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As of last week, global risky assets, including equities, have risen for the fifth consecutive week. Some people asked if we are out of the woods of market doldrums and on a new upward leg. We think the chance for this is slim. The investment world today is faced with a new normal where low growth, low interest rate, low inflation (in some places, deflation) prevail. This new normal is driven primarily by past years' excesses, ageing demographics and technological displacement of existing industries. We have seen economies of developed countries stuck in structurally decelerating, if not recessionary, trends that are hard to shake. The massive quantitative easing programs global central banks have collectively rolled out during the last few years may have helped tide things over. Outsized monetary expansion has merely kicked the proverbial can down the road. The main driver of global growth in previous years, China, is also experiencing a nontrivial adjustment as it embarks upon a structural shift of its economy that will lead to lower growth for years.
How should the investor position his portfolio in this environment? We think he should accept that his returns will be lower in the near future. Equities return will be lower, as people often pay for growth in this asset class where valuation is often determined by earnings growth trajectory. This trajectory is slowing down. Sovereign and high grade bonds, like savings accounts, will continue to pay very little in interest. Certain segments of higher yielding corporate bonds are more attractive, especially USD based ones issued by listed Chinese property companies in the next one or two years. These, however, will probably only work for one or two years. They are subject to redemption and reinvestment risks, as issuers find it more economical to call and refinance them using cheaper RMB debt. Property remains an interesting asset class, although additional taxes and regulatory curbs imposed by various governments have been making transactions costlier. Property also requires localized knowledge, as Guangzhou can stay flat while Shenzhen can see strong returns. For many people, throwing in the towel and staying in cash does not seem as outlandish a choice as before, especially in a deflationary environment. But in our opinion, one need not be as negative in one's portfolio positioning.
Within the equities space, there are still industries and situations that can do well, and they include the following:
(1) Innovative technology companies. These are usually counter cyclical because they create things or services that alter the way we live or take market share from older, existing players.
(2) Pharmaceuticals, biotech and medical services companies. Population in developed markets are ageing as baby boomers enter retirement. They will spend more on healthcare.
(3) Educational services, as this is probably the last item families will cut. It is fast growing and also very counter-cyclical.
(4) Companies with high dividend yield and earnings visibility, as investors seek for yield, these previously slower growing but high cash paying companies are becoming more attractive.
Having said that, investors should be aware that overall equity market has become very volatile and will remain so in the foreseeable future. Globalization and easy credit have seen excess capital chase after a dearth of investment opportunities in the last few years, and this kind of fast moving money can pull out just as fast as they come in. One needs strict risk management to navigate through the gyrations of the market. Unless you can time or find ways to lower the volatility of your positions, you are probably better off leaving your investments to the professionals!
Where will the Chinese equity markets go from here after the large sell off last week? The consensus opinion we've gathered is for the market to rebound in the short run, followed by a range bound market with lower volatility and likely lower volume. This sounds like a logical conclusion given the huge destruction in investors' confidence for both the mainland and Hong Kong stock markets.
The recent supercharged rally in China A-shares was a year-long liquidity driven rally that was spurred on by strong momentum and favorable government policy proclamations. Valuations were already stratospheric before the crash. Retail investors, which make up approximately 80% of Chinese domestic market, bought into the government bull market rhetoric and continued to double down towards June. Total aggregate broker margin financing levels rose from RMB 300bn in 2013 to RMB 1tn at end of 2014, and peaked at RMB 2.2tn in the middle of June. While this was alarming enough, what concerned the authorities more was unaccountable margin financing from structures such as umbrella trusts, which provided another estimated RMB 1tn in contribution. As they started their investigation into such activities, many heavily "margin-ed" accounts were forced to either close or be topped up, leading to everyone selling at once. This was not helped by opportunistic suspension in trading of many listed Chinese company's shares in a classic "prisoners' dilemma" manner. The resulting stampede forced investors to sell whatever they could find liquidity for as they received their margin calls. Hong Kong's market was dragged down alongside the A-share bloodbath. All told, some RMB 20tn in market value vanished, enough to bailout out Greece ten times over. Many investors lost big. Entering stage right came the Chinese government, tiptoeing at first, but finally determined enough with hundreds of billions of RMB in bailout funds and the promise of unlimited amounts to follow. The market finally stabilized, but by then investors confidence was already seriously damaged. That was last week, and this drama continues to unfold.
