August 25, 2020 One-Asia Morning Focus

Today’s reports Asia Strategy – Focus on US elections in November 2020

Global performance monitor: Two-day change (%) Asia xJPN World EM World DM Korea Japan China Taiwan HK India Indonesia Singapore Thailand Index 2.85 2.57 1.18 2.39 0.73 3.64 1.43 4.22 1.14 2.64 1.26 1.72 Growth 2.75 4.27 1.14 2.03 0.40 5.85 2.21 5.66 1.65 1.90 0.95 1.95 Value 1.69 1.15 1.48 2.79 1.08 0.99 0.47 2.50 0.71 3.32 1.58 1.50 Semicon. & equip. 3.16 3.20 2.23 3.45 -0.58 0.90 2.16 -2.35 N/A N/A N/A N/A Tech hardware & equip. 1.62 1.65 4.17 1.37 0.34 2.32 1.16 -1.02 8.34 N/A 0.80 N/A Comm. & prof. services 0.87 0.87 0.78 -0.54 0.81 1.52 0.60 N/A -0.64 0.19 N/A N/A Software & services 0.70 0.64 0.11 2.15 0.05 2.34 3.15 3.85 -0.01 N/A -1.42 N/A Media & entertainment 6.18 6.04 1.63 3.09 1.03 2.22 11.12 0.46 3.37 N/A N/A N/A Consumer goods 4.07 3.96 2.11 2.45 1.09 0.98 1.66 N/A 0.70 1.64 N/A 1.64 Consumer services 1.99 1.33 2.09 3.49 0.55 0.06 -0.37 3.56 5.83 1.14 1.70 7.23 F&B & tobacco 2.12 1.80 1.08 1.86 -0.36 3.55 0.58 2.11 -0.02 2.23 -2.45 1.96 Food & staples retailing 0.66 0.90 0.55 2.39 0.15 2.32 0.07 3.13 4.35 N/A -0.87 1.43 Retailing 6.41 6.18 2.43 1.09 0.88 3.48 -1.52 3.45 -1.54 3.05 1.15 -0.10 HH & personal products 1.02 1.05 0.81 -0.21 0.40 0.56 3.05 N/A -0.23 0.86 N/A N/A Pharma & life sciences 1.45 1.69 -0.10 2.16 -0.18 0.45 2.38 0.88 -0.11 1.80 N/A N/A Autos & parts 2.84 2.80 0.99 5.32 0.64 0.37 -1.11 -0.02 1.66 0.86 N/A N/A Transportation 1.28 0.72 1.28 3.18 1.34 -0.07 3.08 1.75 -0.67 N/A 4.66 3.88 Capital goods 1.85 1.61 1.94 2.97 1.05 0.72 2.49 3.47 0.80 N/A 1.44 4.50 Materials 2.16 1.58 1.09 2.52 2.53 0.45 -0.42 N/A 0.64 3.48 N/A 0.66 Real estate 1.86 0.91 0.89 1.66 1.02 -0.61 1.73 3.80 -2.60 N/A 1.93 1.05 Energy 0.59 0.79 1.70 4.29 0.97 -0.49 0.55 N/A 0.74 0.70 10.16 2.49 Banks 0.59 0.88 1.47 2.95 2.48 -0.28 -0.42 0.73 3.34 3.84 1.22 0.53 Diversified financials 1.63 1.36 1.71 5.99 0.33 -0.88 0.19 2.70 6.60 N/A -0.32 1.85 Telecom services 1.27 1.34 0.94 5.03 0.72 -2.13 -0.63 0.59 2.22 0.13 1.14 1.02 Utilities 0.69 0.91 1.18 4.91 0.37 -1.86 0.20 1.66 -1.30 3.57 N/A 1.30 Key thematic ETFs: Change (%) Market movers Mkt cap US dollar total returns (%) Robotics & AI (Global X) Name Ctry Sector (US$mn) 1D 1M 3M 6M 1Y 3Y Cloud Computing (Global X) Top seven performers Lithium & Battery (Global X) SK Innovation KR Energy 12,903 7.6 25.6 61.9 36.3 4.4 -5.3 Internet of Things (Global X) KEPCO KR Utilities 11,376 5.6 9.2 2.5 -13.0 -16.2 -53.9 Digitalisation (iShares) SK Holdings KR Industrials 13,180 5.1 0.3 -5.1 10.4 17.3 -16.7 FinTech (Global X) Tata Motors IN Consumer disc. 5,608 4.8 23.3 56.9 -18.0 10.2 -71.5 Genomics & Biotech (Global X) Bank Rakyat Indo ID Financials 32,005 4.6 22.7 53.9 -16.7 -5.9 25.4 Health & Wellness (Global X) Bajaj Finance IN Financials 29,544 4.4 12.8 96.4 -26.8 10.9 79.2 Ageing Population (iShares) Bank Mandiri ID Financials 19,916 4.3 11.3 54.2 -20.3 -11.4 -4.1 EM Consum Growth (iShares) Bottom seven performers Clean Energy (iShares) Top Glove MY Healthcare 16,494 -8.8 2.1 126.4 361.8 446.0 872.2 Water Resources (Invesco) Hartalega MY Healthcare 13,564 -5.6 -4.6 73.0 178.1 231.6 414.3 Agribusiness (iShares) Energy Absolute TH Utilities 5,213 -2.8 -7.2 13.8 -4.8 -10.2 35.5 Global Infrastructure (iShares) Hotai Motor TW Consumer disc. 11,535 -2.3 -12.4 24.7 1.6 57.1 97.5 ESG US Leaders (iShares) Wilmar International SG Consumer staples 20,251 -2.0 2.8 23.3 9.6 18.8 46.2 2D 10D United Microelectronics TW Information tech. 9,222 -2.0 12.5 57.7 51.2 86.2 74.6 (6)(3)0369

