Asia Strategy Liquidity continues to fuel rally; HSI to trend up

Liquidity continues to fuel rally The S&P closed up 4.8% last week despite headlines dominated by nationwide protests sparked by George Floyd’s death and continued US-China tensions. Indeed, t he market appears to have focused on the more positive news of post-lockdown economic reopenings. In Asia, we saw markets rally, with the HSI up 7.8 % and emerging market currencies strengthening against the dollar (e.g., IDR +5.0% and MYR +1.8%). Strategy Report Several potentially risky events ignored by the market in Hong Kong June 8, 2020 Worries over protests in Hong Kong emerged after the passing of the national security law in Beijing on 28 May, but they seem to have faded relatively quickly from investors’ minds. Thousands came together to mark the anniversary of Tiananmen on 4 June, but the gatherings were largely peaceful. In addition, although President Donald Trump Mirae Asset Securities ( HK) Ltd. stated that his administration would take steps to revoke the special treatment of Hong Kong, few details were announced. The US did impose tighter visa requirements Joe Liew on mainland Chinese, but we were relieved that trade discussions were not rolled +852 -2514 -1336 back. All in all, the stock market has done well in the face of these uncertainties. [email protected] Global economic growth troughed in 2Q

We continue to believe that 2Q will mark the trough of economic growth for most Mirae Asset Co., Ltd. parts of the world. This will be particularly evident in Asia, as China is already on the road to recovery (with the turnaround likely to accelerate in 3Q). Despite early signs of Jay (Jaeil) Lee a pickup in new infections in Korea and China, lockdowns and other strict measures +822 -3774 -1388 have not been reinstated. More and more industries/businesses will start to open, and [email protected] investors will increasingly focus on recovery plays. With interest rates and fixed income returns being so low, we expect funds to flow into equities across Asia. We expect this year’s worst performing markets (Indonesia and India) to resume their upward trends.

Interest in HSI to remain elevated as liquidity looks for a home We expect the HSI to experience short-term volatility but remain on the uptrend . Continued recoveries in earnings and sentiment should be key catalysts. Notably, t he

tech sector will continue to gain attention on the back of Hang Seng Indexes’ move to allow companies with weighted voting rights and primary listings outside of Hong Kong into the HSI and HSCEI. This development is an added incentive for tech stocks currently listed only in the US to seek secondary listings in Hong Kong. For example, NetEase just priced its offering over the weekend, and JD.com is on the same path. Other tech names that could seek Hong Kong listings include Pinduoduo, Baidu, Trip.com, Vipshop Holdings, Autohome, and Weibo. Hong Kong listings would allow a wider range of participants to buy these stocks.

So far this year, we have seen southbound HKex flows buy Hong Kong stocks at elevated levels. YTD, net buying has reached a lofty RMB54bn—one of the highest levels since the start of the HKEx–China connect—as valuations in Hong Kong are lower than those in China. Listings by tech companies with a heavy Chinese presence should continue supporting these flows. Meanwhile, the stability of the HKD peg should be attractive to investors. Paul Chan, the financial secretary of the HKSAR, has been quoted as saying that, with the support of the mainland, the HKD peg to the US dollar will be defended. Key risks include the following: 1) China–US trade tensions could intensify. 2) Further COVID-19 outbreaks could force retreats from lockdown-easing plans. 3) A period of consolidation in the US would not be unreasonable given the strong recovery of the S&P; this could dampen sentiment on the Hong Kong stock market.

HSI still down 15% from its pre-pandemic high

(x) 40,000 HSI (L) HSI P/E (R) 20

30,000 15

20,000 10

10,000 5

0 0 15-06 16-06 17-06 18-06 19-06

Source: Bloomberg

June 8, 2020 Asia Strategy

Southbound buying

On 18 May 2020, Hang Seng Indexes announced that it would allow companies with weighted voting rights and primary listings outside of Hong Kong to be added to the HSI and HSCEI, effective August 2020. This move will allow for the inclusion of large tech companies like Xiaomi and Alibaba, which means that the tech sector should continue to garner considerable investor focus.

This year, we have seen considerable buying in Hong Kong by China-based investors via the HKex stock connect program. We expect domestic Chinese funds to continue to buy given that valuations of Hong Kong-listed stocks are lower than those of China-listed names. The Hong Kong-China stock connect shows net buying of RMB54bn YTD.

