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CICC International: Fed rate cut is favorable for emerging markets; dividend-paying stocks are the focus of Hong Kong stocks.

The United States is entering a period of interest rate cuts, and investors believe that bonds can be deployed for investment. Zhang Haoen, the investment director of personal and commercial banking at Shinhan International, stated that the bank's high net worth clients have been looking for high-grade bonds with slightly lower prices than face value and longer maturities, including even U.S. Treasury bonds. For investors looking to build a balanced portfolio, a ratio of 35% stocks, 60% bonds, and 5% gold assets can be considered. Zhang Haoen stated that the outlook for European and American bonds and investment-grade bonds is positive. After the Federal Reserve establishes rate cuts, it can reassess U.S. Treasury bonds, but attention should be paid to whether the policies of the next U.S. president will change market inflation expectations. It is recommended to slightly increase the maturity of U.S. Treasury bonds from the previous recommendation of 4 to 5 years to between 5 and 7 years. Rate cuts are favorable for emerging markets, including Asia, and the outlook for Asian investment-grade bonds is positive. European and American stock holdings can include the healthcare sector Regarding stocks, Zhang Haoen mentioned that investors willing to take risks and withstand market volatility can choose high dividend stocks. Europe reduced interest rates for the second time last week, with the reduction in marginal lending rates greater than the benchmark rate, indicating that Europe will continue to cut rates, which will benefit asset markets. Financial stocks (insurance, asset management), healthcare, energy, and other stable dividend-paying stocks are recommended. As for U.S. stocks, with the Federal Reserve meeting soon and the U.S. presidential election in November, there may be adjustments in the U.S. stock market. Defensive sector stocks can be included in asset allocation, such as healthcare. For Hong Kong stocks, Zhang Haoen believes that dividend-paying stocks, including domestic banks, domestic insurers, Chinese telecom, and energy stocks, are the focus. In the technology sector, some large cap stocks, mobile gaming, and consumer platform stocks may not pay dividends, but with rate cuts in Europe and the U.S., funds will flow into Asia, such as Japan, Taiwan, and Korea. As long as funds continue to stay in Asia, there is a chance to pay attention to undervalued Hong Kong stocks that could benefit from these large cap technology stocks. Hong Kong stocks recommended for utilities and Chinese telecom stocks EB SECURITIES international securities strategist Wu Lixin stated that Hong Kong's utilities, Chinese telecom, and gold mining stocks are sectors that may benefit from future rate cuts. These first two sectors, under the backdrop of U.S. rate cuts, have greater potential for attractive returns compared to U.S. bonds. For investors looking for long-term income, China Mobile Limited (00941) and CLP HOLDINGS (00002) can be considered; for investors seeking both income and stock price performance, they can consider China Telecom Corporation (00728). In terms of bonds, Wu Lixin believes that international bank bonds, Asian investment-grade bonds, and U.S. Treasury bonds should be considered. As the market expects a total of 2.5% rate cuts in the coming two years, the trend of bond prices rising in the future is viewed positively. In terms of commodities, he believes that gold prices still have the opportunity to continue to reach new highs by the end of the year, and he recommends a neutral investment portfolio with a ratio of 40% stocks, 40% bonds, and 20% commodities.
16/09/2024

Furui: KUAISHOU-W (01024) rated as "buy" with a target price of 70 Hong Kong dollars.

Furu released a research report stating that it rates KUAISHOU-W (01024) as a "buy" with a target price of HK$70. The company focuses on marketing capabilities, pricing and promotion, compared to its peers, the company has a lower proportion of subsidies for goods; it can also provide differentiated content and features. In addition, for businesses, it is very important for the company to reduce operating costs to drive the growth of total transaction volume. The report also pointed out that the company has multiple profit models, mainly through closed-loop marketing. In terms of external marketing, the company's brand marketing drives sales in three aspects; in terms of closed-loop marketing, it emphasizes comprehensive platform marketing, intelligent hosts, and uses short videos to drive live streaming traffic. Its comprehensive platform marketing solution can help businesses maximize the total transaction amount of goods, increasing customer penetration rate and average consumption amount by 25 percentage points and 20 percentage points respectively compared to the same period last year.
16/09/2024