Shree Cement IN Materials 10,577 -1.9 2.8 11.8 -10.5 14.8 11.6

This publication contains summaries of reports prepared by Mirae Asset Daewoo Co., Ltd. and/or its non-US affiliates (“Mirae Asset Daewoo”). Please review the compliance notices contained in the original reports. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Mirae Asset Daewoo makes no guarantee, representation, or warranty, express or implied, as to the fairness, accuracy, or completeness of the information and opinions contained in this document. Mirae Asset Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed, or published in whole or in part for any purpose.

August 25, 2020 One-Asia Morning Focus

MSCI valuations (DM, EM, Asia ex-JP)

17 12M forward P/E (x) 22 2.0 12M trailing P/B (x) 2.8 21 16 20 2.6 1.8 15 19 2.4 14 18 1.6 17 13 2.2 16 1.4 12 15 2.0 11 14 1.2 13 1.8 10 12 9 11 1.0 1.6 Aug-19 Nov-19 Feb-20 May-20 Aug-19 Nov-19 Feb-20 May-20 MSCI Asia ex-JP (L) MSCI World EM (L) MSCI World DM (R) MSCI Asia ex-JP (L) MSCI World EM (L) MSCI World DM (R)

MSCI 12M forward P/E (x) Currencies (vs. USD) Value Change(%) Korea Vietnam 1D 3M YTD

13 19 KRW 1,185.1 -0.34 -4.75 2.48 CNY 6.9 -0.02 -3.20 -0.78 11 16 JPY 106.6 0.65 -1.07 -1.96 IDR 14,645.0 -0.17 -0.44 5.49 9 13 HKD 7.8 0.00 -0.05 -0.53 TWD 29.4 -0.04 -2.32 -2.07 7 10 Aug-19 Nov-19 Feb-20 May-20 Aug-19 Nov-19 Feb-20 May-20 SGD 1.4 -0.03 -3.88 1.82 THB 31.5 0.05 -1.52 5.10 Indonesia India 19 24 INR 74.3 0.02 -2.15 4.12 22 PHP 48.5 -0.27 -4.44 -4.24 17 20 MYR 4.2 -0.17 -4.48 1.93 15 18 VND 23,171.0 -0.03 -0.61 -0.01 13 16 Commodities 11 14 Latest Change (%) 9 12 Aug-19 Nov-19 Feb-20 May-20 Aug-19 Nov-19 Feb-20 May-20 close 1D 3M YTD Crude oil (US$/bbl) 45.1 1.8 141.5 -33.4

Hong Kong China Thermal coal (US$/tonne) 51.6 0.0 -22.7 -23.0 17 16 Iron ore (US$/tonne) 122.6 -0.2 45.8 33.9 15 Copper (US$/tonne) 6,579.5 0.2 29.0 6.9 15 14 Nickel (US$/tonne) 14,862.0 2.1 27.5 6.2 13 Tin (US$/tonne) 17,170.0 -2.8 13.1 1.9 13 12 Gold (US$/ozt) 1,927.7 -0.4 12.0 26.9 11 Palm oil (INR/tonne) 821.3 0.2 13.8 -5.6

