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Singapore’s China Index Begins 2021 with 7% Gain

  • The FTSE ST China Index generated a 7.1% gain last week, following a 7.4% total return in 2020. The Index is comprised of the 17 stocks of the FTSE ST All-Share Index with more than 50% revenue exposure/assets associated with China operations.
     
  • The newest entrant to the FTSE ST China Index is Nanofilm Technologies International which began 2021 with a 12% gain taking its gains since listing to 91%. Nanofilm’s prospectus detailed that two-thirds of its FY19 revenue was generated from invoices issued by its China operations.
     
  • Nanofilm Technologies was the strongest of the 17 in 2020, followed by a 34% gain for Hi-P International and 30% gain for Sunpower Group. On 31 Dec, Sunpower International entered into a SPA to divest the Manufacturing & Services business to Nanjing Sunpower Holdings, enabling a strategic focus on its Green Investments.
     

The FTSE ST China Index has gained 7% over the week 2021, adding to its 7% total return in 2020. The Index is comprised of 17 stocks of the FTSE ST All-Share Index that report more than 50% of their revenues or assets to China (click here for more). From the end of 2019 through to 8 January 2020, the FTSE ST China Index generated a 15% total return which compared to a flat total return for the FTSE ASEAN All-Share Index with the correlation of both indices declining from 60% to 40% over the 53 weeks.

The 17 stocks of the FTSE ST China Index saw a combined net institutional outflow of S$437 million in 2020, while the first week of 2021 saw S$105 million of net institutional inflow. Yangzijiang Shipbuilding and CapitaLand Retail China Trust saw the highest net institutional outflows in 2020, while Wilmar International and Yangzijiang Shipbuilding have seen the highest net institutional inflows in the first week of 2021.

FTSE ASEAN ALL SHARE Index

Nanofilm posts 90%+ Gain Since Listing

The newest entrant to the FTSE ST China Index is Nanofilm Technologies International (“Nanofilm”), joining in the Index in December 2020. Nanofilm generated a 12% gain in the first week of 2021, taking its gains since listing to 91%. Nanofilm’s prospectus detailed that two-thirds of its FY19 revenue was generated from invoices issued by its China operations.On the first trading day of 2021, Nanofilm ended the session for the first time since listing with a market value above S$3 billion.

Nanofilm was also the strongest performer of the 17 stocks in 2020, followed by a 34% gain for Hi-P International and a 30% gain for Sunpower Group. On 31 December, Sunpower International entered into a Sales and Purchase Agreement to divest the Manufacturing & Services business to Nanjing Sunpower Holdings, enabling a strategic focus on its Green Investments. The gross consideration of the transaction is RMB 2.29 billion, to be paid in two tranches. The Green Investments segment is Sunpower’s primary value creator and according to the Group is a growth driver that generates long-term, high-quality recurring income and cash flows. Furthermore the Group maintain this segment is well-positioned to capture the enormous potential of China’s anti-smog services sector by investing in, developing and operating environmentally-friendly centralised plants that supply steam to industrial parks, sell electricity to the State Grid and provide heating to residential households on long-term exclusive supply concessions (click here for more).

Other stocks of the FTSE ST China Index that generated positive total returns in 2020 included Hutchison Port Holdings Trust, Wilmar International, Hong Leong Asia, Tianjin Zhong Xin Pharmaceutical Group Co, EC World REIT and Sasseur REIT.