The good thing about the A-share market right now is a lack of domestic institutional selling pressure. Major shareholders and funds with sizeable stakes are not allowed to sell down. Brokers who bought on their own accounts with government urging are committed not to sell until the index reaches 4500 level as well. The market at this point has found a bottom, but shattered collective confidence of retail investors will take time to heal. In the short run the only fresh money will come from the government. Given the inept response by the authorities, overseas investors will not come in any time soon as they see the openness of the market take a big step back.
Hong Kong's market is different than China's as it is dominated by institutional investors. Institutional investors tend to be more fundamentally driven. They care more about business outlook, management quality and financial performance. What the Hong Kong market has to offer, to them, is not particularly exciting. Take a look at the components of the HSCEI. 43% of the index are made up with banks, and biased overseas investors tend to distrust Chinese banks NPL numbers despite their low valuations. Insurance (23%) and oil (12%) make up another 35%. The interesting names such as BYD (electric car) and Cinda (diversified financials) make up only 6% of the index. Hong Kong's benchmark Hang Seng Index has a few more local names, but it is also dominated by Chinese financials and old economy companies. Valuations for HSI and HSCEI are cheap at 10.4x and 8.4x respectively, but cheapness alone is not enough to attract inflows. Chinese investors won't be able to help in the short run either, even with Shenzhen-Hong Kong Connect. Their appetite will depend on how confidence is repaired up north, and such healing will take time.
We believe we won't see a rally in Hong Kong like the one we saw last April for some time. Hong Kong, like China, will quiet down and be locked in a directionless trend in the short to medium term. Those who wanted to take down their risk exposures have already done so in July. The market is not bereft of investment opportunities, fortunately, as bargains have appeared after the recent correction. Performance of A shares, on the other hand, will diverge depending on government policy and emerging themes. Domestically, we are looking at individual companies with good earnings and reasonable valuations such as downstream solar farms, environmental plays, software providers, etc.
2014 predictions
<<2014 predictions>>
As 2013 has come to an end, we would like to take the opportunity to share with you our investment views for 2014.
1) Japanese market will outperform in the first half. Bank of Japan's monthly purchase of US$70bn is nearly three times the scale of US's QE when adjusted for the relative size of its economy. We believe that Japanese yen will fall to at least 110-120 range. There is a good chance that Japanese stock market will appreciate further in 2014 on the back of a weak yen on improved corporate profits as Japanese goods gain in competitiveness. Seasonally, Japan's stock market tend to outperform between November and April each year.
2) US stock market will peak out in 2014, European equities is a better bet
We believe US market will at least experience much higher volatility in 2014 than the past few years. The current uptrend in US equities has already lasted for 4.5 years. Typical bull runs in the past have averaged 4.5 to 5.5 years. Valuations are no longer cheap on either PE or PB basis. The threat of increased interest rates. Bernanke has already begun the long expected tapering of debt buying by the US Fed. In addition, the new US Fed Chairperson, Janet Yellen, is believed to be more data-centric than her predecessor. Stronger US economic data may prompt analysts to make more aggressive forecasts about interest rates in anticipation of further Fed tapering. Long bond rate will likely exceed the psychological 3% threshold in the coming months.
Europe's economy is certainly showing signs of bottoming out, but the recovery is nowhere nearly as strong as US's. Interest rates will remain low in Europe for an indefinite period of time. While the recent European market's rise has largely been due to fund flows in expectation of a turnaround, some might argue that Europe is already appearing expensive from a PE basis. We believe consensus earnings forecasts always tend to be overly conservative coming out of a recession. A likely readjustment in earnings expectations would make Europe's market appear more reasonably priced. 2014 could still be a bumper year for European equities.
3) EM to DM will continue, as will SA to NA
As US Federal Reserve begins to taper, hot money that had flooded Southeast Asian countries will flow back to the developed world. This has started since Bernanke first announced his intention to cut back bond buying back in May. The adjustment period for Southeast Asian countries will take a while. Meanwhile, North Asian countries such as Taiwan, Korea, Hong Kong and China that have stronger balance of payment and export capabilities will continue to attract regional funds from their ASEAN and South Asian neighbors.
4) HK/China market - buy new economy sectors and policy beneficiary sectors, eschew old economy.
Just like 2013, stock picking will be the difference here. New economy sectors (internet, gaming, renewable/environmental) and policy beneficiary sectors (e.g. dairy) will continue to do well, while old economy sectors will continue their struggle through over capacity and tighter regulations. As the new Chinese leadership tries to wean the economic system from previous excesses, deleveraging will continue, and hence growth will be slower. The index will probably not appreciate too much, but there will be opportunities in non-index related sectors.
5) Property: HK prices will stay flat, Chinese prices will continue to rise, as will prices in Japan and London.
