Strategy Note Hong Kong│May 6, 2019 Hong Kong Hong Kong Strategy Northbound Stock Connect: First monthly net Insert outflows since October 2018 Northbound trading recorded net fund outflows of RMB18bn in April, which was the first monthly net outflows since October 2018. Average daily turnover of northbound trading continued to increase from RMB55bn (buy and sell) in March to RMB62bn in April. Major stocks accumulated by northbound investors early this year became major selling targets in April. The top five stocks unloaded in April were Wuliangye Yibin (000858.CH), Kweichow Moutai (600519.CH), Midea Group (000333.CH), Gree Electric Appliances (000651.CH) and Hangzhou Hikvision Digital Technology (002415.CH). Sector preference for net fund inflows in April remained diversified. The top five companies were China Merchants Bank (600036.CH), China State Construction Engineering (601668.CH), Focus Media Information Technology (002027.CH), SAIC Motor (600104.CH), and China International Travel Service (601888.CH). Northbound investors underweighted consumer staples on a relative basis in April. April 2019: First fund outflows since Oct 2018 for northbound trading Net fund inflows for northbound trading were strong in the first two months of 2019, exceeding RMB120bn in total. The net inflows became much smaller in March at only RMB4.36bn. Then we saw net fund inflows of RMB18bn in April, the first monthly net outflows since October 2018. The CSI 300 Index was up only 0.66% in April (currency adjusted), the weakest monthly performance YTD. However, the Index was still up 33% YTD, whereas the Hang Seng Index rose 16.9% (both adjusted for currency). The accumulated northbound net fund inflows YTD have still exceeded that of southbound by 470%. Average daily turnover (ADT) continued to increase despite net fund outflows The ADT for northbound trading continued to increase, from RMB55bn in March to RMB62bn in April, although the net fund flows turned from positive to negative. This was also much higher than the ADT in February (RMB40.1bn). Darlings in earlier months became major selling targets The baijiu and home appliance sectors recorded the largest net fund inflows earlier this year, But these stocks recorded the largest net fund outflows in April. Wuliangye, Kweichow Moutai, Midea and Gree were in the top 5 net fund outflow stocks in April (Figure 3 and 11). In particular, for Wuliangye, the stake owned by northbound investors dropped from 9.69% at end-March to 7.51% at end-April. Net fund inflows remained diversified in April The pattern of net fund inflows in April was similar to that in March, i.e. no clear sector preference. The top five companies recording the largest net fund inflows in April were China Merchants Bank, China State Construction Engineering, Focus Media, SAIC Motor and China International Travel Service (Figures 2 and 10). Northbound investors underweight consumer staples on a relative basis Based on the MSCI China A Inclusion Index (the version to be adopted in November, Analysts which will include mid caps), the weighting of consumer staples increased by 1.04ppt Wong Chi Man during the month to 13.78% at end-April. However, the weighting owned by northbound T (852) 3698 6317 investors