Made in China:Insurance Sector,U/G NCI to Buy &D/G China Life-A to Hold;APAC Telecoms

Introduced last year, the C-ROSS reports don’t just provide regulators with risk controls over the life sector, they also enable analysts to quantify, for the first time, the underlying mix of business written by the industry. With this data, we can better assess who has the best strategic focus on higher-value protection policies and who has the best risk management capabilities; we have revised our target valuations to rank the stocks accordingly. The most significant change is for NCI, with a 64% higher valuation - we upgrade the stock to Buy and one of our Top Picks. Ping An leads with the results of our analysis and is a Top Pick after a 35% lift in valuation. (Esther Chwei - 852 2203 6200) .

    Telcos have failed to benefit in recent years from the digital technology boom they have helped create. Management are trying to correct this, with efforts to consolidate and restructure, promoting price discipline and lifting payouts. Free cashflow we expect to almost double by 2019, raising FCF to peak levels, while expansion into digital services should narrow the widest discount to internet P/E of the last decade. M&A has historically been associated with index volatility, and prior episodes of 2017-like merger activity generated up to 50% returns. (Peter Milliken - 852 2203 6190) .

    The PBOC reported new loans of Rmb1.54trn and TSF of Rmb1.78trn for June 2017. While both exceeded consensus estimates, China’s credit growth slowed to 14.7% yoy in June from 15.2% in May (Fig 1), keeping the credit impulse (three-month TSF as a percentage of GDP) below the 10-year average (Fig 2). This contradicts the still resilient economic momentum evidenced by a stable PPI and above-50 PMI. In our view, improving corporate profitability, a reduction in self-circulating funds and better credit allocation efficiency provide buffers. While financial deleveraging may continue, we expect only a modest negative impact on the real economy. Buy ICBC/BOC/CCB. (Hans Fan - 852 2203 6353)