Goldman Sachs: lowers target price for local Hong Kong banks, maintains a "sell" rating for Hang Seng Bank (00011)

Goldman Sachs released a research report stating that, after factoring in the loss expectations for HANG SENG BANK, the average earnings per share forecast for local banks in Hong Kong for the fiscal years 2024 to 2025 will decrease by 5%-8%, while earnings per share for the 2026 fiscal year will remain relatively unchanged. They maintained a "buy" rating for STANCHART (02888), BOC HONG KONG (02388), and HSBC HOLDINGS (00005), and a "sell" rating for HANG SENG BANK (00011). The report pointed out that due to the risk exposure of commercial real estate in both Hong Kong and mainland China, the non-performing loans of local banks in Hong Kong have been increasing. HANG SENG BANK's non-performing loan ratio hit a new high in the first half of this year for the past 30 years. In terms of commercial real estate in Hong Kong, the implied non-performing loan ratio has been increasing, accounting for 14% of the total debt of commercial real estate in Hong Kong, with small and medium-sized enterprises accounting for 55%. Furthermore, if the bank assumes the worst-case scenario, whereby EBIT decreases by 25% or 50% from the 2023 fiscal year level, the implied non-performing loan ratio could further rise to 22% and 39%, exceeding the peak of the ASIA FINANCIAL storm. The bank further pointed out that, taking into account factors such as HSBC's experience during the ASIA FINANCIAL storm, the expected credit losses for commercial real estate loans in Hong Kong are expected to rise to 3.5% from the fiscal year 2024 to 2025. This means that, under baseline and bearish forecasts, the unrevised earnings per share could face downward risks of 8% and 25% respectively, with local small banks in Hong Kong being the most affected and Standard Chartered being the least affected.
16/09/2024

Goldman Sachs: Giving KUAISHOU-W (01024) a "buy" rating, with a target price of 67 Hong Kong dollars.

Goldman Sachs has released a research report stating that it has given a "buy" rating to KUAISHOU-W (01024) with a target price of 67 Hong Kong dollars. The company's goal is to achieve growth through scale, retention, and revenue, that is, expanding the user base and retaining high-quality users, and further realizing monetization and synergistic goals across multiple business lines. Differentiation in content and community remains a key strength of the company. The report indicates that the company's local services business continues to make progress, with a focus on lower-tier cities and suburban areas of first-tier cities, while increasing monetization efforts alongside expanding the user base. In addition, the company's current overseas business is mainly concentrated in the restructured Brazil, and is expected to achieve break-even in 2025.
16/09/2024

BOCOM INTL: Maintain "Buy" rating on KUAISHOU-W (01024) with a target price of HK$54.

BOCOM INTL released a research report stating that it maintains a "buy" rating on KUAISHOU-W (01024) with a target price of 54 Hong Kong dollars. The company's AI empowerment upgrades its existing businesses, opening up opportunities for commercialization in both the 2C and 2B sectors. The report points out that in the community ecosystem, the company maintains differentiated content supply and introduces innovative gameplay to enhance user interaction and participation. Through AI-powered content identification and understanding, the company promotes the integration of user value and commercial value in content delivery. In terms of e-commerce, based on various operating fields, the company enhances purchasing intentions, with the GPM of live broadcast public domain increasing by 18% year-on-year in the second quarter, and the GMV of short videos increasing by 50% year-on-year. In terms of internal circulation, AI-powered product capabilities continue to iterate, with the penetration rate of site-wide promotion and intelligent hosting customers continuously increasing. In terms of external circulation, the company focuses on tracks suitable for KUAISHOU-W users' endowments, such as short dramas/novels/small games. Furthermore, the company's local life business maintains rapid growth on both the supply and demand sides, while its overseas expansion continues to focus on commercialization in core countries.
16/09/2024

CMBC International: Maintains "Buy" rating on KUAISHOU-W (01024) with a target price of HK$92.