was largely flat month-on-month at 23.43% (Figure 18). The main reason is that [email protected] E Wuliangye, Kweichow Moutai and Inner Mongolia Yili were major selling targets of Mark Lau northbound investors in April. T (852) 3698 6393 E [email protected] Powered by the EFA Platform Hong Kong Strategy Note│ May 6, 2019 Figure 1: Monthly net buy of northbound Stock Connect trading (RMB bn) 70.0 60.7 60.4 60.0 50.0 47.0 40.0 35.5 30.0 20.0 17.6 16.1 10.0 4.36 0.0 -10.0 -10.5 -20.0 -18.0 -30.0 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 SOURCES: BLOOMBERG, CGIS RESEARCH Figure 2: Top 20 net fund inflows for Shanghai-listed stocks in the past four weeks (northbound) Changes in stake Changes in % Change in Total stake owned by Amount of stake owned by Price on 2019E shareholding held by shareholding held by Estimated amount northbound investors owned by Market cap 2019E 2020E Ticker Company name northbound May 3 PBR (x) Dividend northbound investors northbound investors involved (RMB) based on CCASS northbound (RMB$m) PER (x) PER (x) investors within a (RMB$) yield (%) compared with Mar 30 compared with Mar 30 record on Apr 30 investors (RMB) month (ppt) 600036 CH Equity China Merchants Bank Co Ltd 60,261,790 7.3% 2,119,378,458 0.24% 3.52% 30,550,894,879 34.45 867,324.63 9.62 8.51 1.63 3.13 601668 CH Equity China State Construction Engineering Corp Ltd 170,743,531 24.2% 1,089,099,808 0.41% 2.13% 5,370,664,346 6.13 257,345.16 6.19 5.58 1.12 5.01 600104 CH Equity SAIC Motor Corp Ltd 32,447,517 9.1% 913,552,116 0.28% 3.34% 10,698,541,204 27.38 319,893.17 8.59 8.08 1.30 6.12 601888 CH Equity China International Travel Service Corp Ltd 10,897,383 4.4% 817,142,859 0.56% 13.23% 20,011,043,637 77.49 151,297.33 34.21 29.12 8.18 1.03 601012 CH Equity LONGi Green Energy Technology Co Ltd 34,522,035 36.0% 800,204,341 1.00% 3.78% 2,958,222,845 22.7 82,269.88 21.66 17.52 4.59 0.63 601225 CH Equity Shaanxi Coal Industry Co Ltd 67,297,987 26.1% 627,729,985 0.68% 3.30% 2,929,351,995 9.02 90,200.00 8.23 7.95 1.66 3.80 601933 CH Equity Yonghui Superstores Co Ltd 55,654,739 41.0% 511,387,545 0.59% 2.04% 1,871,317,741 9.77 93,503.41 40.37 31.31 4.47 1.53 600406 CH Equity NARI Technology Co Ltd 21,104,881 11.4% 446,096,885 0.46% 4.51% 4,117,704,555 19.93 92,118.75 19.29 16.51 3.28 2.19 601166 CH Equity Industrial Bank Co Ltd 21,867,308 4.0% 424,444,448 0.11% 2.75% 11,394,258,127 19.92 413,821.88 6.39 5.90 0.91 3.72 600660 CH Equity Fuyao Glass Industry Group Co Ltd 16,183,399 6.9% 419,188,566 0.65% 10.04% 6,325,297,715 25.12 62,403.59 15.96 14.45 3.04 3.91 603338 CH Equity Zhejiang Dingli Machinery Co Ltd 5,221,230 59.1% 412,889,896 2.11% 5.68% 1,056,124,400 75.12 18,606.98 28.17 20.83 6.90 0.74 600258 CH Equity BTG Hotels Group Co Ltd 18,213,273 24.7% 402,218,452 1.86% 9.40% 1,862,765,444 20.25 19,822.55 20.64 17.29 2.41 0.69 601155 CH Equity Seazen Holdings Co Ltd 9,392,800 30.8% 395,848,374 0.42% 1.78% 1,582,342,411 39.62 89,411.41 6.47 5.21 3.01 5.01 600436 CH Equity Zhangzhou Pientzehuang Pharmaceutical Co Ltd 2,916,446 34.1% 339,828,454 0.48% 1.90% 1,322,220,391 115.3 69,562.47 46.34 35.90 12.63 0.62 600025 CH Equity Huaneng Lancang River Hydropower Inc 80,121,979 50.9% 336,893,845 0.45% 1.32% 971,946,688 4.09 