Fund Flow Monitor

Weekly recap:

    Sector performance was mixed while HSI consolidated at high levels. HSI consolidated at high levels last week with a volatility of 700 index points after the big up gap following the long holiday in early April. HSI finally gained 1.4% on last Friday’s close, while sector performance weakened slightly. With the additions of laggards oil & gas and China banking, sectors in the strong zone increased to 9 from 7. In addition to overseas insurance that had been recently overlooked by market, HK property and consumer fashion & apparel were also added to the undervalue zone which hints opportunity of catching up. On the other hand, sectors in the overvalue zone increased to 10 from 4, and Internet & Software sank into the weak zone after recent gains. The bullish sectors for the week include:

    i) Shipping, ii) Oil & gas, iii) China banking, iv) Infrastructure, v) China property, vi) China insurance, vii) Overseas insurance, (viii) HK property, and (ix) Consumer fashion & apparel.

    Sectors in highlight:

    Infrastructure: Infrastructure sector continued to outperform on the speculation of the “One Belt, One Road” plan and the merger of China’s biggest two train manufacturers. CSR (1766) and CNR (6199) both rallied 28%.

    Shipping: CSCL (2866), SITC (1308) and Sinotrans Shipping (368) surged by 20%, 26% and 15%, respectively, on the restructuring speculation of China’s five leading shipping groups.

    China banking: While ICBC (1398) and BBC (939) both climbed more than 7%, CMB (3968) hiked nearly 20% on bargain hunting.

    Weekly investment themes:

    China properties: An influx of liquidity drove up the sector’s market cap after the authorities unveiled a new round of measures to relax restrictions on the property market in end-March. Considering the lag effect of the measures and growing expectations for loosening monetary policy, we expect to see the positive effect in the second quarter and the possibility of a new record-high market cap. Industry leader China Overseas (688) outperformed on fund flowing back thanks to better-than-expected 26% growth in FY14 profits, speculation of parentco asset injection and inexpensive valuation.Shenzhen Investment (604) also outperformed on speculation of additional asset injections from its parentco, greater contribution of projects in Shenzhen to 80% that is expected to greatly push up overall gross margin, and 20%-plus increase of contract sales in the first months of this year.

    Oil & gas: Brent oil price has rebounded 40% year to date, while crude oil price surged 6% to one-year high of US$56.39 per barrel in the U.S. last Wednesday amid increase in crude inventory stood at lower-than-expected 1.3 million barrels last week. Meanwhile, the International Energy Agency raised its oil demand forecast for 2015.Fund began to flow back into oil & gas sector on all these positive factors. We believe that the worst is over for the sector’s profitability and domestic oil & gas companies are likely to see their earnings to recover in 2H15 and 2016 driven by volume growth, price hikes of refined oil products and SOE reform. In addition, Shell’s acquisition of BG at a premium of 50% also suggested increased sector valuation as global energy prices rebound.