1、 DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should
2、be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 26 March 2019 Global Equity Research Strategy Global Equity Strategy Research Analysts Andrew Ga
3、rthwaite 44 20 7883 6477 andrew.garthwaitecredit- Robert Griffiths 44 20 7883 8885 robert.griffithscredit- Nicolas Wylenzek 44 20 7883 6480 nicolas.wylenzekcredit- Mengyuan Yuan 44 20 7888 0368 mengyuan.yuancredit- Kartikeya Upadhyay 44 20 7888 2339 kartikeya.upadhyaycredit- Asim Ali 44 20 7883 2480
4、 asim.alicredit- STRATEGY Chinas economy and related plays We see clear signs that China is now pursuing policies that should allow economic growth to stabilise, including: i) a stabilisation in our aggregate credit indicator; ii) the first rise in PMI new orders in eight months; iii) Markit PMI inv
5、entories falling to the bottom 5% of their five-year range (which implies destocking is advanced); iv) fiscal easing of 1.7% of GDP; and v) property developers outperforming this implies that house prices will not fall by much (and we still think housing is critical). But we expect only stabilisatio
6、n rather than a large stimulus given low unemployment, record-high leverage and a lack of term limits for President Xi. We also think demand is unlikely to accelerate much from here (with the fall in manufacturing profits implying a slowdown in manufacturing FAI, the fall in housing turnover implyin
7、g a decline in housing starts, and still-weak export orders). However, unlike in 2018, supply (i.e. output) and demand are now balanced and destocking is advanced. We stress that there has been no major rebalancing (China has experienced the fourth largest credit bubble of any country over a 10-year
8、 period, leading to real estate excess and over-investment) but we see no catalyst for a hard landing; e.g.: i) house prices falling to levels that would result in negative equity; ii) clear-cut deflation; iii) a loan-to-deposit ratio rising well above 100%; or iv) China becoming a net debtor and a
9、basic balance of payments deficit. We think that, structurally, growth has to continue to be consumer-led, with the consumption share of GDP at 39%, real wage growth of 6% and a high savings ratio, though the latest CS Emerging Consumer Survey 2019 shows weakness in consumer spending intentions on b
10、ig ticket items and low income expectations, thus highlighting potential near-term risk. Raise mining to overweight (after raising it to benchmark in December). The catalyst is that historically mining has outperformed one to three months after China PMIs turn and global IP is at a trough, and 80% o
11、f the time the yield curve inverts mining outperforms. The FCF yields are compelling (11.4% on spot prices and 4.2% under our stress test scenario). Mining is a deleveraged sector focused on shareholder returns. The sector benefits from technical disruption (via stronger copper demand and more effic
12、ient production techniques), with a very long asset life and good industry structure. There are also signs of potential under-investment. We maintain our underweight of steel and think that investors should focus more on consumer-related commodities (e.g. aluminum). Norsk Hydro and Glencore are both
13、 rated Outperform. Other China plays: We stress our overweight of GEM, Shanghai A (owing to supportive valuations and signs of restructuring), Germany and Japan. We stay benchmark luxury. We turn more cautious on China-related capital goods companies. 26 March 2019 Global Equity Strategy 2 Table of