China Merchants International released a research report stating that it maintains a "buy" rating on KUAISHOU-W(01024) with a target price of HK$92. The company's current 8 times 2024 fiscal year forecast Non-GAAP P/E ratio is very attractive; advertising and e-commerce businesses continue to maintain revenue growth faster than the industry average, while leveraging effects drive strong profit growth. The report points out that the healthy development of Kuaishou's user ecosystem will drive ecosystem growth through three aspects: increasing activity, improving user retention, and strengthening the synergy between content and commercialization. In the future, the company will continue to strengthen its e-commerce strategy of "good content + good products." In terms of commercialization, the efficiency of internal circulation advertising commercialization continues to improve, while external circulation advertising benefits from incremental demand in industries such as short videos, games, and novels, maintaining resilient growth. On the financial side, thanks to optimization of gross profit margin and sales expense ratio, the company's adjusted net profit margin is expected to increase to over 20% in the future.
16/09/2024

Morgan Stanley: Maintains "Overweight" rating on AKESO (09926) with target price raised to HK$78.

Morgan Stanley released a research report stating that it maintains a "buy" rating for AKESO (09926) and has raised the target price from HK$64 to HK$78. The data from the HARMONi-2 trial far exceeded expectations, and due to the strong data from HARMONi-2 and the consistency in safety, the company's revenue model has been adjusted to reflect overseas revenue contributions. The company's loss forecast for this year has been revised down by 30%, next year's loss forecast by 17%, and the profit forecast for 2026 has been raised by 13%.
16/09/2024

Goldman Sachs maintains a "buy" rating on Hong Kong Exchanges and Clearing Limited (00388) with a target price lowered to HKD 306.

Goldman Sachs released a research report, maintaining a "buy" rating on Hong Kong Exchanges and Clearing Limited (00388) with a target price lowered to 306 Hong Kong dollars, equivalent to a forecasted 2025 P/E ratio of 35 times; profit per share for 2024 to 2026 is respectively lowered by 2%, 4%, and 5% to reflect trading volume in August and since September.
16/09/2024

Guosen: The overall operation of outbound chain is flat, embracing high-quality leading companies with outstanding member traffic.

Guosen released a research report stating that the overall performance of travel chain companies in the first half of 2024 was relatively flat, but leading operators with online platform traffic advantages still significantly outperformed the industry index. Meanwhile, chain expansion (mainly franchise expansion) and efficient operations of high-quality leading companies with brand and member traffic advantages still achieved good alpha growth. Currently, in the economic environment and market style, it is recommended to allocate TRIP.COM-S (09961), MEITUAN-W (03690), TONGCHENGTRAVEL (00780), HWORLD-S (01179), YUM CHINA (09987), HAIDILAO (06862), Anhui Jiuhuashan Tourism Development (603199.SH), Emei Shan Tourism (000888.SZ), Changbai Mountain Tourism (603099.SH), Shanghai Jin Jiang International Hotels, among others. Industry: Domestic tourism in the first half of the year saw stable growth, with strong recovery in inbound and outbound passenger flows. In the first half of the year, the number of domestic tourists increased by 14%, revenue increased by 19%, showing stable growth. The number of inbound and outbound travelers increased by 71% in the first half of the year, recovering to 83% of the 2019 level; the scale of international flight passenger flow in the first half of the year recovered to 80% of the 2019 level, with a year-on-year increase of 254%; inbound and outbound passenger flows saw