Another new section will be launched this week on cnspoon called “reportCN”. It is a column where we share with our readers the best reports’ excerpts from Chinese brokerages, either in English or mainly Chinese. These reports represent refreshing views in our regards, and we would like to share with our readers the brightest minds of China in a glimpse.
Macro- 0.3% nominal GDP growth in USD calls for demand-side loosening
Report Author: Hong Liang
The GDP deflator was as low as -0.5% for the full year and -0.8% for the fourth quarter, confirming a deflationary bias for the entire economy.
Liang also points out, however, that during 1995-2000, China is facing a even worse depreciation expectation, due to the strong appreciation in China’s NEER.
Her conclusion is to selectively loosen monetary policy and aggressively loosen fiscal policy via tax cuts and more spending. She also thinks that the PBOC should lay out an expectation for the RMB going forward.
The only question posed by us is that how can China prevent a net capital outflow when it is loosening its monetary policy? I believe no one has the answer for that as of now.
Media: Domestic Animation to enter a Golden Age
Author: Wei Meng
“Over 2011-2014, the box office for domestic animation films rose ~2.6x, outpacing overall box office growth and suggesting rising audience interest. However, such movies accounted for <4% of the total box office in China”
Number of domestic animation movies has been three times that of imported ones, but its market share is still trailing behind:
The report believes “Monkey King: Hero is Back” signals a comeback of domestic animation movies, which reaped 956.3 million RMB worth of box office in 2015.
Several key animation players, including Light Chaser Animation established by former Tudou.com’s CEO Wang Wei, as well as SMG’s JV with Dreamworks have been mentioned. These companies may have the potential to produce better, high-quality movies going forward. More M&A is also expected in this sector. We also think that with more investment and more high-quality IPs devoted in this sector, there might be a influx of great works in this territory.
Valuation: A call for the undervalued?
Author: Yugen Xun
Brokerage: Haitong Securities
This valuation chart shows the valuation range (in TTM P/E) since 2005. Non-bank finance, banks, utilities and F&B are trading below median valuation of the past 10 years. For a lot of the other sectors, however, the valuation is still above median, or at least cannot be called historically cheap. That said, Xun thought there is a window opportunity for rebound, due to a stabilizing outlook in the near term.
Bond: Caution is the best strategy due to a change of plan in monetary loosening
Author: Chao Jiang
Brokerage: Haitong Securities
A sharp reduction in forex inflow (chart above) has one ominous consequence: a shrinking PBOC balance sheet. But why was December rather loose in monetary stance? Because fiscal deposit is in a typical outflow mode, which counteracts against the outflow. In January, however, fiscal deposit is in a inflow mode, which leads to a shrinking balance sheet situation. Then why didn’t PBOC cuts RRR or interest rate? Jiang’s explanation is that exchange rate becomes the focus in January, which forces PBOC to ultra-cautious in rate cuts or RRR cuts. In fact, the central bank has kept Hibor at a relative high level to prevent speculative attacks. Jiang reckons that this will cause additional risks for bond investors who anticipate a further loosening in monetary stance.