Monthly Market Pulse: Inflation and interest rate to take centerstage
- We prefer ports & toll roads, oil & gas, HK banks, and China financials during this inflation upcycle
- Investors should continue to pay attention to the likely rebound in new economy and property blue-chip names
- Sector preference remains unchanged
- Maintain 12mth HSI target at 28,500
In search of inflation winners. The US annual inflation rate was recorded at 7% for the first time since 1982. During times of inflation, we prefer companies that benefit from manifested rising ASP, the interest rate upcycle, and the strong general economy. We like both the ports & toll roads and oil & gas sectors due to the strong demand amid the global economic recovery post pandemic and the inflationary environment. HK banks will stand to benefit from the upcoming Fed interest rate upcycle. Chinese brokers and China’s banks will be benefitted by the improved risk appetite in the HK and A-share markets.
Investors should continue to pay attention to the likely rebound. We think the easing regulatory development and policy turnaround on China’s property sector have left the HK equity market at an attractive valuation, in contrast to the US market. While we are in search of inflation winners, investors should also pay attention to companies with undemanding valuations and unique secular growth stories and their likely rebound. We prefer new economy and blue chip property names, as they are likely to benefit from a strong general economy but are not impacted by higher inflation or interest rates; yet, the sector is well positioned for the likely rebound in the HK market.
A mix of inflation winners and companies with policy tension eases. Our top picks are based on the top picks in our overweight sectors. They are AIA, Alibaba, BOCHK, CMB, Country Garden, CG Services, China Longyuan, Ping An Insurance, Tencent, and CICC. Our sector preference remains the same as last month.