strong recovery. Sector: The overall operations of A-share travel chain companies in the first half of the year were flat, with some overseas-listed leading companies in the travel chain sector showing relatively outstanding performance based on traffic (membership) advantages. In the first half of the year, A-share travel chain companies saw a year-on-year decrease in revenue, net profit, and non-GAAP performance of 2%, 7%, and 11% respectively, with a decline of 6%, 18%, and 29% in the second quarter, indicating an overall flat performance. After a comprehensive review of the operations of A-share and overseas-listed leading travel chains, the performance of sub-sectors in the first half of this year is as follows: online travel or local service platform leaders relying on online traffic advantages and operational efficiency performed well; some scenic area leaders showed relative resilience in terms of passenger flow and revenue; outbound travel and performing arts saw recovery growth; hotel leaders remained stable or achieved steady growth; tax-free, catering, and other sectors were mostly under pressure, with only some strong branded catering leaders showing good performance. From January to August, the social service sector as a whole underperformed the market, with only scenic areas and some OTA leaders outperforming in a structural bull market. Online traffic advantage leaders: Online traffic accelerated penetration and increased bargaining power, helping leading companies achieve alpha growth with improved operating efficiency. Despite facing pressure from high base numbers, especially in the second quarter, leading online travel (OTA) and local life service leaders still performed well: online acceleration drove better booking volume than the market average, and under the easing competition and increased bargaining power, the realization rate (commission rate) is expected to rebound year-on-year, with Meituan, Ctrip, Tongcheng's revenue in the second quarter of 2024 increasing by 21%, 14%, and 48% respectively (OTA business +23%), with good revenue growth. Cost control efficiency, accelerated operational efficiency, and profit growth, with adjusted performance in the second quarter of 2024 increasing by 78%, 45%, and 11% for Meituan, Ctrip, and Tongcheng respectively, showing strong overall performance. Hotels: The industry's RevPAR was under pressure in the second quarter, but leading companies still saw stable growth in adjusted performance, supported by scale expansion and operational efficiency. In the second quarter of 2024, the industry's RevPAR dropped by about 10%, but leading RevPAR still outperformed the industry; and with franchise expansion and operational efficiency, hotel leaders saw a year-on-year increase of 15-32% in adjusted performance in the second quarter of 2024, showing overall good performance. Brands like Huazhu and Yaado, along with traffic-dominant leaders, have improved annual store opening guidance, confirming alpha. In addition, the hotel leaders, dominated by franchise growth, have good cash flow, with expectations for long-term capital returns. Outbound travel saw recovery growth, some natural scenic areas showed good defensive qualities, and there was significant differentiation in the catering sector. Most outbound travel leaders saw recovery growth from a low base; Scenic areas: popular tourist destinations still showed resilience in terms of passenger flow and revenue, with performance varying, with Changbai Mountain Tourism, Anhui Jiuhuashan Tourism Development performing relatively well, and Emei Shan Tourism remaining stable overall. The catering sector as a whole was under pressure, with only YUM CHINA and HAIDILAO showing relative strength. Risk Warning: Systemic risks such as macroeconomic and political factors, intensified industry competition, policy risks, underperformance of heavy asset new projects, among other risks.
16/09/2024

