Dim Sum Express

A-Share Market

    Steel: Apr outlook positive amid strengthening pro-growth efforts

    Both steel and iron ore prices are likely to rise by up to 20% in Apr following the rebounds in Mar.

    Sector supply-demand is likely to improve further in Apr due to the traditional peak season coupledwith higher-than-expected rebounds in property investment and new starts growth. We highlightinvestment opportunities in relation to the government’s pro-growth efforts and supply-side reformwhich we see as the two key tasks for 2016. In addition, the special steel and steel pipe industriesare also worth watching.

    Coal: Apr sector outlook; watch downstream activity and inventory changes

    The FOB price of 5,500 kcal/kg thermal coal at Qinhuangdao port picked up 2.4% MoM in Mar. Assteel market strength since the start of Mar has driven coking coal prices higher, improved earningsand stronger business activity at steel companies should benefit the upstream coking coal market.

    On the supply side, improvements should be seen in Apr on strengthened policy measures to reduceovercapacity. Further improvements in property and cement demand are likely to pass upstream.

    Given the relatively low coal inventories at present, we see little destocking pressure compared withthe low season in previous years.

    Hong Kong Market

    Investment Strategy (monthly preview): Time for portfolio rebalancing during market rebound

    The Hong Kong market rebounded from its Feb lows on the back of the rebound in commodity prices,the Fed’s dovish tone, further QE from the ECB, US dollar weakness, and a stabilizing Rmb. Whilethe latest market rally is in line with our earlier expectation, and is likely to continue for a short while,the next question is whether this rally is sustainable. For Apr, we have rebalanced our portfolio withthe inclusion of Goodbaby, Air China and Huaneng Renewable, which we believe to have improvingearnings outlooks yet attractive valuations.

    Macro: Strong employment but still no hurry to raise rates

    The non-farm employment report showed a steady improvement in the labor market during Mar.

    Unemployment rose to 5.0%, but is actually a positive signal, since the labor participation rate alsorose, to a two-year high. Wages were also encouraging. External risks are now playing a moreimportant role in the Fed decisions. We therefore expect strong employment data not to lead to anApr hike. We maintain our view that the Fed will raise rates at the Jun meeting, if financial marketsremain strong in the coming months.

    HK Retail Sector Monthly: 2M16 retail sales decline close to 2003 SARS level

    Retail sales slumped 20.6% YoY in Feb, below consensus of a -7.8% decline. 2M16 sales dropped13.6% YoY, weaker than the 8.5% decline in Dec. The decline was a result of falling mainland visitorarrivals and poor consumer sentiment. Shares across the sector rose 4% in Feb, less than the HSI’s9% gain. According to the HKRMA, most member companies expect a low double-digit YoY drop insales in Mar, suggesting a slight improvement on 2M16. Looking ahead, we think the strongconsumer sentiment in 2Q15 will have provided a high base for 2Q16 retail sales growth.