>
</ul>


Disappointing FY22 result from raw milk company AustAsia Group (2425 HK) should be well expected, but the issue is its guidance that FY23 industry outlook will stay challenging. 
Raw milk price is still coming down and 1H23 dairy product demand recovery is slow. Capacity influx will disrupt demand-supply balance, but feed costs pressure seems to have moderated. 
Consensus profit projections for the sector are overly optimistic and there is earnings downgrade risk after FY22 result announcement. We will shy away in the near term.


China Raw Milk Industry: Takeaways from AustAsia (2425 HK) Call

<ul>
<li>With an average gain of 26.3%, China's A-share consumer staples outperformed the Shanghai Composite Index by significant margins in the last three months.</li>
<li>
<a href="https://www.smartkarma.com/entities/shanxi-xinghuacun-fen-wine-factory-co" target="_blank" data-smartkarma-citation="entities:9288:1" rel="noopener">Shanxi Xinghuacun Fen Wine Factory Co (600809 CH)</a> and <a href="https://www.smartkarma.com/entities/fu-jian-anjoy-foods-co-ltd" target="_blank" data-smartkarma-citation="entities:30110:1" rel="noopener">Fu Jian Anjoy Foods Co Ltd (603345 CH)</a> both issued express announcement on decent 4Q22 and FY22 results.</li>
<li>Both <a href="https://www.smartkarma.com/entities/foshan-haitian-flavouring-food-co-ltd" target="_blank" data-smartkarma-citation="entities:15577:1" rel="noopener">Foshan Haitian Flavouring &amp; Food (603288 CH)</a> and <a href="https://www.smartkarma.com/entities/inner-mongolia-yili-indus-a" target="_blank" data-smartkarma-citation="entities:3220:1" rel="noopener">Inner Mongolia Yili Industrial Group (A) (600887 CH)</a> are likely to have weak 4Q22, but outlook for FY23 should improve.</li>
</ul>


With an average gain of 26.3%, China's A-share consumer staples outperformed the Shanghai Composite Index by significant margins in the last three months.

Shanxi Xinghuacun Fen Wine Factory Co (600809 CH) and Fu Jian Anjoy Foods Co Ltd (603345 CH) both issued express announcement on decent 4Q22 and FY22 results.
Both Foshan Haitian Flavouring &amp; Food (603288 CH) and Inner Mongolia Yili Industrial Group (A) (600887 CH) are likely to have weak 4Q22, but outlook for FY23 should improve.


China A-Share Consumer Staples: Good Outperformance

<ul>
<li>While China's U-turn on COVID policy is expected to bring consumption rebound in 2023, the near-term surge in infections will weigh negatively on retail sales in Dec and Jan.</li>
<li>Residents are spending more time at home in the first wave, with subways and shopping malls empty. We think this will cast negativity on 4Q22 and 1Q23 consumer discretionary profit.</li>
<li>It is prudent to take some monies off the table, particularly F&amp;B stocks like <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao (6862 HK)</a>, <a href="https://www.smartkarma.com/entities/xiabuxiabu-catering-mgt-chn-hldgs-co-ltd" target="_blank" data-smartkarma-citation="entities:76:1" rel="noopener">Xiabuxiabu (520 HK)</a> and <a href="https://www.smartkarma.com/entities/helen-s-international-holdings" target="_blank" data-smartkarma-citation="entities:34113:1" rel="noopener">Helen's (9869 HK)</a> which have almost doubled from trough.</li>
</ul>


While China's U-turn on COVID policy is expected to bring consumption rebound in 2023, the near-term surge in infections will weigh negatively on retail sales in Dec and Jan.
Residents are spending more time at home in the first wave, with subways and shopping malls empty. We think this will cast negativity on 4Q22 and 1Q23 consumer discretionary profit.
It is prudent to take some monies off the table, particularly F&amp;B stocks like Haidilao (6862 HK), Xiabuxiabu (520 HK) and Helen's (9869 HK) which have almost doubled from trough.


