ETF STRATEGY 10/12/2020 RMB Assets Still Attractive Market Overview The global stock markets performed well generally. A-shares and U.S. stocks have successively set record highs. • A-shares continued to rise, and the FTSE China A50 Index hit a record high since December 2007 last Friday. • In November, the U.S. dollar continued to weaken, while the CNH rose against the U.S. dollar to a new high this year. On December 4, CNH/USD reached 6.52. • The FTSE Chinese Government Bond Index hit a record high last Friday, and Chinese 10-year Government Bond yield recently fluctuated at a high level of 3.3%. Bi-weekly and MTD Return (%) Source: Bloomberg, bi-weekly return: 20/11/2020 - 4/12/2020, MTD return: 30/11/2020 – 4/12/2020 1 CSOP Asset Management Limited 2801-2803, Two Exchange Square, 8 Connaught place, Central, Hong Kong 2020 Year-to-date and Range (%) Source: Bloomberg, as of December 4, 2020. The two ends of the blue bars show the lowest and highest returns at any point this year to date, and the gold dots represent current year-to-date returns. But Star50 Index only has the cumulative return since July 22, 2020. All information for an index prior to its launch date is back-tested, back-tested performance reflects hypothetical historical performance. Past performance figures are not indicative of future performance. The hypothetical performance figure is for illustrative purpose only. Not indicative of actual future performance, which could differ substantially. FTSE A50 Index, CSI 500 Index, S&P New China Sectors (A-shares Capped) Index, and CSI 500 Index are net total return indexes. Gold future refers to the excess return index of Solactive Gold 1-Day Rolling Futures Index. Bloomberg Barclays China Treasury + Policy Bank Index is the total return index. The remaining are price index. Macro News 【Global】 Former Federal Reserve Chair Janet Yellen has been nominated for Treasury secretary, and the US congress resumed fiscal stimulus negotiations. It is expected that Yellen will push the launch of new fiscal stimulus bill, which is very urgent as US daily new cases reached a new high and stricter prevention measures may be introduced soon. US nonfarm payrolls increased by 245,000 in November, far fewer than the 460,000 additions expected, showing that US employment growth slows sharply in November amid coronavirus surge. US has restarted negotiations on a new round of economic relief package, and market expects additional stimulus measures worth about US$900 billion to be announced. 2 CSOP Asset Management Limited 2801-2803, Two Exchange Square, 8 Connaught place, Central, Hong Kong The US Senate and House of Representatives passed the “The Holding Foreign Companies Accountable Act” unanimously. The act requires foreign companies listed on US exchanges to comply with US accounting standards or be delisted. The act will have little effect over the short term, as foreign companies are only banned if they fail to comply with audits for three years in a row. Although the act targets all foreign companies, Chinese companies currently account for more than 90% of listed companies whose audit documents have not been effectively obtained by US regulators. At present, many companies have completed or planned secondary listing in Hong Kong to avoid the negative impact of the new bill on the company. The UK and the European Union restarted trade negotiations as the deadline looms. The Brexit trade agreement negotiations have reached a deadlock. British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen once again talked over the phone, planning to meet to try and close gaps their negotiators have struggled with for months. After the call, the two issued a joint statement, stating that the two sides still have major differences. The negotiations are still highly uncertain, and talk of a 'no deal' Brexit grows. OPEC+ will slowed production amid weakening demand. The Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed last week to gradually increase crude oil production by no more than 500,000 barrels per day from January next year. The pace of production is more gradual than originally planned, giving the fragile oil market more time to absorb the additional supply. 【Greater China】 China November manufacturing PMI and export growth both hit a three-year high, showing the steady economic recovery in China. China's manufacturing purchasing manager index (PMI) in November was 52.1%, a record high since September 2017. The November Caixin service PMI was 57.8%, the second highest value since May 2010. China's exports in November (in RMB) increased by 14.9% year-on-year, and exports (in U.S. dollars) increased by 21.1% year-on-year, rising at a fastest pace since February 2018. The trade surplus reached a record US$75.42 billion, better than the expected surplus of US$53.75 billion. China November foreign exchange reserves recorded the largest monthly increase in seven years, and regulators are less likely to intervene