11 10 Soybean oil (c/lb) 31.8 0.0 24.1 -7.2 Aug-19 Nov-19 Feb-20 May-20 Aug-19 Nov-19 Feb-20 May-20 Corn (US$/bu) 3.3 0.0 6.2 -17.7 Wheat (US$/bu) 5.2 -1.2 -1.7 -6.8 Source: FactSet, Mirae Asset Daewoo Research (updated on 8/24/20 at 23:00 KST)

[Hong Kong/China]

Asia Strategy Focus on US elections in November 2020

Mirae Asset Securities (HK) Ltd. Mirae Asset Daewoo Co., Ltd. Joe Liew [email protected] Assisted by Jay (Jaeil) Lee [email protected]

Liquidity into Hong Kong/China A selective approach is needed to pick sectors for outperformance stock markets to continue  In our previous report, we flagged US-China tensions as a key risk. As tensions have only despite increased risks escalated, we now think this risk is unlikely to subside at least until the Nov. presidential election. This should act as an overhang on stocks that depend on healthy US-China relations.  Against this backdrop, exporters and stocks related to international travel should be avoided. Instead, we would focus on companies with businesses focused on China’s domestic market.  Despite the Chinese government’s more cautious stance toward liquidity, we expect stocks with growing businesses in China’s domestic market to continue to see positive momentum.

Be selective when picking Solid 2Q20 net profit growth for (+37%), Alibaba (+35%), and (+82%) sectors for outperformance  We continue to like the Chinese internet sector. For 2Q, all but one of the large internet companies registered revenue growth of 25-67% YoY despite China’s lifting of lockdown measures. The momentum likely continued in 3Q, as evidenced by July’s robust online retail sales. Of note, China’s internet companies generate the majority of their earnings from domestic consumers. We continue to recommend the Global X China Cloud Computing ETF (2826 HK) for those seeking a proxy on this theme.  We also recommend the Global X China Consumer Brand ETF (2806 HK) as a play on China’s growing domestic consumption. Most of the stocks in this ETF have businesses that rely on domestic Chinese consumers rather than overseas consumers.  Although Alibaba, Biologics, and will be included in the HSI from 7 Sep., the benchmark index is still heavily weighted in traditional industries like banks, property, utilities, and energy. With the COVID-19 outbreak persisting globally, we see better upside from investing in the two ETFs named above.

Key risks to our sector focus Earlier-than-expected availability of a vaccine  If a vaccine is approved and made widely available earlier than anticipated, sectors that have lagged (e.g., banks, property, travel, and retail in Hong Kong) will stage a rebound at the expense of sectors that have performed well amid the crisis (e.g., tech, healthcare, and China consumer). Given the strong runs that 2826 HK and 2806 HK have been on over the past six months, any disappointment over earnings/negative news could spur declines.  There is also a risk that President Trump may sign executive orders targeting other Chinese tech companies, limiting their ability to do business with US counterparts.

Global X China Cloud Computing ETF (2826 HK) and China Consumer Brand ETF (2806 HK) vs. HSI and CSI 300 (indexed to 100)

HSI (HK$) CSI 300 (CNY) 180 Global X China Consumer Brand ETF (HK$) Global X China Cloud Computing ETF (HK$)

160

140

120

100

80 2/20 3/20 4/20 5/20 6/20 7/20 8/20

Source: Bloomberg

Analysts who prepared this report are registered as research analysts in Hong Kong or Korea but not in any other jurisdiction, including the US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. August 25, 2020 Asia Strategy

1. It’s all about liquidity

In China, retail investors play a major role in the market. Margin financing, although well below 2015 levels, is on an uptrend, as is the number of new account openings. We believe the government will closely monitor the situation to avoid an asset bubble.

Figure 1. Weekly southbound net buying on HK Stock Figure 2. China outstanding margin balance (A-shares only) Connect

(CNYbn) (CNYbn) 2,500 9

2,000 6 1,500

3 1,000

0 500

-3 0 12/16 6/17 12/17 6/18 12/18 6/19 12/19 6/20 9/12 9/14 9/16 9/18

Source: Bloomberg Source: Bloomberg

Stock Connect should provide liquidity to household tech names like Tencent, Xiaomi, and Meituan, which remain underowned by mainland Stock Connect investors (with holdings of only 3.2%, 9.1%, and 5.5%, respectively). In comparison, the top shareholdings of Chinese investors via the Stock Connect channel are Ganfeng Lithium (56.8%), Huadian Power (44.3%), and Huaneng Power (43.6%). It will take some time before shares with primary listings in the US (e.g., Alibaba, JD.com, and NetEase) will be allowed in the Stock Connect scheme.

