DBS Equity Picks: Favour policy supports, overhang removal and rising interest rate beneficiaries
The share prices of our top picks gained 3.3%, underperforming the HSI by 0.9% during the period under review. (5 May-6 Jun)
During the period under review, the best performer was Meituan (3690 HK) as the platform economy regulatory tension eases. The worst performer was Ping An Insurance (2318 HK).
Inflation, rising interest rates, supply chain disruptions, and COVID resurgences have left the HK market stagnant YTD. Investors’ confidence remains low as the “wait and see” approach is the overwhelming consensus. whilst overhangs persist, they are nothing new, and the various policy supports introduced by the government looks to finally turn the tide. Given the low investor confidence, we believe sectors that offer more visibility will outperform. Policy supports for the renewable, autos and infrastructure sectors are obvious beneficiaries. We also argue that investors should pay attention to the new economy and tech sector as the regulatory crackdown is over. Finally, HK banks enjoy tailwinds as they are clear beneficiary of rising interest rates.
We have removed China property and property management sector picks, as the physical market outlook remains challenging in China. We have also removed PSBC where the LPR cut will bring NIM pressure to the banks. We then added China Mengniu for its market leaders position with bargaining power on the upstream. We added JD and BYD for the policy supports on auto and platform economy sectors.