23/2018-1

Investment Trends: China’s steady growth, betting on domestic demand stocks

Mainland economic growth slowed down quarter by quarter. As the United States implemented tariffs on China, the economy in the third quarter was tested. It is believed that the government will increase fiscal stimulus and fine-tune monetary policy to ensure internal demand, thus stabilizing growth. speed. Therefore, it is possible to bet on high-quality domestic demand stocks, which can avoid risks and return is expected to outperform the market.

High-quality domestic demand stocks can be hedged and returns are expected to outperform the market.

Mainland China’s gross domestic product (GDP) increased by 6.8% year-on-year in the first half of the year, but the growth rate in the second quarter was 6.7%, which was lower than the 6.8% increase in the first quarter. Other data were also disappointing, including a 6% year-on-year increase in industrial added value in June, which was the lowest level since March this year; fixed asset investment in the first six months increased by 6% year-on-year, a record low; The total amount has slowed down after seasonal factors. A lot of data shows that the growth momentum in the second quarter has changed. If it is not timely, it will only confirm the economic reversal in the second half of the year. There will be a vicious circle for investor confidence and internal demand, which will adversely affect the stability of the financial market.

Looking forward to the second half of the year, once the United States implements tariffs on additional 200 billion US dollars of Chinese goods in September, it is bound to further crack down on the mainland economy. However, the two sides have yet to show signs of contradictions, which is worrying that exports will continue to slump and will seriously hit the mainland. Manufacturing and port logistics industries. In order to cope with the sanctions, the People’s Bank of China may allow the renminbi to be devalued in an orderly manner, which poses significant uncertainties to the external debt burden and exchange risk of domestic enterprises.

On the other hand, the economic growth in the Mainland in the second quarter has slowed down, which is not unrelated to the continued de-leveraging of the government. Blocking shadow banks, blocking illegal fund-raising channels, and strict investigation of local finances have slowed credit growth and slowed down fixed investment such as infrastructure. The latest directional RRR cut by the PBOC was mainly used for debt-for-equity swaps, indicating that the government has prepared for the debt problem to worsen. Faced with this situation, it is expected that in addition to fine-tuning the monetary policy, the government will increase fiscal stimulus to stimulate domestic demand. Investors may wish to make investment deployment from this perspective.

Originally, auto stocks were one of the optional sectors of the domestic demand concept. However, the recent reduction of import tariffs in the Mainland and the restrictions on open foreign ownership have raised the policy risks faced by auto stocks. The more desirable domestic demand stocks are sports goods stocks and dairy stocks. One major market is expected to benefit from the favorable policies for boosting consumption in the second half of the year; the second is limited by foreign trade disputes.

Anta’s performance is worthy of

Since the outing of the trough in the past three or three years, the sports goods industry in the Mainland has maintained steady growth for several years. Among the positive factors are the increase in disposable income, the holding of large-scale sports events, the support of national policies, the enthusiasm of residents for sports and the growing concern for healthy living.

Sports goods leader Anta Sports (02020), in addition to its own brand, also has brands such as Fila, Descente, Kolon, Sprandi, NBA and KingKow to target different consumer groups. The Group’s performance in recent years has steadily increased, and the sales in the first quarter of this year are ideal, which makes people have higher expectations for its second-quarter results.

There is a big line that the management has a positive view on the second quarter results. The Fila and Anta brands will outperform their expectations. They will raise their earnings forecasts for the next two years and give a target price of 49 yuan.

The sporting goods sector was sung by a short-selling agency in mid-June, dragging down Anta’s share price, and the group has already clarified. At present, the stock price has not returned to the level before the sharp decline. It is expected that the funds will flow into the domestic demand sector in the second half of the year. As the industry’s first choice, Anta has a good value.

In addition, as the official sponsor of the World Cup, Mengniu Dairy (02319), the stock price has remained at a high level this year. The Sino-US trade war has been brewing until the official start, and the trend remains solid.

Mengniu’s basic factors are good

Regarding the basic factors of the industry, China’s policy of opening a two-child policy in recent years should, in the long run, promote the growth of liquid milk and milk powder products and release the growth potential of dairy stocks. Mengniu as a brother in the industry will benefit. The investment bank expects the stock to have a medium-to-high double-digit growth in the first half of the year with confidence that the operating profit margin is expected to increase and the share price will rise as the product mix upgrades and the raw milk price stabilizes.

In addition, the Group continues to increase its spending expenses and strengthen the brand’s international reputation. In addition to helping to expand overseas markets, it also enhances sales and profitability. The Group’s business strategy is both internal and external, and it is expected to achieve the “2020 goal" set by the management, that is, the sales in 2002 will reach 100 billion yuan.

Property management unit backed by large housing enterprises

Another emerging sector in the domestic demand concept stocks is the Property Management Unit. The domestic market is huge, and its derivative value-added services market has the same potential. With a number of mainland large-scale housing companies arranging their property management companies to go public in Hong Kong, this sector has become a scale and has received much attention. In addition, the income and living standards of mainland residents are constantly improving. Housing is a rigid demand. The property management assets have low light assets and low cycle impact characteristics. Together with Hong Kong-listed mainland property management stocks, they all rely on large-scale housing enterprises. Combined supply, and gross profit, increase the attractiveness of long-term funds.

Property management is a value-added service for real estate. Quality property management services can add value to the property and attract buyers. Therefore, high-level property management is also an important factor in raising housing prices. In recent years, the housing market has been prosperous, and residents have purchased houses. In addition to the requirements for interior design, property management services have also begun to pay attention. In the past five years, the property management industry has developed rapidly, the market scale has been expanding, and the property management sector has become more and more choices. Last week, Ya Life Services (03319) issued a profit forecast, which stimulated the stock price to hit a new high. As for the Country Garden service (06098), which was only listed for one month, it has remained strong.

Country Garden service can be held for a long time

Morgan Stanley published a report last month, giving the Country Garden service an “overweight" rating with a target price of $14. As of the end of April this year, the Group’s property management business covers more than 260 cities across the Mainland, involving a total gross floor area (GFA) of 365 million square meters. The bank estimates that the Group’s earnings per share will grow at a compound annual growth rate of 40% from 1.7 to 20, which is higher than the industry average of 30%. The bank also said that property management companies are more defensive than real estate developers because of lower policy risks.