China has not turned on the liquidity taps to the extent that the US has, a fact that is reflected in interest rates. This is likely because China has swiftly contained new outbreaks of COVID- 19 and almost returned to normalcy. China’s credit impulse indicator (which measures the YoY change in the country’s credit growth relative to its GDP) appears to be tapering off after accelerating earlier in the year, likely signaling the government’s cautious attitude toward overzealous liquidity easing.

Figure 3. China credit impulse Figure 4. 3Y government bond yields: US vs. China

(%) 45 4 3Y China gov't bond yield (%) 3Y UST yield (%)

40 3 35

30 2

25 1 20

15 0 7/05 7/07 7/09 7/11 7/13 7/15 7/17 7/19 1/16 1/18 1/20

Notes: Ticker is CHBGREVO in Bloomberg; the credit impulse indicator measures the Source: Bloomberg acceleration of credit relative to GDP growth in China. Source: Bloomberg,

Mirae Asset Daewoo Research 2 August 25, 2020 Asia Strategy

2. Robust results for China’s internet sector

Large Chinese internet companies’ 2Q20 results confirmed the growth trend of China’s internet sector, with all companies except for Meituan Dianping registering revenue growth of 25-67% YoY. Meituan Dianping’s hotel and travel business declined 21% YoY, but its overall operating profit almost doubled YoY.

All of the companies we track saw improvements in net profit, and most also saw material growth in operating profit. Only Pinduoduo saw a decline in operating profit, which was due to a 49% YoY increase in sales/marketing expenses. Nevertheless, the firm’s management remains confident in the longer-term growth outlook.

Table 1. China internet plays: Growth metrics Company 2Q20 YoY revenue growth (%) 2Q20 YoY OP growth (%) 2Q20 YoY NP growth (%) Results announcement Tencent 29.3 42.8 37.2 12-Aug NetEase 25.9 11.9 35.3 13-Aug JD.com 33.8 117.3 CNY16.4bn vs. CNY0.6bn in 2Q19 17-Aug Alibaba 33.7 42.4 123.9 20-Aug Operating loss grew from Net loss shrunk from Pinduoduo 67.3 21-Aug CNY1.49bn to CNY1.64bn. CNY1bn to CNY899mn Meituan Dianping 8.9 95.5 82.0 21-Aug Source: Company data

All in all, internet companies performed well in 2Q despite the population’s return to work (lockdowns peaked in 1Q in China) and remain confident in the growth outlook. We note that online retail sales were robust in July.

Figure 5. China online retail sales growth

(%) Online retail sales growth (YoY) 30.0

25.0

20.0

15.0

10.0

5.0

0.0 7/19 9/19 11/19 1/20 3/20 5/20 (5.0)

Source: National Bureau of Statistic of Chinas

3. China–US tensions unlikely to subside

Unfortunately, US-China tensions—a key risk that we flagged in our last strategy report— have persisted, with President Trump signing an executive order to ban TikTok and WeChat in the US. We expect such hostilities to continue at least until the US presidential election on 3 Nov. We are not convinced that tensions will abate significantly even if Biden takes over as president.

Mirae Asset Daewoo Research 3 August 25, 2020 Asia Strategy

Views on Biden: Interestingly, a 19 Aug. editorial in China’s Global Times argued that Biden would be easier to deal with and that his approach would be more predictable. Markets like predictability (the risk premium declines with increased predictability). On the other hand, as pointed out in a 15 Aug. Financial Times article, Democratic candidates are wary of appearing soft on China or too enthusiastic about free trade; instead, it is important to embrace a pro- American worker trade strategy. Indeed, with opinion polls showing that Americans distrust China, Biden is unlikely to be much more conciliatory. The approach would, however, be different; one of his advisers described it to the Sydney Morning Herald (in a 4 Aug. article) as “competition without catastrophe.” This would include working with allies to press China to change its behaviour. While some areas would see a certain degree of decoupling from China in a Biden presidency, there would also be areas of potential coordination.

Under the current circumstances, stocks of companies with heavy reliance on the US, such as exporters, are best avoided. We are also wary of shipping companies and international travel- related companies. Going forward, we expect China to attempt to reduce its reliance on the US by fostering key industries. In 2018, the top US exports to China were aircraft (US$18bn), machinery (US$14bn), electrical machinery (US$13bn), optical/medical instruments (US$9.8bn) and vehicles (US$9.4bn). During the same year, US agricultural exports to China totaled US$9.3 billion in 2018, led by soybeans, cotton, hides/skins, pork/pork products, and coarse grains (based on data from the Office of the United States Trade Representative).

