Early Bird

A-Share Strategy 3-August-2015

XFA Premium News
2015-08-03 16:28

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[Today’s Guide]
○Policy banks expected to strengthen “investment promotion”
○Insurance funds focus on new progress of 13th Five-year Plan
○Hangzhou Gaoxin sees constructive business condition and expands in downstream industries
○Focus on economic fundamentals and key points of macro-control again...
 
 
[Authoritative Voice]
Policy banks expected to strengthen “investment promotion”
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Signs from different aspects show that in the new round of “investment promotion” in H2 and the next year, policy banks including China Development Bank and Agricultural Development Bank of China will play a greater role. The typical manifestation is that financial bonds for special projects will extend their coverage and the term of redemption.
 
Still big downward economic pressure, a number of stalled enterprises, the structural contradiction of insufficient new impetus for economic growth versus mitigated old impetus, etc., have caused the high attention of management. “Investment promotion” is still the first choice in driving economic growth at the moment while policy banks are the main force supporting infrastructure construction.
 
According to relevant policies, the newly-issued loans of China Development Bank surpass 1.3 trillion yuan and mainly center on the redevelopment of run-down urban areas, railways, water conservancy projects and new-type urbanization. Apart from the traditional grain purchasing and storage business, the Agricultural Development Bank of China also gives big support to the construction of infrastructure projects such as water conservancy works, redevelopment of shantytowns dwelled by farmers, rural roads and urbanization. It’s predicted that in H2, the policy banks will focus on the major national strategies of “One Belt and One Road”, “Coordinated Development of Beijing, Tianjin and Hebei”, and “the Yangtze River Economic Zone”, etc. to research and promote the innovation of products and service and cultivate new growth points.
 
[Institutions’ Movement]
Strict supervision on unusual trading beneficial to boost market confidence
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On last Friday, the two stock exchanges in Shenzhen and Shanghai restricted the trading of nearly 30 securities accounts of which many are large quantitative investment institutions. XFA learned from insiders that the main reason for punishing some of these quantitative institutions is that they engaged in stock index future arbitrage in the early stage. Other institutions adopting the same strategy are also operating in low positions at large, so the punitive measures won’t have a negative impact on the market. This move to impose strict supervision on unusual trading is to some extent contributing to the curb of inter-market arbitrage and the spread of the large fluctuations of stock index futures to spot market. In addition, the hint of the positive news has very good influence on boosting market confidence.
 
Insurance funds focus on new progress of 13th Five-year Plan
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Insurance funds interviewed indicated that conventionally the 13th Five-year Plan would be one of the key topics of some upcoming important meetings. The 13th Five-year Plan period will be a key one for China’s building a moderately prosperous society. It is predicted that the plan, by combining the current core issues on economic development and reform deepening, will propose new development paths in aspects, such as industrial transformation, eco-environment, innovation in technology and education, fortress in reform, opening-up and construction of people’s livelihood. The plan is worthy of high attention as it is of great practical significance to simultaneously deal with the slowdown in economic growth, make difficult structural adjustments, absorb the effects of previous economic stimulus policies and possible risk of financial volatility. Insurance funds will timely adjust their investment strategies according to the latest trends of policies.
 
[Hotspot Investigation]
Crude oil futures begin trading as soon as Q3 with supporting policies in readiness
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Recently, the State Administration of Foreign Exchange clarified foreign exchange policies concerning overseas investors’ participation in commodity futures within China. This suggests that the introduction of crude oil futures has basically completed all supporting policies and is ready for the last spurt. Optimistically, crude oil futures will become tradable as early as the third quarter of this year.
 
It is learnt that “international platform, clean price and bonded delivery” is a basic scheme of the future’s trading of crude oil futures. Other preparatory works to be completed include: launching the third batch of rules on trading, settlement, delivery, risk control and futures, soliciting for public review; designating depository bank and warehouse for settlement, domestic futures companies establishing partnership with overseas companies; initiating emulation trade for crude oil futures which will last for about one month.
 
