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A-Share Strategy 2015-04-09

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2015-04-09 18:24

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 [Today's Guide]
○ Spring of low-priced cyclical stocks to come
○ Institutions show optimistic outlook toward securities stocks
○ More measures to invigorate New Three Board
○ Three companies to develop cellular immunotherapy
 [XFA View]
Spring of low-priced cyclical stocks to come
Different types of stocks shall all have opportunity to surge in a bullish market, and low-priced cyclical stocks are no exceptions. Considering the communication with institutions, the author believes that the spring of low-priced cyclical stocks is coming and it might become next hotspot.
In terms of the momentum supporting market surge, the switch of momentum is needed. The A-share market driven by small- and medium-cap growth stocks since Jan. 6 has lasted for three months and is gradually lacking in strength. First of all, the stock index of the ChiNext Board has surged over 70 percent since the beginning of the year and the average P/E ratio surpasses 95 times. High prices make it hard to win the favor of incremental capital. Secondly, CSI500 stock index futures will appear on the market on April 16. Lots of institutions with heavy investment in small- and medium-cap stocks might resort to the hedge tool to spread risks. It might indirectly lead to the dumping of small- and medium-cap stocks in the short term. Thirdly, the high valuation of small- and medium-cap stocks inevitably pushes up the listing pace of various assets and results in the slight attitude change of different parties. Hence, adjustment of small- and medium-cap stocks might occur at any time.
From another perspective, either the weakening of US dollar in the middle term or the “visible hand” of domestic policies all help to boost the price rebound of cyclical stocks. “Internet Plus” and “SOEs reform” are deepening their influence on traditional industries and bring instant improvement to the valuation of cyclical stocks. What’s more, the inflow of OTC capital has just started. Institutions, represented by publicly-offered funds, have large demand on cyclical stocks for capital allocation.
Taken together, the cyclical stocks including finance, non-ferrous metals, steel and real estate stocks which lag behind in the early stage might see large investment opportunity. It would be a good strategy to seek for theme investment opportunities in the second quarter. (Hong Wen)
 [Data Reference]
Rebound of funds market might just start
Statistics of XFA shows that by April 1, the total scale of 94 stock-oriented funds established this year exceeds 200 billion yuan, meaning that the initial public offering of funds averagely raises 2.16 billion yuan, growing by nearly 110 percent compared with the corresponding period last year. The Dongfanghong China Advantage Mixed Funds (001112) sells 15 billion yuan in just three trading days, setting a three-year new record concerning issuance scale of stock-oriented fund.  Moreover, for the 26 new funds which close their fundraising in advance, 23 of them are stock-oriented funds and 5 of them announce closure of fundraising at the first day of its issuance.
However, in terms of fundraising scale, it cannot be compared with the boom of last round of bullish market. Statistics show that 18 tens-of-billions funds were created during 2006 and 2007. The initial public offering scale of the Harvest Strategy Mixed Fund, established in Dec. 2006, reached 41.92 billion yuan.  Even during the structural bullish market in 2009, six tens-of-billions funds were created. The China AMC Prosperity Fund (000061), established in Dec. 2009, raised 18.7 billion yuan for the initial public offering.
Under the big context that the real estate industry goes downtrend in the long term and that residents’ asset allocation is far from termination, the rebound of funds market might has just started and this round of policy-supported market might not end easily. It is noteworthy that since the valuation of growth stocks is not low now, funds are more cautious in the short term. Combining that the capital scales of new funds are large, quality blue-chip stocks might become the subject of new funds.
 [Institutions' Movement]
Institutions show optimistic outlook toward securities stocks
Latest institutional investor survey of XFA shows that securities stocks sector might be the main force contributing Shanghai Composite Index (SCI) to reach 4000 points.  Reasons are as follows: first of all, the performance of listed securities companies in the first quarter sees a year-on-year growth of 150 to 200 percent, far exceeding the widely estimated 100 percent by the market; second, the SCI surmounts 4000 points recently, surging 17 percent compared with previous high, but most securities stocks have just overstepped their previous highs and there is still room to surge; thirdly, it’s highly possible that the annual performance of the sector will be good. It is widely estimated that the performance growth of the securities companies will exceed 50 percent. The interviewed institution specially emphasized that the continuously expanding trading volume is the main support to the revaluation of securities stocks. Continuous surging of securities stocks can be expected if the market keeps active.
XFA reminded investors on March 25 that securities companies’ performance in the first quarter might exceed expectation.
Insurance companies “scout treasure” in HK stock market through QDII
XFA learns through investigation that some insurance capital “scout treasure” in Hong Kong stock market through QDII and they mainly target at H shares whose valuation is lower than their A shares. The surveyed China Life Asset Management Company Limited indicates that under the support of policies and OTC capital, the A-share market still has momentum to surge. It is possible that SCI might surge to 4000 ~ 5000 points.  However, local risks cannot be ignored. The P/E ratio of the ChiNext Board is nearly 100 times. Accidental events might trigger adjustment. Close attentions will be paid to the economic data of the first quarter and March to be released next week to see whether economic downtrend takes a turn for the better.