The biggest risks to HK's housing sector are developers' aggressive price cutting strategy and a remote chance of a sudden collapse in China's economy. Bid-ask spreads are artificially widened because of high transaction taxes. Higher mortgage rates for new loans introduce extra reinvestment risks, and property holders would rather hold on then sell. However, individual investors' gearing are low and debt service costs are minimal. There is little chance of panic selling, and hence we do not see a substantial drop in property prices as opposed to the conventional view of 20% down.
China's property market remains bifurcated. Tier one cities will still benefit from migration/urbanization. Some tier 2/3 cities, however, have begun suffer from used up demand and excess supply. We believe first tier cities will continue to see prices go up. Second and third tier cities' prices will soften further.
Japanese property market, with the benefit of QE, low transaction costs and other factors such as Olympics and casino license discussion, will attract further capital inflow. Tokyo's property price is one of the cheapest amongst major financial centers. We believe Tokyo's property prices will continue to appreciate.
London's property market is similarly benefitting from capital inflow primarily from Asia and Eastern Europe. At this moment it is still hard to see why such inflows will stop.
6) Stay away from gold and investment grade bonds.
History has shown that investment grade debt and precious metal will only go down in a rising interest rate environment. Stay away!
7) Focus on eCommerce, renewable energy, electric cars and healthcare (ageing population)
Internet stocks will continue to outperform until the listing of Alibaba. This will be one of the largest IPOs globally next year.
香港樓市新措施分析
<<香港樓市新措施分析>>
http://blog.sina.com.cn/s/blog_9206168c0101aqg7.html
香 港政府於上週五推出樓市新招，包括調高額外印花稅(SSD)稅率5-10%、延長政策有效年期至最長3年及向非香港永久居民加徵15%買家印花稅 (BSD)，為多月來越炒越熱的樓市狠狠地潑一盆冷水。新招言猶在耳，週末十大屋苑成交已按周銳減約4-5成，創多月以來新低。市場聞風變色，究竟是樓市 新招一鎚定音，還是雷聲大、雨點小？
其實，相關措施對香港整體市場而言牽連甚廣，由房產買賣人、投資者、地產從業員、發展商以至政府皆有其影響力，必須從多方面去分析。以下為歸納出來的幾個主要影響及原因：
一）樓市成交大跌
- 此次樓市熱浪乃需求主導，重稅及更長「禁售期」令買家卻步，需求減少
- 賣家在低息及高租金回報環境下持貨力強，拒絕減價出售
- 趕絕本來自首次SSD已大幅減少的投機者／摸貨者
- 內地客佔新盤銷售約3成，買家印花稅令一手市場的大量內地客放棄購房
- 以公司名義購房受雙重稅項打擊，將大幅縮減
二）二手樓價牛皮；新盤價格回調