73,620.00 19.02 16.17 1.63 2.69 600606 CH Equity Greenland Holdings Group Co Ltd 42,068,786 18.4% 326,013,059 0.35% 2.23% 2,023,726,870 7.47 90,896.11 6.63 5.49 1.25 4.86 600872 CH Equity Jonjee Hi-Tech Industrial And Commercial Holding Co L 9,074,292 30.9% 319,216,308 1.14% 4.83% 1,385,983,780 36.05 28,718.77 38.64 30.32 7.97 0.64 603589 CH Equity Anhui Kouzi Distillery Co Ltd 5,440,460 47.7% 316,510,419 0.91% 2.81% 1,095,357,188 64.99 38,994.00 21.79 18.45 5.81 1.83 600600 CH Equity Tsingtao Brewery Co Ltd 5,715,811 48.4% 277,241,330 0.42% 1.30% 893,313,756 51 64,424.29 40.16 33.55 3.67 1.04 603259 CH Equity WuXi AppTec Co Ltd 2,942,825 61.6% 0.25% 0.66% 683,084,763 88.52 102,516.25 47.90 38.35 5.63 0.50 272,295,393 SOURCES: BLOOMBERG, CGIS RESEARCH (BASED ON CCASS DATA ON MAY 3) Figure 3: Top 20 net fund outflows for Shanghai-listed stocks in the past four weeks (northbound) Changes in stake Changes in % Change in Total stake owned by Amount of stake owned by Price on 2019E shareholding held by shareholding held by Estimated amount northbound investors owned by Market cap 2019E 2020E Ticker Company name northbound May 3 PBR (x) Dividend northbound investors northbound investors involved (RMB) based on CCASS northbound (RMB$m) PER (x) PER (x) investors within a (RMB$) yield (%) compared with Mar 30 compared with Mar 30 record on Apr 30 investors (RMB) month (ppt) 600519 CH Equity Kweichow Moutai Co Ltd (4,664,956) -3.9% (4,319,602,643) -0.37% 9.24% 113,102,504,632 974 1,223,536.66 28.90 24.55 9.86 1.73 600887 CH Equity Inner Mongolia Yili Industrial Group Co Ltd (47,992,283) -5.4% (1,457,251,393) -0.79% 13.79% 25,926,282,948 31 188,421.96 27.22 23.47 7.16 2.40 600028 CH Equity China Petroleum & Chemical Corp (206,203,266) -20.6% (1,204,325,265) -0.17% 0.65% 4,503,661,753 5.68 673,961.52 10.64 10.12 0.93 6.87 601318 CH Equity Ping An Insurance Group Co of China Ltd (10,998,393) -1.4% (911,311,132) -0.06% 4.36% 68,630,453,873 86.1 1,542,621.66 11.98 10.19 2.63 2.43 600276 CH Equity Jiangsu Hengrui Medicine Co Ltd (10,131,784) -1.7% (652,453,117) -0.23% 13.06% 37,757,267,828 65.75 290,814.52 53.59 41.99 14.20 0.28 601390 CH Equity China Railway Group Ltd (81,965,541) -46.7% (604,164,100) -0.36% 0.41% 659,464,376 7.04 153,850.11 8.21 7.30 0.98 2.34 600779 CH Equity Sichuan Swellfun Co Ltd (9,940,172) -19.1% (468,455,456) -2.03% 8.63% 2,123,746,514 50.39 24,617.82 32.32 25.26 11.86 2.62 601939 CH Equity China Construction Bank Corp (58,116,764) -11.0% (429,289,163) -0.02% 0.19% 3,512,696,163 7.44 1,514,020.29 6.88 6.50 0.94 4.37 600066 CH Equity Zhengzhou Yutong Bus Co Ltd (27,307,577) -10.3% (412,929,575) -1.23% 10.72% 3,394,286,396 14.3 31,659.33 12.55 12.05 1.98 3.62 600875 CH Equity Dongfang Electric Corp Ltd (31,804,747) -68.2% (400,603,506) -1.03% 0.48% 177,697,829 11.96 34,580.80 27.37 23.78 1.29 1.05 600030 CH Equity CITIC Securities Co Ltd (15,019,085) -6.7% (367,259,540) -0.12% 1.73% 4,819,002,762 23.04 260,399.50 20.37 18.16 1.77 1.97 603816 CH Equity Jason Furniture Hangzhou Co Ltd (6,566,094) -34.4% (361,022,608) -1.53% 2.92% 623,157,851 49.68 21,366.81 16.58 13.74 4.49 2.39 600737 CH Equity COFCO Tunhe Sugar Co Ltd (34,687,748) -54.6% (355,813,705) -1.69% 1.41% 273,242,105 9.47 20,254.89 n.a.