Dim Sum Express

Investment Strategy: A-share market to remain strong until late March; optimism on 2Q17 onwards might be unjustified

    Based on our channel checks conducted last week, current economic conditions might resemble those in 2003 or 2011. Although economic conditions in 2003 were more favorable for the stock market compared to 2011, movements in the A-share market were very similar in both years: serious corrections were seen in 2-3Q of both years after the routine “spring rally” in 1Q. Therefore, any optimism on the stock market environment from 2Q17 onwards will not be justified, in our view, though the market should remain strong between now and late March as investors’ optimism about an economic recovery cannot be disproved yet and as market liquidity is still improving.

    Machinery: Feb excavator sales volume growth likely to rise to new high level

    Based on our channel checks, excavator sales have remained strong in Feb due to this year’s earlier-than-usual CNY, and we expect Feb excavator sales volume growth to reach a new high level, exceeding the 50-70% range recently seen. Infrastructure development is pushing excavator sales volume strongly at present. In addition, excavators tend to have a lifespan of 6-10 years, and now we are entering a major equipment replacement cycle, which should support mid/long-term demand. We suggest watching leading companies with expanding market shares and high earnings visibility.

    Agriculture: Spain avian flu pandemic adding to uncertainties; watch feedstuff business transformation

    Most feedstuff companies have now adopted the strategy to build their own hog farming business downstream, and this process has been expedited by rising entry barriers for the farming business created by land and environmental restrictions. In the near term, the feedstuff industry will be driven by an expected rebound in the number of hogs on farms and relatively cheap corn prices. The short-term goals of agriculture supply-side reform are focused on destocking and industry restructuring, while in the longer term, the reform is supposed to reduce production costs and enhance production efficiency through land trading and plant breeding technological development.