13D Research Comments on China’s E-commerce Boom:
Even though China was ranked at the top of A.T. Kearney’s Global Retail e-commerce index in 2013, its infrastructure sub-index score was a weak 51.1, compared to 99.1 for Japan and 96.5 for the US, making China the lowest of the top 10 countries for logistics infrastructure.
Despite this weakness, wherever there are bottlenecks, there are bound to be investment opportunities. Alibaba recently showed the importance of this through its joint venture agreement with Haier Electronics (highlighted in last week’s KraneShares Capitalvue Weekly). This gave credence to a previous observation by A. T. Kearney in April 2011 that within a few years we expect to see a transformation in China’s e-commerce logistics landscape, where e-commerce plus logistics providers will equal market success.
13D highlighted that compelling investment opportunities can be found in the companies that support and facilitate the rest of the e-commerce industry such as warehouse facilities companies along with transportation and railway companies.
Local Broker Insight:
Haitong Securities:
November nominal growth and actual growth of retail sales were higher than October by 0.4 and 0.6 points, which came in better than estimates.
Urban retail sales growth was higher than rural while retail sales of home appliance, communication equipment, and furniture recorded strong growth. www.htisec.com
CICC: Macro Thematic: Median Interest Rates on the Rise – New Economy Thematic
• The recent spike in market interest rate was to a certain extent driven by temporary factors, but more attention should be given to the fact that China is transitioning from a low interest rate environment caused by interest rate control and a high savings rate to a high interest rate one implied by a falling savings rate and interest rate liberalization
• From a short-term perspective, recent rising interest rates reflect relatively tight overall liquidity conditions amid tightening monetary policy, and against the backdrop of economic stabilization, monetary policy is leaning towards financial risk prevention and management
• In the medium-long term, the median market interest rate faces upward pressure amid interest rate liberalization and economic reform, as the easing or abolition of rules will likely drive up deposit and market interest rates.
• The two major goals of China’s economic reforms are to narrow the income gap and allow the market to play a decisive role in resource allocation, leaving the natural rate of interest with upside risk since investment rate will likely decline less sharply than the savings rate.
• In the short term, rising interest rates should boost consumption as they can increase disposable household income, while in the medium-long term, interest rate increases are a result of rising consumption and slowing investment, leaving the largest beneficiaries to be goods/services consumption and public service. www.cicc.com
CITIC Securities: IPO
The IPO restart will pressure the media sector which has a high valuation. Companies waiting in line for IPOs are mainly those that will list on the SME and ChiNext Boards. We forecast the media sector will trade at a low level at the beginning of 2014 before rebounding later in the year, and there will be divergences in individual share performance. We favor the new media sector represented by the Internet, video content and integrated marketing companies, as well as leading players that are transitioning to digitalization and are carrying out further reform measures. www.citics.com
UBS China Outlook:
UBS Asset Management sees the Hang Seng Index gaining at least 15 percent next year on the back of improving earnings growth in sectors like consumption, internet commerce and non-bank financial firms.
The asset manager expects earnings of companies on the local benchmark to expand around 7 percent next year, with the index to rise to a level between 26,800 and 28,000 points. The Hang Seng Index recently closed at 23,218.12.
“In Hong Kong, conglomerates, banks, gaming operators and capital-goods companies offer growth and income potential as the economic cycle improves,” said the Asia-Pacific regional chief investment officer at UBS. “We think China’s final reform blueprint will be a positive re-rating catalyst for the market”. www.ubs.com
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