• Energy, utilities, and power sectors in demand; Education retreated after strong gains in Nov; RRR cut to benefit China banks
  • Remain overweight on automobile, renewable energy, China property & management, e-commerce, internet, port & toll roads, and oil & gas
  • Our 12-month Hang Seng Index target is maintained at 28,500, which implies 12.1x FY22F PE

Monthly market wrap. Hang Seng Index dropped 0.3% m-o-m in December. The performance of the index stocks was mixed – technology and new economy stocks underperformed while financials overperformed the benchmark. China officials are laying the ground for a stable economy in 2022 by cutting the RRR by 0.5ppt and injecting RMB150bn into the economy. Energy and power related sectors outperformed the market due to the peak winter season. The Education sector was the worst performing sector as prices retreated from the strong gains in November. 

Sector preference. We are Overweight on China automobile and renewable energy due to supportive policies amid President Xi’s pledges on NEV and zero emissions. We believe heavily regulated sectors and companies that have already been penalised are more likely to avoid further regulatory action and most importantly, sectors such as China property, China property management, e-commerce and internet are trading at attractive valuations. We like both the port & toll roads and oil & gas sectors due to the strong demand amid global economic recovery post-pandemic and the inflationary environment. Lastly, we believe financial-related sectors such as China/HK banks and China Insurers stand to benefit from the upcoming interest rate upcycle.

Valuation. Our 12-month Hang Seng Index target is maintained at 28,500, which implies 12.1x FY22F and 10.6x FY23F earnings, equivalent to its 5-year average 1-year forward PE. There is no change in our top picks during the period.