China Equity Strategy "Guide to the 'slow bull' (part 2): how to positio..."

Research evidence excerpt

China Equity Strategy "Guide to the 'slow bull' (part 2): how to positio..."

nged its characteristics of ‘financing dwarfing investing’, and

'short-lived bulls/long-lasting bears, and sharp rallies and pullbacks'. Short-term

fluctuations stemming from macro and external shocks present buy-on-dip

opportunities for long-term investors. 2) Structurally overweight growth: growth's

outperformance correlates with market beta. When the market rallies, investors typically

chase growth with higher beta to seek potential alpha. The greater tech sector (consists

of electronics, telecoms, computers and national defence) is a near-term core growth

theme amid China’s technological self-reliance initiatives. 3) Tracking net inflows from

long-term capital: closely monitor industry leaders chased by ETFs and mid & small caps

favoured by hedge funds in the near term. 4) Buying sectors benefiting from capital

market development (such as brokers and insurers) to ride on their earnings growth.

Equity strategy: earnings recovery/capital inflows to drive further rally

During the market correction in late March, we pointed out that A-share market "de-

risking" may be nearing the end (see note, 24 March). Since the US-Iran ceasefire

announced on 8 April, the market risk appetite has recovered and global markets have

rebounded (see Four strategies for market re-risking, 8 April). We think further upside

momentum would be driven by earnings growth and more capital inflows. Recently, the

positive turn in PPI, the 15.5% YoY increase in industrial profit and robust earnings

growth of A-share non-financials in Q126 (see A-share Q126 earnings review) pointed

to the sustainability of the A-share earnings recovery. In addition, household asset