China COVID Policy: Near-Term Pains for Consumer Discretionary

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<ul>
<li>The growth in China A-Share exposure has slowed as we approach full ownership across the EM active fund universe.</li>
<li>China A-Share allocations have remained solid throughout this year’s volatility and heavy country rotation.</li>
<li>Midea Group, Kweichow Moutai and Contemporary Amperex Technology remain the most widely held stocks, but others are starting to make their mark.</li>
</ul>


The growth in China A-Share exposure has slowed as we approach full ownership across the EM active fund universe.
China A-Share allocations have remained solid throughout this year’s volatility and heavy country rotation.
Midea Group, Kweichow Moutai and Contemporary Amperex Technology remain the most widely held stocks, but others are starting to make their mark.


China A-Share Deep Dive:  Growth Slows, but EM Funds Remain Well Invested

<ul>
<li>Agricultural Commodities have experienced a surge in ownership among active China investors. Average weights are at all-time highs as a record number of funds gain exposure to the sector.</li>
<li>Among industry peers, Agricultural Commodities saw some of the strongest ownership growth over the last 6-month period, with 9.3% of managers opening new exposure.</li>
<li>Inner Mongolia Yili was the key driver behind the move, though Yuan Longping High-Tech and Muyuan Foodstuff also saw investment levels rise.</li>
</ul>


Agricultural Commodities have experienced a surge in ownership among active China investors. Average weights are at all-time highs as a record number of funds gain exposure to the sector.
Among industry peers, Agricultural Commodities saw some of the strongest ownership growth over the last 6-month period, with 9.3% of managers opening new exposure.
Inner Mongolia Yili was the key driver behind the move, though Yuan Longping High-Tech and Muyuan Foodstuff also saw investment levels rise.


China Funds:  Agricultural Commodities Spike

China

Inner Mongolia Yili Industrial Group Co., Ltd. produces milk, powdered milk, ice cream, and other dairy products.  The Company also produces frozen food and noodles.

Inner Mongolia Yili Industrial Group (A) (600887 CH)

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Inner Mongolia Yili Industrial Group (A) (600887 CH)

China Raw Milk Industry: Takeaways from AustAsia (2425 HK) Call

Outlook for the raw milk industry stays challenging in FY23. Raw milk price is still coming down, 1H23 dairy product demand recovery is slow and...

Osbert Tang, CFA

China COVID Policy: Near-Term Pains for Consumer Discretionary

Near-term negative impact of China's U-turn in COVID policy on consumer discretionary has been underestimated by the market. It is prudent to take...

Osbert Tang, CFA

China Funds: Agricultural Commodities Spike

Agricultural Commodities have experienced a surge in ownership among active China investors. Average weights are at all-time highs as a record...

Steven Holden

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Raw Milk Industry: Takeaways from AustAsia (2425 HK) Call

Outlook for the raw milk industry stays challenging in FY23. Raw milk price is still coming down, 1H23 dairy product demand recovery is slow and...

Osbert Tang, CFA

China A-Share Consumer Staples: Good Outperformance

China's A-share consumer staples outperformed the Shanghai Composite Index by significant margins in the last three months; and we expect their...

Osbert Tang, CFA

China COVID Policy: Near-Term Pains for Consumer Discretionary

Near-term negative impact of China's U-turn in COVID policy on consumer discretionary has been underestimated by the market. It is prudent to take...

Osbert Tang, CFA

China A-Share Deep Dive: Growth Slows, but EM Funds Remain Well Invested

China A-Share exposure has seen tremendous growth over the last decade, yet the rate of ownership growth has slowed this year. In this piece we...

Steven Holden

China Funds: Agricultural Commodities Spike

Agricultural Commodities have experienced a surge in ownership among active China investors. Average weights are at all-time highs as a record...

Steven Holden