HSBC-China Equity Strategy-2H24 outlook Third Plenum the next c...-109037626

Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: HSBC Qianhai Securities Limited View HSBC Qianhai Securities Research at: https://www.research.hsbc.com Equity Research Report  We expect 8-19% upside for A-shares in 2024 driven by double-digit earnings growth and better liquidity; prefer growth sectors  The Third Plenum could be an important catalyst for a market re-rating and may provide guidance on investment topics  We highlight 10 stocks in 5 themes: going global, budget-friendly consumption, equipment renewal, AI phones, high dividends All eyes on the Third Plenum. The upcoming Third Plenum on 15-18 July will focus on economic reforms which may be an important catalyst for a re-rating as the market posted positive returns post this event on three out of the last five occasions. The Third Plenum could also provide guidance on investment debates and topics like: 1) SOEs vs. POEs; 2) highly regulated sectors like internet and healthcare where policy consistency could improve; 3) going global names if there is a focus on better international trade relations; 4) consumption downgrades vs. upgrades; 5) green transition names if demand and supply can be better balanced; and 6) buybacks if more effort is made to build an investor-oriented market. Three potential catalysts for 2024e earnings growth. Consensus A-share earnings for 2024 have been revised down by 11.7% y-t-d, but still imply y-o-y growth of 17.7%. We see three potential catalysts: 1) a recovery in property sales, especially new home sales; 2) growing overseas revenue; and 3) active restocking, especially in consumer electronics, home appliances, and semiconductor industries. Market liquidity has improved significantly in 1H24, including a slower pace of IPOs (RMB32.5bn in 1H24, down 85% y-o-y) and enhanced A-share buybacks (RMB137.7bn in 1H24, up 135% y-o-y). We expect marginally improved liquidity in 2H24e given: 1) lower liquidity demand from fundraising; 2) strong share buybacks; 3) steady ETF inflows (cRMB400bn in 1H24); and 4) a recovery in margin financing. Index targets and sector allocations. We expect a further 8-19% upside for the main A-share indexes through the rest of the year driven by double-digit consensus earnings growth for 2024e and better market liquidity. For sector allocations, we continue to favour growth sectors (industrials, consumer discretionary and info tech) and key beneficiaries of SOE reforms (telecom). We remain neutral on utilities as we see limited earnings impact from residential utility price hikes. Ten stock ideas. We present five investment themes and highlight 10 related stocks based on our equity analysts’ bottom-up analysis: 1) going global: Roborock, Anker Innovations, and Eastern Air Logistics; 2) budget-friendly consumption: BYD and Spring Airlines; 3) equipment renewal: Liugong and Sieyu