- 成交減少直接令樓價波幅縮少
- 買家不會再以高價「追貨」，相反賣家持貨力強而寧願坐貨或只願輕微降低賣價
- 一手樓盤受內地人購買意欲銳減影響，售價下調較大，高檔樓盤更屬重災區
三）資金流向工商鋪及租金持續上揚
- 工商鋪尚未受到政策波及，將成為投資房產資金的新去處
- 剛性需求用家轉買為租，進一步推動租務市場
四）發展商及相關公司盈利下降
- 發展商擁有大量新盤在手，加上必須為股東追求回報，減價推盤勢在必行，因此將面臨利潤下降
- 從事舊樓重建的相關公司為避免繳交買家印花稅將受到更大限制，影響進度
五）香港經濟
- 新招難以有效令真正用家成功上車
- 政府額外稅收未必能抵銷賣地收益的損失
- 地產從業員短期內將面臨大幅度的業務倒退
綜 合而言，政府新招有效令樓市降溫，短期內令樓價面臨下跌壓力，但我們認為在長期低息環境及房屋供求失衡的前提下，市場在消化新招的影響後將大有可能繼續 上揚。說到底，樓市近年只升不跌的最主要原因仍是聯繫匯率的存在所引致：美國不斷實行寬鬆貨幣政策的同時，港元受聯繫匯率所限被逼跟隨美元貶值，以致熱錢 的流入及貨幣的升值全數反映於資產價格上，才令樓價無止境的上揚。其實，貨幣政策及財政政策在調控經濟上猶如人的左右手，如今香港只得一臂，要有效控制價 格實在是一大難題。
體育用品股：股價見底＝業務見底
<<體育用品股：股價見底＝業務見底？>>
http://blog.sina.com.cn/s/blog_9206168c0101aext.html
最 近數家券商同時唱好內地體育用品股，指其經營狀況接近見底，整固期踏入尾聲。此消息一出，數家體育用品公司股價於短時間內自谷底大幅上升。事實上，體育 用品公司股值一向低殘，更甚者市值貼近現金水平，加上近日市場資金充裕，股價借消息大幅反彈不無道理，反而個別公司經營狀況是否能於短期內明顯改善才是值 得斟酌的地方。
據筆者了解，體育用品公司下游的經銷商及零售商，庫銷比 仍遠高於正常水平，若說它們向品牌供應商訂貨數量已恢復增長是難有說服力的。事實上，運動服品牌公 司以往的高增長，有相當程度是由零售點大幅增加所導致。隨著店鋪數量基數變大、同店銷售增速放緩、庫存堆積及零售終端出現競價式打折清貨，批發商業模式的 弱點逐步浮現。此後，雖然各品牌商各自採取清貨回購的行動及加大對分銷商的扣點優惠，進度仍然緩慢。要徹底扭轉現時的頹勢，個別公司管理層較樂觀的估計亦 須到明年下半年才有望能見曙光。
長遠來看，內地人一向偏好以運動服作休閒服裝，因此運動品牌銷售及盈利中服裝的佔比接近一半。由此可想像到，未來數年繼續富起來的內地人對服裝要求或口味的改變，勢必成為運動服裝品牌公司經營發展的一大考驗。
內銀股強勢背後
<<內銀股強勢背後>>
http://blog.sina.com.cn/s/blog_9206168c0101a2e1.html
上週恆指及國企指數表現不俗，分別上升0.6%及3.8%。同期，中國內銀股跑贏大市，行業平均升幅達6.0%。
為何內銀股表現如此強勁？技術層面上有數個原因：
1. 滙金作為半主權投資基金，於上週三增持四大內地銀行，此舉被視為政府支持近來疲弱A股的救市措拖。
2. ETF成交大幅攀升，主要原因是市場憧憬十八大後政策放寬而作出投機活動。以美國上市的iShares FTSE China 25指數為例，上週成交創出週比+47%的紀錄。同期，盈富基金成交亦連續四天大幅高於全年平均成交量，九月份資金流入量達7.5億美元。
3. 中國長倉基金必須為近來流入的大量資金尋找出路。在各大版塊中，內銀股的基金持股量相對上少，而短期面臨大波動的風險亦較細。
話雖如此，內銀股在基本面上的數個問題並沒有得到改善：1) 淨息差收縮； 2) 資產質素下降；3) 貸款增長因需求減少而放緩；4) 股權回報率下降。無論如何，內銀股升勢可望因利好消息而持續一段時間，然而若內銀股市場氣氛突然轉淡及失去動量，投資者應及早離場。
香港樓市狂熱
<<香港樓市狂熱>>
http://blog.sina.com.cn/s/blog_9206168c01019pj7.html
前幾天，之前向我出售西營盤單位的經紀來電，遊說我放售單位。買家出價高於該單位當初買入價三成，可是購入單位不到半年，15%的SSD令我為之卻步。經紀續反映市場氣氛非常熾熱，買家蜂擁而至，不問樓盤、不問價格一律瘋搶，令樓盤供不應求，市場陷入恐慌性購入情緒。
今天香港樓市的狂熱程度與97年相比絕對有過之而無不及，然而兩者在本質上有著重大分野。主要原因是今天的樓市狂熱來自於資產分配而非槓桿式投機，資金缺乏有效的投資出路而流入樓市，造成熱錢處處，樓價高企。我認為除非有以下五大事件發生：
1) 大陸硬著陸
2) 聯繫匯率制度改動
3) 政府大力干預樓市
4) 美國突然提前加息
5) 樓市用盡流動資金及槓桿、再沒新資金支撐樓市 (今天香港存款總額達一萬億港元)
否則，樓市將繼續興旺，yield compression持續，樓價屢創新高！
當 然，這世界是沒有升不完的資產，問題只是在於時間和水平。我可聯想到，當這次的泡沫爆破時，全港125萬戶私人業主家庭將首當其衝承受損失，同時消費放 緩，並以高中檔消費為重災區，如蘇豪及大坑的零售商戶將面臨生意急速下滑，人們生活水平降低及經濟增速減慢。但由於槓桿化少，如97-03年大規模出現的 負資產物業及破產個案極難在今天重現。
因此，今天各位大可繼續享受樓市升軌，但同時須謹記留意上述五大原因的形成！