CICC: How Will Interest Rate Cuts Impact Hong Kong Stocks?

Summary Last week, the Chinese and overseas markets showed divergent trends. The US stock market rebounded significantly due to factors such as the expectation of a rate cut by the Federal Reserve, while conversely, the A-share market weakened in the face of relatively weak domestic economic data and policy expectations. In this context, the Hong Kong stock market's independent and distinct volatile trend from A-shares is easily understood, reflecting its characteristic of "Chinese assets + foreign capital" and aligning with our consistent view that Hong Kong stocks are better than A-shares. The upcoming Federal Reserve FOMC meeting next week is undoubtedly the focus of global investors. For the Chinese market, including the Hong Kong stock market, the main impact logic to observe from the Fed rate cut is how the external easing effect will be transmitted, and how domestic policies will respond in this environment. If domestic easing measures are stronger than the Fed's, it will provide a greater boost to the market. Conversely, if the measures are limited, as is more likely under current constraints, then the impact of the Fed rate cut on the Chinese market may be marginal and localized. Recent economic data for August indicates that domestic demand remains weak and requires more policy support, including monetary easing. The Fed rate cut in September is expected to open up policy space for the central bank, but the magnitude may be limited, and expectations of a "strong stimulus" are unrealistic. Due to its sensitivity to external liquidity and the linked exchange rate arrangement with Hong Kong following the rate cut, Hong Kong stocks have greater resilience than A-shares. In terms of sectors, growth stocks sensitive to interest rates (biotechnology, technology hardware, etc.), sectors with a high proportion of overseas US dollar financing, local dividend-paying stocks, and property benefiting from the US rate cut boosting demand in the export chain may also benefit marginally. However, overall, until there is greater fiscal support seen, a wide range of volatile structural trends remains the main theme. Conclusion Market Review After experiencing a correction the previous week, the Hong Kong stock market last week overall showed volatile consolidation. Among the major indexes, the Hang Seng Tech Index fell slightly by 0.2%, the Hang Seng Index fell by 0.4%, and the MSCI China and Hang Seng China Enterprises Indexes fell by 0.4% and 0.6% respectively. In terms of sectors, benefiting from the increase in expectations for a Fed rate cut, growth sectors like healthcare (+1.7%) and consumer discretionary (+1.5%) led the way, while sectors like energy (-6.6%), real estate (-6.1%), and utilities (-5.0%) performed poorly. Market Outlook Last week, the Chinese and overseas markets showed divergent trends. The US stock market rebounded significantly due to factors such as the increase in expectations for a Fed rate cut, with the S&P 500 rising by 4% for the week, and the Nasdaq surging by 6%. Conversely, A-shares weakened in the face of relatively weak domestic economic data and policy expectations, with the Shanghai Composite Index falling by 2.2% and approaching the 2,700 point level once again. In this context, it is easier to understand the Hong Kong stock market's independent and distinct volatile trend from A-shares, reflecting its characteristic of "Chinese assets + foreign capital" and aligning with our consistent view that Hong Kong stocks are better than A-shares. This trend is particularly evident at the sector level, with sectors more related to the domestic fundamentals like energy and real estate lagging, while sectors sensitive to interest rates like healthcare and consumer discretionary leading. Additionally, the much-awaited inclusion of Alibaba (09988) in the Hong Kong stock connect trading last week, together with significant buying of 16.4 billion HKD by southbound investors, led to overall gains of 3.7%. In the long term, based on calculations comparing with comparable Tencent, the inclusion of Alibaba in the Hong Kong stock connect is expected to bring about an incremental capital inflow of approximately 150 billion HKD. The upcoming Federal Reserve FOMC meeting next week is undoubtedly the focus of global investors. Although the market has already reached a consensus that the Fed will start cutting rates in September, the variable remains the extent of the rate cut, whether it will be 25bp or 50bp. The current CME rate futures also show a 50% probability of the market expecting a rate cut of 25bp or 50bp. The higher-than-expected core CPI for August in the US, particularly the sharp increase in rent to a new high since January, has also added uncertainty to the extent of the rate cut. The simultaneous rise in assets like the Nasdaq, industrial metals, and gold suggests that besides the clear direction of rate cuts, growth expectations remain "confused." Considering that the US is not in a deep recession and easing measures in certain areas like real estate are already showing effects, we believe that a 25bp cut is still the baseline. For the Chinese market, including the Hong Kong stock market, the main impact logic to observe from the Fed rate cut is how the external easing effect will be transmitted, and how domestic policies will respond in this environment. Considering the constraints of the Sino-US interest rate differential and exchange rate, the Fed rate cut will provide more room and conditions for domestic easing, which is needed in the current relatively weak growth environment and still relatively high financing costs. Thus, if domestic easing measures are stronger than the Fed's, it will provide a greater boost to the market. Conversely, if the extent is limited, which is more likely under current constraints, then the impact of the Fed rate cut on the Chinese market may be marginal and localized. Take the 2019 rate cut cycle for example, the significant rebound in A-shares and Hong Kong stocks in the first