14、contents What is happening to the Chinese economy? 3 The good news 3 What are our concerns? 8 What about the China plays? 17 Mining: take to overweight but stay underweight steel 17 Steel: stay underweight 26 Emerging market equities: overweight 27 Chinese equities: stay overweight, albeit less than
15、 before 34 Autos: overweight 41 European luxury: benchmark 43 China-related capital goods: underweight 49 Germany: overweight 50 Japan: overweight 52 Appendix . 55 26 March 2019 Global Equity Strategy 3 What to do with the China plays now? China has been a critical driver for the global economy, acc
16、ounting for 36% of global GDP growth on average over the past five years. Last July, we were cautious on China (see China: Continue to be careful, 18 July). We expect Chinese economic momentum to stabilize as opposed to accelerating, but this is still a much better backdrop than in 2018. In this rep
17、ort we look at two issues: What is happening to the Chinese economy; and What we should do with the China plays. We upgrade mining to overweight (having upgraded it to benchmark in December 2018). What is happening to the Chinese economy? The good news 1. Lead indicators have started to improve We s
18、aw a clear turn in PMI lead indicators and macro surprise indicators in February. Importantly, the pick-up seems to be broad-based across different sub-categories on the Markit measure. Figure 1: China manufacturing PMI new orders have picked up, with macro surprises now positive Figure 2: The lates
19、t PMI subcomponents show that the improvements have been broad-based and inventories have fallen Source: Refinitiv, Credit Suisse research Source: Refinitiv, Markit, Credit Suisse research 2. Domestic demand showing resilience PMI new orders versus inventory, which tends to lead IP, has shown partic
20、ularly significant improvement as can be seen in the figure below, with domestic demand clearly stronger than exports (see the CS Economics note China: Trade data reflects deterioration in external demand, 8 March). 484950515253545556- 1 4 0-9 0-4 01060J a n - 1 5 S e p - 1 5 M a y - 1 6 J a n - 1 7
21、 S e p - 1 7 M a y - 1 8 J a n - 1 9M a c r o S u r p r is e sC h i n a ma n u f a c t u r i n g P MI s n e wo r d e r s , r h s0%1 0 %2 0 %3 0 %4 0 %5 0 %6 0 %7 0 %8 0 %9 0 %M a r k it h e a d li n e M a r k it N e wo r d e r sM a r k itin v e n t o r yM a r k it o u t p u t M a r k it N e wo r d e
22、 r s v sin v e n t o r yL a t e s t C h i n a Ma n u f a c t u r i n g P MI s h i s t o r i c a l p e r c e n t i l e r a n k s ( la s t 5 y r s )L a s t m o n t hL a t e s t26 March 2019 Global Equity Strategy 4 Figure 3: PMI new orders vs inventory have picked up on both NBS and Markit measures Fi
23、gure 4: Domestic demand has been much stronger than external demand Source: Refinitiv, Markit, Credit Suisse research Source: Refinitiv, Credit Suisse research 3. Inventories are falling In the second half of 2018, we were concerned about an involuntary inventory rebuild in China with Markit PMI inv
24、entory increasing to the top 5% of its five-year range in November 2018. This seems to be changing. PMI inventory has now fallen to the bottom 5% of its five-year range (as shown in the previous chart) and PMI new orders minus inventory has increased from the bottom 20% of its five-year range in Dec
25、ember to the top 20% of its range. 4. Stabilising monetary policy Despite February credit data coming in below market expectations, we note the combined total of the first two months of 2019 at RMB 5.3trn is still notably higher than the RMB 4.3trn we saw in the same period last year. Credit momentu
