China Equity Strategy:Broadening reflation and upgrading earnings;laggards screen

H-shares (MSCI China) rallied 9% YTD, outperforming A-shares (CSI300 +3%) and global peers (Figure 1). Cyclicals including materials, property and IT are the best performers, while banks, brokers, and energy lagged (Figure 2). Looking forward, we continue to see sizable upside potential in H-shares, based on improving demand, broadening reflation, upgrading earnings and strengthening inflows; reflation remains the preferred theme, we reiterate preference on Financials, Energy and Industrials, while underweight Telecom, Utilities and Staples. See more analysis in our 2017 outlook Hearing the Rooster Crow: Restocking, Rebalancing & Re-rating, 8 Dec.