When synthesizing the supporting policies of different ministries and commissions, we find that the introduction of crude oil futures has seen many breakthroughs and innovations in institutional aspect. For example, foreign currency assets can be directly accepted as margin without limit; the bonded delivery business for crude oil futures will be temporarily exempt from value-added tax; overseas investors’ incomes generated from the trading of crude oil futures have no corporate income tax temporarily. These innovations, to some extent, guaranteed an active trading of crude oil futures.
 
[Information Radar]
Hangzhou Gaoxin sees constructive business condition and expands in downstream industries
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As a leading cable material enterprise, Hangzhou Gaoxin Rubber & Plastic Materials Co., Ltd. (300478.SZ) saw constructive business condition in Q3. At present, the company’s major business is running at full capacity with three shifts. In order to meet the active demand for high-end cable material, Hangzhou Gaoxin commences to expand in downstream industries, especially those conforming to China’s policy orientation and receiving support, such as cable materials for nuclear power stations and charging stations. The company’s fundraising project is under progress, which will start construction in the second half of the year and begin production in the first half of 2017 to solve the insufficient capacity. It also aggressively explores path for extensional development, seeks for proper merger target in field of high polymer material and hopes to introduce technical talents from home and abroad.
 
Dashang expected to quicken development in west China
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Dashang Co., Ltd. (600694.SH) ever planned to open stores in mid-west China in due time. Its plan to develop in west China is expected to be carried out earlier when China is actively pushing forward the strategy of “Belt and Road Initiatives”. The company is very experienced in merger and integration and has purchased a total of 28 department stores since listed. Institutions predict that the company may become an industrial integrator by taking the opportunity of the sluggish industry and state-owned enterprises reform.
 
[Information Tracking]
City living room project of China Calxon Group in quick copy period
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With the previous project reserve and operation experience accumulation, the city living room project of China Calxon Group Co., Ltd. (000918.SZ) is gradually standardized and processized, which makes it possible for the company to copy the project rapidly. China Calxon Group plans to achieve scale development in late period through benchmark self-establishing, participation cooperation and brand output. It is predicted that 60 new city living room projects of the company will be added, 47 will start construction and 4 will start operation. It plans to locate this project in Jiangsu Province in the second half of 2015. The company launched private placement tailed for this project with prices of additional stocks no less than 6.22 yuan per share in May. XFA will continue to report progress of this project.   
 
[Editor’s Thought]
Focus on economic fundamentals and key points of macro-control again
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Sharp sell-into-corrections of A shares last week has extremely hit the market sentiment, not only the ordinary investors got out of the market to save their investment, but also the institutional investors helplessly lightened the position in order to avoid the risk. According to latest news heard by the editor, position of current private investment institutions is commonly lower than 20 percent, with active public investment institutions of 60 to 80 percent and flexible investment institutions of 30 to 60 percent, which shows that market players are not optimistic towards the after-market. After all, it is possible to stage a comeback, only if the capital is saved.
 
Capital market sentiment commonly tends to be pessimistic in a short term, but positive impact from economic fundamentals and the management’s stimulating measures still cannot be ignored. Recently, significant high-level meeting will be held, and high-class economic planning and development strategy is forming, which undoubtedly contributes to further improvement of political and economic environment for capital market development. According to the information at the weekends, Agricultural Development Bank and other policy-related banks will issue new bonds of over 1 trillion yuan in the future to provide financing for infrastructure project construction. In addition, Beijing and Zhangjiakou have jointly won the right to host 2020 Olympic Winter Games. All these show that actual factors supporting the economy are quietly gathering.
 
Considering the objective reality that it will take a while to integrate, consolidate and gather the chip after dramatic ups and downs in the market, disimpassioned investors may temporarily give up the short-term opportunities to focus on long-term trend, emphatically paying attention to economic fundamentals and key points of macro-control so that to carefully study the future of listed companies. Moreover, once the fundamentals turn to better situation, it is not worried to build up market confidence again, and at that time, investors who have already leaved the market or institutional investors with light position will be the potential market force to build long position just in a very short time.
 
 
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