FTSE ST China Index Constituents (Sort by most traded in first week of 2021)CodeMkt Cap S$M2020 Total Return2021 YTD Total ReturnNet Insti Inflow 2020 S$MNet Insti Inflow 2021 YTD S$M10 Year Total ReturnSector
Wilmar IntlF3431,83317%8%-427311%Consumer Non-Cyclicals
YZJ Shipbldg SGDBS63,925-11%7%-17327-22%Industrials
NanofilmMZH3,26270%12%-304N/ATechnology (Hardware/ Software)
CapitaR China TrAU8U2,203-7%4%-1163131%REITs
Sunpower5GD66530%2%-1-1.0110%Industrials
Hi-PH171,60734%-1%353196%Industrials
HPH Trust USDNS8U2,48924%9%-4-0.6N/AIndustrials
Yanlord LandZ252,183-2%1%-19-2-18%Real Estate (Non-REITs)
Hong Leong AsiaH2259516%4%30.3-69%Consumer Cyclicals
Sasseur REITCRPU1,0070%2%-350.9N/AREITs
ValuetronicsBN2263-24%3%-200.2454%Technology (Hardware/ Software)
China AviationG92955-13%5%10.311%Energy/ Oil & Gas
EC World REITBWCU5764%0%-10-0.3N/AREITs
China SunsineQES481-1%0%-1-0.6326%Materials & Resources
Tianjin ZX USDT142,3437%1%-11-0.342%Healthcare
China EverbrightU9E644-25%0%-13-0.2-49%Utilities
SIIC EnvironmentBHK458-32%2%-1-0.3-35%Utilities

Source: SGX StockFacts, Refinitiv and Bloomberg (Data as of 11 January 2021)
 Six of the nine largest constituents of the FTSE ST China Index by market value are producing goods or services that are ultimately consumer focused, include Wilmar International, Nanofilm, Tianjin Zhongxin Pharmaceutical Group Co, CapitaLand Retail China Trust, Hi-P International and Sasseur REIT. Together these six stocks averaged 19% total returns in 2020.

Yihai Kerry Arawana Holdings Co (“YKA”), the 89.99% subsidiary of Wilmar International has been trading on the Shenzhen Stock Exchange ChiNext Board since 15 October. The current valuation gap sees YKA maintaining a Price-to-Earnings (“P/E”) ratio of 115x, compared to Wilmar’s Price-to-Earnings ratio of 17x. In China, Consumer Goods stocks with a market value of at least US$1 billion maintain a median P/E ratio near 45x, compared to their peers across the exchanges of APAC financial centres trading at a median P/E ratio of 20x.

China’s Economy Expected to Grow 8% in 2020

As discussed in a recent Market Update, the Xtrackers MSCI China UCITS ETF and the United SSE 50 China ETF were the two top performing Singapore-listed RTFs in 2020 with respective returns of 32% and 27% (click here for more).

Unlike most of the world’s economies, China is expected to report positive economic growth in 2020. Consensus expectations are for China to achieve 8% GDP growth in 2021
. The rebalancing to a more consumption-driven, services-orientated economy is expected to continue the inroads made over the past 10 years.

Stability of China’s housing market will remain an important driver and enabler for the ongoing policies designed to cultivate its consumer-driven economy. China’s National Real Estate Climate Index click here for more) stood at 100.55 in November, marginally lower than the average of 101.09 between February 2016 and November 2020 calculated by CEIC.The IMF estimate that housing accounts for two-thirds of Chinese household assets (almost double the US ratio), and in July 2020, China’s average residential house price surpassed a landmark of 10,000 RMB (US$1500) per square metres for the first time. While the IMF (click here for the full working paper) acknowledged the ongoing regulations addressing potential vulnerabilities such as new housing-related loans not exceeding 30 percent of total bank loans, much potential remained for the deepening of financial markets to channel savings and banking activity to more productive segments of the economy, such as small to medium-sized enterprises (“SMEs”).

SMEs are generally seen to be a relatively productive segment as they generate output and employment, and provide an important means for the reorientation of China to a more consumption-driven, services-orientated economy. A stable housing market can exude confidence to support channeling of savings and banking activity to such segments.

SME growth has continued to be pursued in 2021. One of the key policy initiatives that came out of last week’s PBOC Annual Meeting was the establishment of mechanisms offering effective financial support to the real economy. The Xinhua News Agency elaborated that policies on inclusive loan repayment extension and the credit loan support program for smaller businesses would be prolonged, while the Central Bank will guide financial institutions to strengthen support for technology innovation, private companies and small and micro-sized enterprises (click here for more).

Aside for the structural agenda in 2021, given the comparatively large population of China, resurgence of the Coronavirus will remain the key social and economic risk in 2021, with 2020 showing that China will act quickly with containment measures, while providing stimulus. 

Originally Posted on January 11, 2021 – Singapore’s China Index Begins 2021 with 7% Gain

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