Table 1. HSI weights should skew more towards tech from August 2020 Stock Symbol Index weight (%) Price (HKD) HSI HSI -HKX 100.00 23,732.520 Tencent Holdings Ltd. 700 -HK 12.06 429.000 AIA Group Limited 1299 -HK 9.70 66.100 China Construction Corporation Class H 939 -HK 8.68 6.290 HSBC Holdings Plc 5-HK 7.72 36.600 Ping An Insurance (Group) Company of China, Ltd. Class H 2318 -HK 5.88 77.400 Industrial and Commercial Bank of China Limited Class H 1398 -HK 4.80 5.100 China Mobile Limited 941 -HK 4.35 55.500 Hong Kong Exchanges & Clearing Ltd. 388 -HK 4.32 282.800 Bank of China Limited Class H 3988 -HK 2.92 2.880 CNOOC Limited 883 -HK 2.06 9.030 CLP Holdings Limited 2-HK 1.89 78.250 Hong Kong & China Gas Co. Ltd. 3-HK 1.73 13.380 CK Hutchison Holdings Ltd 1-HK 1.68 48.700 Link Real Estate Investment Trust 823 -HK 1.63 61.300 Galaxy Entertainment Group Limited 27 -HK 1.51 54.700 CK Asset Holdings Limited 1113 -HK 1.43 43.450 China Life Insurance Co. Ltd. Class H 2628 -HK 1.42 14.920 Sun Hung Kai Properties Limited 16 -HK 1.40 94.450 Techtronic Industries Co., Ltd. 669 -HK 1.29 69.000 China Resources Land Limited 1109 -HK 1.29 31.550 Sino Biopharmaceutical Limited 1177 -HK 1.25 13.020 China Overseas Land & Investment Limited 688 -HK 1.21 24.700 Hang Seng Bank, Limited 11 -HK 1.19 122.000 Sands China Ltd. 1928 -HK 1.11 30.600 China Petroleum & Chemical Corporation Class H 386 -HK 1.07 3.470 BOC Hong Kong (Holdings) Limited 2388 -HK 1.06 22.450 China Mengniu Dairy Co., Ltd. 2319 -HK 1.02 29.000 Shenzhou International Group Holdings Limited 2313 -HK 1.01 96.000 Sunny Optical Technology (Group) Co., Ltd. 2382 -HK 0.98 108.000 Country Garden Holdings Co. Ltd. 2007 -HK 0.96 9.790 CSPC Pharmaceutical Group Limited 1093 -HK 0.93 15.660 Power Assets Holdings Limited 6-HK 0.79 44.500 Geely Automobile Holdings Limited 175 -HK 0.76 10.900 MTR Corporation Limited 66 -HK 0.75 38.400 WH Group Ltd. (HK) 288 -HK 0.74 6.600 PetroChina Company Limited Class H 857 -HK 0.73 2.710 CITIC Limited 267 -HK 0.71 7.680 New World Development Co. Ltd. 17 -HK 0.65 8.250 China Shenhua Energy Co. Ltd. Class H 1088 -HK 0.62 14.320 Hengan International Group Co., Ltd. 1044 -HK 0.59 64.600 Bank of Communications Co., Ltd. Class H 3328 -HK 0.54 4.820 Henderson Land Development Co. Ltd. 12 -HK 0.54 28.950 Hang Lung Properties Limited 101 -HK 0.43 16.820 Wharf Real Estate Investment Co. Ltd. 1997 -HK 0.42 30.750 CK Infrastructure Holdings Limited 1038 -HK 0.41 40.200 Want Want China Holdings Limited 151 -HK 0.40 5.670 Sino Land Co. Ltd. 83 -HK 0.37 9.370 AAC Technologies Holdings Inc. 2018 -HK 0.36 41.900 China Unicom (Hong Kong) Limited 762 -HK 0.35 4.420 Swire Pacific Limited Class A 19 -HK 0.27 42.600 Note Index weight data are as of 1 June 2010. Source: Fact Set

Mirae Asset Daewoo Research 2 June 8, 2020 Asia Strategy

Figure 1. Chinese southbound weekly net buying has been supportive of the Hong Kong market

(RMBbn) 10

5

0

-5 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19

Source: Bloomberg

Figure 2. Hong Kong vs. Shanghai P/E trends: Hong Kong Figure 3. Chinese GDP growth likely troughed in 1Q20; US and looks attractively valued the rest of the world look set to trough in 2Q20

(x) (%) 20 HSI P/E SHCOMP P/E 20 China real GDP YoY US real GDP YoY

18 10 16

14 0

12 -10 10

8 -20 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21

Source: Bloomberg Source Bloomberg consensus

Mirae Asset Daewoo Research 3 June 8, 2020 Asia Strategy

APPENDIX 1

Important Disclosures & Disclaimers Hong Kong and Korea

Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with either (1) the Korea Financial Investment Association and are subject to Korean securities regulations, or (2) the Securities & Futures Commission of Hong Kong. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or w ill be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”)and Mirae Asset Securities (HK) Ltd policy prohibits its Analysts and members of their households f rom owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisor y board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compen sation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo and Mirae Asset Securities (HK) Ltd, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institution al equities, , proprietary trading and private client division. At the time of publication of this report, the An alysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo or Mirae Asset Securities (HK) Ltd, except as otherwise stated herein.

Disclaimers This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the , and Mirae Asset Securities (HK) Limited. Mirae Asset Daewoo Disclaimer : Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and it is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. No part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo. Mirae Asset Securities (HK) Limited Disclaimer : This publication and the contents hereof are intended for information purposes only and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Mirae Asset Securities (HK) Limited nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute or are to be construed as an offer or solicitation of an offer to buy or sell any of the securities, or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Mirae Asset Securities (HK) Limited, and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person.

Mirae Asset Daewoo Research 4 June 8, 2020 Asia Strategy

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Mirae Asset Daewoo Research 5 June 8, 2020 Asia Strategy

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