|作者：||Jessie GUO,Edith Qian,Harrington ZHANG|
|摘要：||Report title:CMS Strategy Weekly (2 Dec 2019) - China November manufacturing PMI beat expectation
Analyst:Jessie GUO,Edith Qian,Harrington ZHANG
■ China’s November Manufacturing PMI recorded significant improvement
■ US President signed the Hong Kong Act
■ PBOC Governor ruled out zero rate or competitive devaluation
What’s new. 1). China-US trade war: On November 26, China’s Ministry of Commerce made an announcement saying that Liu He held a phone talk with Robert Lighthizer and Steven Mnuchin. Also, the two sides discussed each side’s core concerns, and reached consensus on how these concerns to be addressed. Both sides are to keep on communicating on the remainders of the “phase one” negotiation. 2). On November 27, US President Trump formally signed The Hong Kong Human Rights and Democracy Act, the Act has officially become a US law. The movement triggered immediate condemnation and criticism from China, and could potentially add more uncertainties to the already strained China-US relationship and the complex Hong Kong situation. 3). In an article published on Qiushi on December 1, the PBOC governor Yi Gang emphasised that China’s economic growth and inflation are both still within reasonable bounds, and China will maintain conventional monetary policy in the long run. Although monetary policies in major world economies are sliding into zero rate, China should pursue a stable path and refuse to conduct zero rate or quantitative easing. Furthermore, the RMB exchange rate is determined by market demand and supply, meanwhile China will not treat the exchange rate as a monetary instrument, and competitive devaluation has absolutely no place.
Macro data update. China: 1). October industrial profits dropped remarkably by 9.9% yoy (September: -5.3%), and down by 2.9% ytd (Jan-Sep: -2.1%). 2). November official mfg PMI was 50.2, beating consensus (October: 49.3); non-mfg PMI was 54.4 (October: 52.8). 3). November Caixin mfg PMI recorded at 51.8 (October 51.7). US: 1). The second reading of US 3Q GDP was revised up to 2.1% (saar), beating consensus of 1.9% (initial reading: 1.9%). Growth in total private investment was revised up from -1.5% to -0.1%, a noticeable sign of improvement in the sector which contracted heavily since 2Q (2Q: -6.3%). 2). October personal income growth was flat mom, missing consensus of 0.3% (September: 0.3%). 3). Personal consumption expenditures grew 0.3% mom in October, in line with consensus (September: 0.2%). 4). PCE index grew 1.3% yoy in October, slightly lower than consensus (September: 1.3%). Core PCE index rose 1.6% yoy, also below expectations (September: 1.7%). 5). October durable goods orders increased by 0.6% mom, well beating consensus of -0.8% (September: -1.4%).
Stock market update. HSI/CSI300 corrected 0.9%/0.6% over the past week, while MXCN gained by 0.4%. MXCN: Consumer Discretionary (+4.7%) and Materials (+1.5%) outperformed while Health Care (-4.9%) and Energy (-2.2%) lagged. A shares: Utilities (+0.6%) and Energy (+0.5%) outperformed while Health Care (-2.6%) and Consumer Staples (-2.3%) lagged. HSI/MXCN/CSI300 trade at forward P/E of 10.6x/12.2x/11.8x respectively (vs. 3-yr median of 11.6x/12.2x/12.7x).
Our view. We are cautiously optimistic on the Hong Kong stock market in 2020 due to the following reasons: 1) China's economy is expected to stabilize, underpinned by accommodative policies; 2) Negative impacts from trade war are already factored in by most forecasts; and 2Q onwards in 2020 will face a low base; 3) A potential recession in the US should drive down USD; and a weaker USD usually causes capital flows into emerging markets to boost liquidity in equity market; 4) Hang Seng Index and MSCI China Index generated merely 1.9% and 11.7% return YTD and their valuations look undemanding: trading at 10.6x and 12.2x forward PE, respectively, below 3-yr median levels (Please refer to “2020 Hong Kong stock market outlook: Ride out the storm” dated 6 November 2019).