quarter coincided with the period when Powell announced the halt to rate hikes from January to March, rather than the official rate cuts in July to September. The reason for this was that when Powell announced the halt to rate hikes in early 2019, China also decided to cut reserve requirements, creating resonance internally and externally. Conversely, after April when policies returned to the "monetary policy thaw" with the Fed's easing direction, even with the official rate cuts in July, A-shares and Hong Kong stocks continued to consolidate overall. Conclusion The recent economic data for August indicates that domestic demand continues to be weak and requires more policy support including monetary easing. Apart from the better-than-expected exports in August, growth in areas such as prices, credit demand, and consumption investment have all weakened. Retail sales in August grew by 2.1% year-on-year, down by 0.6 percentage points from July; overall, fixedAsset investment grew by 3.4% compared to the same period last year, which is a slowdown from the 3.6% growth in the first seven months. Both land acquisition, sales, and investment in real estate remained weak. Meanwhile, in August, the demand for loans from residents and enterprises fell compared to the previous month, with medium and long-term loans increasing by 40.2 billion yuan and 154.4 billion yuan respectively year-on-year. The growth rate of social financing decreased from 8.2% in July to 8.1% in August, with an increase of 98.1 billion yuan less than the previous year, mainly due to government financing contributions. Non-government financing growth rate decreased from 6.6% in July to 6.4%, with the resident sector declining faster from 3.8% in July to 3.5%. These trends reflect weak private sector demand and the ongoing deleveraging process. Furthermore, the M1 growth rate decreased from -6.6% in July to -7.3%, indicating a contraction in business activities. In this context, increasing government leverage and expenditure expansion will be an effective and important supplement. In August, government financing growth rate increased from 15.4% in July to 15.8%, reaching the highest point since December 2023. If future expenditures continue to expand (government support increased by 295.7 billion yuan year-on-year in July, reaching a new high since December last year), it is expected to provide support for the market and growth.Charts: The year-on-year growth rate of social financing slightly weakened to 8.1% in August, while M2 growth remained flat compared to July Charts: Social financing from the household sector weakened noticeably, while government sector support for social financing was evident Charts: From the perspective of the general fiscal deficit, the year-on-year increase in July reached a new high since December last year However, at a recent press conference by the State Council Information Office, the director of the monetary policy department of the People's Bank of China, Zou Lan, clearly pointed out that there is still some room for a decrease in the average statutory deposit reserve ratio of financial institutions. However, due to factors such as "deposit migration" and the narrowing of net interest rate spreads of banks, short-term interest rate cuts may still face constraints. Therefore, the Fed's interest rate cut in September is expected to open up policy space for the central bank, but the extent may be limited. Expecting "strong stimulus" is not realistic, and the Macro Strategy Department of CITIC Securities also believes that the probability of a universal reduction in the Loan Prime Rate (LPR) is low. However, considering how overseas easing is transmitted, Hong Kong stocks have greater flexibility than A-shares because Hong Kong follows interest rate cuts due to its sensitive to external liquidity and the linked exchange rate arrangement. In addition, Hong Kong stocks have relatively better profitability, and valuation and position clearing are more thorough, which also supports the relative performance of Hong Kong stocks. Similarly, at the industry level, growth stocks sensitive to interest rates (biotechnology, technology hardware, etc.), sectors with a higher proportion of overseas USD financing, local dividend-paying stocks in Hong Kong, even real estate benefiting from the demand pull from the U.S. interest rate cut, may benefit marginally. While simple comparisons with historical averages are not advisable, on average, during the initial period of interest rate cuts, Hong Kong stocks tend to rebound significantly outperforming A-shares, and the probability of an increase is also higher. Charts: During the initial period of interest rate cuts, the rebound in Hong Kong stocks is obvious, outperforming A-shares with greater probability of increase In terms of operations, as the Fed's interest rate cut approaches, we still advise that Hong Kong stocks have greater flexibility than A-shares. If the Fed's interest rate cut exceeds expectations, especially if the People's Bank of China cuts interest rates beyond expectations, it will bring even greater flexibility. At the industry level, growth sectors benefiting from the logic on the denominator side in the short term may have higher flexibility, such as semiconductors, automobiles (including new energy), media and entertainment, software, biotechnology, etc. Sectors benefiting from local dividends due to the interest rate cut in Hong Kong are also worth paying attention to. However, overall, until we see more substantial fiscal support, the structural market with wide range fluctuations remains the main theme. In summary, the current 10-year U.S. Treasury bond rate falling to 3.6% has already incorporated the expectation of interest rate cuts sufficiently. If the risk premium returns to the level of the middle of last year, the corresponding Hang Seng Index would be around 18,500-19,000; if profits increase by 10% on this basis, the Hang Seng Index would be at 21,000. We continue with our strategic recommendations for the second half of the year, focusing