【英文】J.P. 摩根报告：中国股票策略：建立对经济复苏的信心（75页）

As for our China Model Portfolio revisions, we increase  our cyclical exposure by adding Midea under consumer  discretionary (upgrade to OW) and SANY under the  industrial sector. We believe the home appliance  segment will benefit from the release of the pent-up  demand on durable goods when the outbreak situation  stabilizes, and we like construction machinery on the  back of the robust excavator sales amid infra FAI  recovery. We reduce our defensive position and move  utilities to UW by selling Yangtze Power and GDI.  Within the financial sector, we rotate from insurance  (downgrade to UW) into banks by trimming Ping An  Insurance and adding BoCom. We believe that the  declining market rates and potential deposit rate cut in  2Q could aid bank’s NIM, while insurance is facing  higher credit and market risks due to the declining bond  yield and increasing market volatility. 1Q20 results underway The 1Q20 corporate earnings results season is underway,  with 85 MSCI China constituents reporting their earnings  this week, representing ~12% of the index that report  quarterly. The results generally came in-line/ahead of our  analysts’ expectation. Out of the 17 companies under our  coverage, 8 of them were in-line with our forecast and 6 were above. By taking into account the consensus  estimates of the 46 companies, 22 (35%) beat, 15 (24%)  were in-line, and 26 (41%) missed.

While the overall negative impact from the COVID-19  outbreak was severe due to the disruption on both the  supply and demand side, most of the companies witnessed some recovery and business normalization in  March, which is consistent with the macro activities data  reported in April. In particular, some retail companies’  management are anticipating 90% sales recovery in 2Q  and complete recovery in June, although the destocking  pressure may still pose a drag to the 2Q earnings on  corporate level. This reinforces our views that the  normalization of domestic consumption demand will be a  key driver of the macro recovery in next quarters, on the  back of the gradual relaxation on the social control  measures and further fiscal supports.  We expect growth to normalize in 2H20 and into 2021.  Our analysts forecast a strong recovery on corporate  earnings for CY21E at 18.3%oya, following the weak  3.7%oya for this year, which is largely in-line with our top  down view at 3-4%oya (link). Based on the bottom-up  CY21E EPS integer at 7.46, our base case MSCI China  target of 92 implies a 3% re-rating on 12m forward PE to  12.3x from current at 11.9x, which is still within range  particularly if the global pandemic begins to ease around  mid-year as expected. Nonetheless, risks of a potential reescalation in the US and China confrontation remains an  overhang after the virus concerns abate. Overall, we still  see some upside on the corporate earnings outlook for next  year when the global economy normalizes and benefitting  from a lower base effects.