 [Authoritative Voice]
Series of systems and arrangements to invigorate New Three Board
It is reported that relevant systems and arrangements, including the market division, the competitive price transaction and the adjustment of appropriateness threshold for investors, are expected to be introduced to invigorate the National Equities Exchange and Quotations (NEEQ), commonly known as the New Three Board and similar to OTCBB in the U.S. market. The internal division of the New Three Board is a priority task of the NEEQ. Based on the preliminary conception, different internal layers will implement differentiated trading methods and criteria on the investor appropriateness.
In addition, the NEEQ will channel more efforts in the development of the market maker trading methods this year. It will launch the competitive price transaction and adjust the threshold for investors after taking into account the market supply and demand as well as the operation. While conducting market division and introducing new trading methods, it will also consider the connectivity of the floor trading market.
[XFA Viewpoint]
Cellular immunotherapy prospers, three companies to develop first
The annual conference of the American Association for Cancer Research (AACR) will be held on April 18. As a new antitumor therapeutic method, the cellular immunotherapy is likely to catch the attention of the global medical community. The cellular immunotherapy has been gradually known by the public this year. It targets at the immune system of the human body other than tumors and is currently the only possible treatment method to eliminate tumor cells. XFA learnt that the bio-immunotherapy has been covered by the state medical insurance coverage. Patients in certain cities and towns in Shanxi, Shaanxi and Jiangsu Provinces can enjoy the reimbursement from medical insurances for the bio-immunotherapy.
The immunotherapy also prospers quietly in China. Many listed companies, including Beijing SL Pharmaceutical Co., Ltd. (002038.SZ), Xiang Xue Pharmaceutical Co., Ltd. (300147.SZ) and Shanghai Haixin Group Co., Ltd. (600851.SH), are actively conducting the research and development in the industry. With the regulation matures, the cellular immunotherapy in China will see benign and rapid development and medicine products may be approved.
Liaoning Medical and Biological Technology Co., Ltd., a subsidiary of SL Phar., owns the foundation for immune cellular drug carriers and the platform for clinical researches. It has jointly conducted scientific research and clinical treatment with more than 10 Class 3A hospitals in China. The immune cellular therapy has obtained patents and treated more than 16,000 patients.
Xiang Xue Phar. and the 458th Hospital of PLA signed an agreement on the “cooperation in the clinical research center for the specific T cellular therapy technology” last year. The technology is mainly targeted at malignant tumors, including lung cancer, liver cancer and melanoma and can conduct clinical translation technologically. The cooperation can be a new growth area of the company in the long term.
Shanghai HaiXin Biotechnology Co., Ltd., a subsidiary of Haixin Group, and the Second Military Medical University jointly developed the “Antigen pulsed dendritic cells (APDC)”. The APDC is a therapeutic drug for advanced colorectal cancer. It is independently developed in China and has been approved by the China Food and Drug Administration (CFDA). The project is under the 863 program of China and has determined the Phase III clinical plan last year.
 [Industry Observation]
Capital expenses cut by three oil giants not impede shale gas exploration
As a result of the sluggish oil prices, three large state-owned petroleum companies, namely PetroChina Company Limited (PTR.NYSE; 00857.HK; 601857.SH), China Petroleum & Chemical Corporation (Sinopec, SNP.NYSE; SNP.LSE; 00386.HK; 600028.SH) and China National Offshore Oil Corporation (CNOOC), cut their capital expenditure this year. But XFA learnt from authoritative officials that the capital expenditure cut will not affect the exploration of shale gas by relevant companies and they even may increase the investments.
Fu Chengyu, Chairman of Sinopec, told XFA that shale gas will bring profit growth to the company in this year and the coming years. The output growth will speed up and the price is expected to be high. The shale gas in Fuling District, Chongqing Municipality, under business exploration has received relatively high returns. Sinopec will invest more in the business. Wang Dongjin, President of PetroChina, indicated that despite the cut in capital expenditure, the proportion of the upstream core businesses will increase to over 75 percent from below 70 percent last year and the oil and gas exploration will remain unchanged. It is estimated that the annual output of shale gas in 2020 will reach over 6 billion cubic meters. Li Fanrong, CEO of CNOOC, disclosed that shale gas is an important part in the development of the oil and gas industry in the long run and CNOOC will pay attention to development opportunities in the future. Relevant executives of Sinopec Oilfield Service Corporation (01033.HK; 600871.SH) also disclosed at a press conference that despite the overall capital expenditure decrease in crude exploration, the investments in shale gas and natural gas will continue to increase.
 [Information Radar]
Neway Valve initiates application for Level I nuclear power qualification
Neway Valve (Suzhou) Co., Ltd. (603699.SH) has initiated the application for the Level I nuclear power qualification and is expected to be granted the qualification this year. Neway Valve and Dongwu Machine, its subsidiary, currently own Level II and III qualifications.
Neway Valve is a leading domestic valve company. Compared with its overseas competitors, the selling price of the same product of the company is at least 15 percent lower with huge pricing advantages. As the products of the company are positioned at high-end markets and the prices of raw materials remained at low levels, the prices of certain products of Neway Valve will be stable or increase. Institutes believe that with the mass production of new products, the company enjoys promising prospectus in replacing imported products. Statistics show that the imported valves reached 40.7 billion yuan in 2013, which is equivalent to 16.6 times of Neway Valve’s revenue in 2013. It enjoys huge opportunities in replacing them with homemade products.
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