in the foreign exchange 3 CSOP Asset Management Limited 2801-2803, Two Exchange Square, 8 Connaught place, Central, Hong Kong market. China's foreign exchange reserves increased by US$50.508 billion in November, the largest monthly increase in seven years, and reversed the downward trend in the previous two months. The regulator may have a higher tolerance for exchange rate fluctuations and is less likely to intervene foreign exchange using foreign reserves. The foreign exchange reserves are expected to rise stably with more foreign inflows and the trade surplus. The market raises the concerns about the monetary tightening, but the recent policy actions indicate that the monetary policy may remain neutral. People’s Bank of China surprised markets on November 30 with an injection of medium-term cash into the banking system through one-year medium-term lending facility (MLF) loans. The main purpose may be to ease the pressure on the bank's debt side, rather than turn to a monetary easing. When the market expectation of monetary tightening reappear, this round of MLF may also be intended to adjust market expectations. Monetary policy will remain neutral, aiming at promoting stable economic growth and financial risk control. FTSE Russell will remove eight Chinese companies from its global stock benchmarks beginning December 21 after US blacklisting. FTSE Russell said that it would remove Hikvision, China Railway Construction and six others from FTSE GEIS and FTSE Global China A Inclusion Index Series beginning December 21 after the Trump administration accused the companies of having ties to the Chinese military and barred US investors from trading or owning their shares. Allocation Views 【ETF Views】 Class View Code ETF Names Chinese monetary policy is expected to 3053. CSOP Hong Kong Dollar remain neutral, while Fed maintains its HK Money Market ETF Money current easing pace. Market is in hopes 9096. CSOP US Dollar Money of a new U.S. stimulus deal. HK Market Market ETF Recent strong China exports relieve the 3122. CSOP RMB Money Market concerns that the appreciation of RMB HK ETF will drag down the recovery of trade. The regulator is less likely to interrupt the foreign exchange market, and RMB CSOP Bloomberg Barclays Fixed 3199. will be supported by solid fundamentals. China Treasury + Policy Bank Income HK We maintain positive view on the Bond Index ETF Chinese onshore government and policy bank bonds. 4 CSOP Asset Management Limited 2801-2803, Two Exchange Square, 8 Connaught place, Central, Hong Kong 2822. CSOP FTSE China A50 ETF We see sign of recovery across all HK sectors, and the earnings in A-shares are 3149. CSOP MSCI China A Inclusion expected to improve further in 4Q2020. HK Index ETF A Shares We maintain our strategic view for the 3005. CSOP CSI 500 ETF fourth quarter that overweighting large HK financial stocks and cyclical sectors. 3147. CSOP SZSE ChiNext ETF HK Consumption sector led the recent rise, 3033. CSOP Hang Seng TECH Index and new economy sector will continue HK ETF to benefit from the economy recovery. 3167. ICBC CSOP S&P NEW Theme Tech sector has been volatile recently, HK CHINA SECTORS ETF but tech is still attractive for its growth 3193. CSOP Yinhua CSI 5G potential and profitability. HK Communications Theme ETF Note: Green-Recommendation, Grey-Neutral. Views cover the future 1 month. 【L&I Views】 The stock markets have gained momentum recently. However, market may undergo short-term corrections amid the dynamics of COVID-19 pandemic, vaccine distribution, the US fiscal stimulus package, post-Brexit trade deal and China-US relations. We see capital inflow into the reverse products in last two weeks, and reverse products can continue to provide downside protections for investors. With the recent strong economic data, A-shares outperform H-shares. The AH premium tends to expand, and the Hang Seng Stock Connect China AH Premium Index was 145.10 on December 4, 2020. Given that the AH premium trading strategy is generally valid in the process when the long-run mean reversion to 130 level, we suggest to long 7333.HK and 7200.HK (short CSI 300 vs long HSI). The Capital Flows of Leveraged & Inverse Products (Million HKD) Class Code L&I Product Name In/Out A Shares 7233.HK CSOP CSI 300 Index Daily (2x) Leveraged Product -65.7 7333.HK CSOP CSI 300 Index Daily (-1x) Inverse Product 157.96 HK 7200.HK CSOP Hang Seng Index Daily (2x) Leveraged 23.96 Stocks Product 7300.HK CSOP Hang Seng Index Daily (-1x) Inverse Product -11.99 7500.HK CSOP Hang Seng Index Daily (-2x) Inverse Product 3.57 7288.HK CSOP Hang Seng China Enterprises Index Daily (2x) - Leveraged Product 7588.HK CSOP Hang Seng China Enterprises Index Daily (- 22.88 2x) Inverse Product US 7568.HK CSOP NASDAQ-100 Index Daily (-2x) Inverse 198.32 Stocks Product 7266.HK CSOP NASDAQ-100 Index Daily (2x) Leveraged - Product Commodities 7299.HK CSOP Gold Futures Daily (2x) Leveraged Product^ - Source: Bloomberg, from November 23 to December 4.