26、m seems to be troughing. The key, we think, is that the rise in bank loan growth is enough to offset the fall in off-balance sheet lending. - 2 0- 1 5- 1 0-50510152025J a n - 0 5 N o v - 0 6 S e p - 0 8 J u l- 1 0 M a y - 1 2 M a r - 1 4 J a n - 1 6 N o v - 1 7C h i n a m a n u f a c t u r i n g P M
27、 I N B S N e w o r d e r s v s I n v e n t o r yM a r k it N e w o r d e r s v s in v e n t o r y444648505254562 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8N e w e x p o r t s o r d e r sN e w o r d e r sN B S P M I m a n u f a c t u r in g26 March 2019 Global Equity Strategy 5 Figure 5: C
28、redit momentum has stabilised Figure 6: TSF growth has had a small bounce, while bank lending has held up well Source: Credit Suisse China Economics team Source: Refinitiv, Credit Suisse research The focus of monetary policy has been on ensuring adequate liquidity. We can see that the reserve requir
29、ement ratio has been lowered (with further cuts expected) and there has been a large fall in the interbank rate from its 2017 level. Figure 7: The reserve requirement ratio has been lowered Figure 8: The interbank rate has been falling Source: Refinitiv, Credit Suisse research Source: Refinitiv, Cre
30、dit Suisse research 5. A greater allocation of credit to the private sector Credit allocation efficiency may be improving. The credit multiplier, measured as the change in GDP per unit of new total social financing, has also been trending up. Up to 80% of credit had been going to the SOEs. This look
31、s set to change. Most recently, in its work report, the government has pledged to increase loans to SMEs from big commercial banks by more than 30%; this compares with an average bank loan growth rate of 12.5% in 2018. SMEs were hit the hardest by deleveraging campaigns as they rely heavily on off-b
32、alance sheet financing. - 1 5 %- 1 0 %- 5 %0%5%1 0 %1 5 %2 0 %2 5 %3 0 %3 5 %J a n - 1 6 J u l- 1 6 J a n - 1 7 J u l- 1 7 J a n -1 8 J u l- 1 8 J a n - 1 9B a n k lo a n g r o w t hO f f b a la n c e s h e e t le n d in gC o r p o r a t e b o n d g r o w t hT S F g r o w t h *% c h g Y / Y051015202
33、51 9 9 9 2 0 0 1 2 0 0 3 2 0 0 5 2 0 0 7 2 0 0 9 2 0 1 1 2 0 1 3 2 0 1 5 2 0 1 7 2 0 1 9R e s e r v e r e q u ir e m e n t r a t ioB i g b a n k sS m a l l b a n k s0246810122 0 0 2 2 0 0 4 2 0 0 6 2 0 0 8 2 0 1 0 2 0 1 2 2 0 1 4 2 0 1 6 2 0 1 8C h in a in t e r b a n k r a t e - 1 m o n t hL a t e
34、s t26 March 2019 Global Equity Strategy 6 Figure 9: Credit multiplier is improving gradually Source: Refinitiv, Credit Suisse research 6. Continued fiscal policy easing CS economists expect fiscal easing of c.1.7% of GDP compared to 4% of GDP in 2015. The total tax cut and fee reduction is estimated
35、 to be RMB 2trn in 2019 a significant increase from the 2018 tax reduction target of RMB 0.8trn. The tax cuts and VAT declines have, to a large extent, been funded by cuts in general government spending and an increase in dividend payments from SOEs. The VAT and tax cuts are scheduled for April and
36、May. There was a rise in off-balance sheet spending as well. The special bond quota for local governments will increase by c.60% to RMB 2.15trn from RMB1.35trn in 2018 (an increase of c.0.8% of GDP). We have already seen rhetoric turning into action with a pick-up in local government bond issuance a
37、nd NDRC project approvals. Figure 10: Local government bond issuance Figure 11: NDRC project approval has picked up as well Source: Refinitiv, Credit Suisse research Source: Credit Suisse China Economics research 0 . 10 . 20 . 30 . 40 . 50 . 60 . 70 . 80 . 91 . 02 0 0 4 2 0 0 6 2 0 0 8 2 0 1 0 2 0 1
38、 2 2 0 1 4 2 0 1 6 2 0 1 8C h a n g e in G D P p e r u n it o f n e w T S F02 0 0 04 0 0 06 0 0 08 0 0 01 0 0 0 01 2 0 0 0F e b - 1 5 N o v - 1 5 A u g - 1 6 J u n - 1 7 M a r - 1 8 J a n - 1 9L o c a l g o v e r n me n t b o n d i s s u a n c e , R MB b n0501 0 01 5 02 0 02 5 03 0 03 5 04 0 04 5 05