Stocks linked to China’s domestic consumption should continue to do well, given the increased risk of worsening China-US relations hurting trade between the two countries.

Figure 6. China total retail sales growth

(%) Total retail sales growth (YoY) 15

10

5

0

-5

-10

-15

-20 7/19 9/19 11/19 1/20 3/20 5/20

Source: National Bureau of Statistics of China

4. HSI new constituents

On 14 Aug., Hang Seng Indexes announced the results of its review of the Hang Seng Family of Indexes:

1. Inclusion of Xiaomi, WuXi Biologics, and Alibaba in the HSI; removal of Sino Land, Want Want China, and China Shenhua Energy

2. A comprehensive study of the composition of the HSI will be done within six months. The number of constituents may increase during this period.

3. The HSCEI will include Xiaomi, Meituan Dianping, and Alibaba and will drop Sinopharm, BYD, and CITIC Securities.

4. All changes will take effect from 7 Sep. (Monday).

We expect more large-cap tech names, such as Meituan Dianping, JD, and NetEase, to be considered in the next review. The index remains significantly weighted toward sectors like banks, utilities and property.

Mirae Asset Daewoo Research 4 August 25, 2020 Asia Strategy

Table 2. HIS constituents (assuming the reconstitution had been effective from 12 August) Weighting* Ticker Company FAF (%)^ Before (%) After** (%) Financials 49.03 45.47 1299 AIA Group 100 10.42 9.96 5 HSBC Holdings 100 8.86 8.14 939 (H) 45 7.58 6.97 2318 (H) 80 5.94 5.46 388 Hong Kong Exchanges & Clearing 95 5.31 4.9 1398 ICBC (H) 85 4.13 3.79 3988 (H) 95 2.5 2.3 2628 China Life (H) 100 1.69 1.56 11 40 1.16 1.06 2388 BOC Hong Kong 35 1 0.92 3328 (H) 25 0.45 0.41 Utilities 4.24 4 2 CLP Holdings 80# 1.73 1.69 3 Hong Kong & China Gas 60 1.45 1.34 6 Power Assets 65 0.73 0.67 1038 CK Infrastructure Holdings 25 0.33 0.3 Property 10.13 8.89 823 Link REIT 100 1.55 1.44 16 40 1.38 1.27 1109 45 1.3 1.2 1113 CK Asset Holdings 65# 1.34 1.14 688 China Overseas Land & Investment 35 1.07 0.98 2007 35 0.94 0.86 17 60 0.74 0.68 12 Henderson Land Development 30 0.53 0.48 101 45 0.5 0.46 1997 Wharf Real Estate Investment 35 0.41 0.38 83 Sino Land 45 0.36 0 Commerce/industrial 36.61 41.64 700 Tencent 65 11.48 10 9988 Alibaba 45 0 5 941 30 4.19 3.85 1810 Xiaomi 65# 0 2.59 883 CNOOC 40 1.9 1.75 2269 WuXi Biologics 75# 0 1.75 1 CK Hutchison Holdings 70 1.7 1.56 27 Galaxy Entertainment Group 50 1.54 1.42 669 80 1.49 1.37 1177 Sino Biopharmaceutical 60 1.25 1.15 2382 65 1.22 1.12 175 Automobile 60 1.12 1.1 2319 China 70 1.16 1.07 1928 35 1.13 1.04 2313 55 1.04 0.96 1093 CSPC Pharmaceutical 75 1.04 0.95 386 China Petroleum & Chemical (H) 95 1 0.92 66 MTR Corp. 25 0.75 0.7 857 PetroChina (H) 100 0.69 0.63 267 CITIC 25 0.66 0.61 288 WH Group 55# 0.71 0.6 1044 60 0.57 0.52 2018 AAC Technologies 60# 0.45 0.46 762 Hong Kong 20 0.33 0.31 19 Swire Pacific 55 0.25 0.23 1088 China Shenhua (H) 100 0.53 0 151 Want Want China 45 0.39 0 Total 100 100 Notes: ^FAF is subject to change resulted from substantial capital change issues; *figures may not add up to totals due to rounding; **weighting changes reflect a re-capping of Tencent to 10%, a re-capping of Alibaba to 5%, and changes in FAF; #FAF revised during the most recent review (new FAF to take effect on 7 Sep.) Source: Hang Seng Indexes

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