on three directions within the structural market: overall return reduction (stable returns from high dividends and high buybacks, i.e. "cash cows" with ample cash flow; short-term dividends may see differentiation between local dividends in Hong Kong, low volatility dividends, and cyclical dividends), partial leverage (industries with certain economic vitality or benefiting from policy support in technology growth), partial price increase (natural monopoly sectors, utilities, etc.). Specifically, the main logic supporting our above views and the main changes to pay attention to this week are as follows: 1) The year-on-year increase in domestic CPI in August was minor, but PPI significantly slowed down. In August, the year-on-year increase in CPI slightly rose from 0.5% to 0.6%, while the year-on-year decrease in PPI notably widened from -0.8% to -1.8%, both weaker than market expectations (0.7% and -1.4%, respectively). Of the 0.1 percentage point improvement in year-on-year CPI, due to the effects of high temperatures in summer and heavy local rainfall, the year-on-year prices of fresh vegetables and fruits rose from 3.3% and -4.2% in July to 21.8% and 4.1% in August, contributing an extra 0.6 percentage points to the year-on-year CPI compared to the previous month. On the other hand, prices of non-food consumer goods and services generally slowed down, with the core CPI decreasing to a new low since April 2021. In contrast, under a backdrop of global demand decline, international commodity prices coming under pressure, and delayed efforts in maintaining stable growth domestically, the year-on-year decline in PPI widened from -0.8% in July to -1.8% in August. Charts: The increase in August CPI was influenced by higher food prices, while PPI saw a significant decline 2) Social financing growth slightly declined, with a faster decline in non-government sectors. The year-on-year growth rate of social financing in August slightly decreased from 8.2% in July to 8.1%, mainly supported by government bond financing. The financing growth rate of government sectors increased from 15.4% in July to 15.8%, with government bond net financing in August reaching 1.61 trillion yuan, an increase of 437.1 billion yuan compared to the same period last year. In contrast, the growth rate of social financing in non-government sectors decreased from 6.6% in July to 6.4%, while the financing growth rate of the household sector declined even faster from 3.8% in July to 3.5%. The year-on-year decrease in M1 in August widened to 7.3% (vs. -6.6% in July), partially reflecting the need for improvement in corporate profits. 3) Exports recovered better than expected, while imports fell below market expectations. In August, exports in USD terms increased by +8.7% year-on-year (vs. +7.0% in July), outperforming expectations. The marginal improvements were significant for the EU and emerging markets, with categories such as mobile phones, automobiles, and ships showing marked improvement in mechanical and electrical products. Despite the continued contraction in global manufacturing Purchasing Managers' Index (PMI) in August, against a backdrop of overall marginal slowdown in external demand, the better-than-expected export growth in August might be supported by factors such as the concentrated release of demand that was disrupted by typhoons in July and early acceleration by enterprises in anticipation of EU tariff increases. In comparison, imports in August rose by 0.5% year-on-year (vs. +7.2% in July) and fell below market expectations, indicating signs of weak domestic demand. Charts: Exports in August recovered better than expected, while imports notably declined 4) Retail sales growth slowed down, and fixed asset investment growth moderated. In August, total social retail sales increased by 2.1% year-on-year, a decrease of 0.6 percentage points compared to July. The year-on-year decline in automobile retail sales reached 7.3%, hitting a new low for the year. Overall, the policy on "substituting old for new" consumer goods still awaits further implementation to take effect. As for fixed asset investment, the greater decrease in PPI in August contributed to a slight increase in nominal investment growth. From January to August, fixed asset investment increased by 3.4% year-on-year (vs. +3.6% from January to July). Real estate development investment remained weak, with the decline in growth rate remaining in line with that of January to July. However, infrastructure and manufacturing investment continued to support overall investment growth, albeit with declining growth rates at the margin.Chart: Slowdown in August Social Zero Growth, Slowdown in Fixed Asset Investment Growth 5) This week, Southbound funds continued to flow in, while overseas active funds continued to flow out. Specifically, data from EPFR shows that this week overseas active funds continued to flow out of overseas Chinese A-share markets, with an outflow of approximately $250 million, an increase from the previous week's $210 million, marking the 70th consecutive week of outflows. At the same time, overseas passive funds turned into outflows of $100 million (compared to inflows of $170 million the previous week). Southbound funds continued to flow in this week, with an inflow of $12.53 billion Hong Kong dollars, an increase from the previous week's $9.27 billion Hong Kong dollars. It is worth mentioning that Alibaba, which was officially included in the Hong Kong Stock Connect last week, has been widely favored by Southbound investors. Last week, Southbound funds accumulated a total inflow of $16.42 billion Hong Kong dollars into Alibaba, ranking first. Chart: Continued outflow of overseas active funds from overseas Chinese A-share markets Key Events to Watch September 18th: FOMC Meeting by the Federal Reserve September 20th: Chinese LPR This article is reprinted from the "CICC Strategy" WeChat public account, analysts: Liu Gang, Zhang Weihan, etc.; edited by GMTEight: Huang Xiaodong.
15/09/2024
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