39、 0 01 / 2 0 1 6 7 / 2 0 1 6 1 / 2 0 1 7 7 / 2 0 1 7 1 / 2 0 1 8 7 / 2 0 1 8 1 / 2 0 1 9N D R C P r o je c t a p p r o v a l ( R M B b n )26 March 2019 Global Equity Strategy 7 There is still fiscal flexibility because: (i) the primary budget deficit is c4.4% and this is still only c.3% above the rea
40、l bond yield, meaning that as long as GDP growth is in excess of 3%, government debt to GDP should not rise; and (ii) while the aggregate government debt is high at 170% of GDP (taking into account debt from SOEs), there are also very substantial government assets and thus the governments net financ
41、ial worth remains positive, according to the IMF. If we combine our policy indicators (where we look at 12-month change in 3-month total social financing and fiscal deficit), we see clear stimulus in the fiscal space, while credit policy has been more equivocal. Figure 12: Evolution of China policy
42、since January 2018 Source: Refinitiv, Credit Suisse research 7. Property developers doing well We believe property prices are the critical variable when there has been a credit bubble. In China, property accounts for c.25% of local government revenues, 60% of banks collateral and around half of hous
43、ehold wealth and c.10% of GDP. The performance of property developers, which tends to correlate with house prices and property transactions, has been holding up well, suggesting a collapse in house prices is not a widespread short-term concern. J a n - 18Feb - 18M a r - 18A p r - 18M a y - 18J u n -
44、 18J u l - 18A u g - 18S e p - 18O c t - 18N o v - 18D e c - 18J a n - 19Feb - 19- 3 . 0 %- 2 . 0 %- 1 . 0 %0 . 0 %1 . 0 %2 . 0 %3 . 0 %4 . 0 %- 1 2 . 0 % - 1 0 . 0 % - 8 . 0 % - 6 . 0 % - 4 . 0 % - 2 . 0 % 0 . 0 % 2 . 0 %Fiscal impulse(12mchangein3mfiscal deficit, %of GDP)C r e d it M o m e n t u m
45、 ( 1 2 m c h a n g e in 3 m n e w T S F , % o f G D P )Expansionaryfiscal policy- e x p a n s io n a r y c r e d it p o l i c y26 March 2019 Global Equity Strategy 8 Figure 13: Property developers relative performance has held up well against property turnover Figure 14: and against hou se prices So
46、urce: Refinitiv, Credit Suisse research Source: Refinitiv, Credit Suisse research What are our concerns? We do, however, worry about few aspects of the economic story: 1. Three areas of demand look like they will weaken further, in our view. Export orders have been weak and suggest export growth is
47、likely to fall further. This also seems to be reflected in the PMI weakness for the export-oriented Asian economies. Figure 15: Export growth had been strong but new orders imply a significant slowdown Figure 16: Manufacturing PMI new orders of the export-oriented Asian economies remain weak Source:
48、 Refinitiv, Credit Suisse research Source: Refinitiv, Markit, Credit Suisse research - 4 0 %- 2 0 %0%2 0 %4 0 %6 0 %8 0 %1 0 0 %791113151719212 0 0 7 2 0 0 9 2 0 1 1 2 0 1 3 2 0 1 5 2 0 1 7 2 0 1 9M S C I C h in a r e a l e s t a t e , r e la t iv e t o m a r k e tC h in a p r o p e r t y t r a n s
49、a c t i o n s ( f lo o r s p a c e ) , y / y %, 3 m m a , r h s8910111213141516- 1 . 5- 1 . 0- 0 . 50 . 00 . 51 . 01 . 52 . 02 . 52 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 9C h i ne s e h ou s e p r i c e s , m on th - o n - m o nt h, % chgM SC I C hina r ea l e s ta t e de v elop er s r el, r hs454749515355- 3 0- 2 0- 1 001020304050J a n - 1 0 A p r - 1 2 J u l- 1 4 N o v - 1 6 F e b - 1 9C h in a e x p o r t , i n U S D , y o y , 3 m m a , %N B S P M I m a n u f a c t u r in g - e x p o
