Dim Sum Express

Investment Strategy: Sector analysis within the context of A-share valuationinternationalization

    The valuation of A shares is becoming increasingly internationalized with the implementation of theQFII, RQFII and Stock Connect programs, as well as A shares’ recent inclusion into the MSCI. Basedon the balance between profitability (ROE) and valuation (P/B), we think A shares’ overall valuationis largely in line with international markets, though structural differences between individual sectorsexist. The valuation of the A-share consumer staples sector is in line with international comparables;the cyclical sector, emerging industries and non-bank financials are structurally overvalued, whileproperty and banking are structurally undervalued.

    Steel: June crude steel output data review

    Given current property and infrastructure investment trends, domestic steel demand remainsrelatively high, though not without some downward pressure. Coupled with the upcoming low seasonin July due to the hot and rainy weather, steel demand might weaken slightly MoM. Meanwhile, steelsupply is likely to pick up further in the near term as steel mills are resuming or expanding productiongiven relatively high profit margins on various steel products, while some qualified productioncapacity using electric furnaces are coming on line soon.