Profiting in a Low Rate Environment

- Macro Trends — "The global economy seems to be entering an era of low interest rates and slow growth as the recovery loses steam. This will likely be positive for China’s equity market because: 1) China will also maintain its policy rates at historic low levels for longer; 2) weak dollar traditionally favors EM equities; and 3) capital inflows would rise when investors chase higher growth, a stronger currency and better returns."
- Policy and Market Update — "China’s tightening cycle has probably bottomed though policy overhangs remain a risk. Lower real interest rates in general indicate buying opportunities. Barring no double dip in the developed world, we continue to believe that downside risk in the market is rather limited."
- Sector Preference — "We upgrade the property and materials sectors to neutral from underweight to take advantage of an extended period of low interest rates. Meanwhile, we are still cautious about the banking sector as we see a lack of positive catalysts in the near term."
- Stock Picks — "High beta and high dividend yield are two key criteria for stock picks amid low interest rates. CNOOC and Maanshan Iron are two relatively high beta and high yield plays. In the category of high beta and low yield, we favor Nine Dragons, Dongfeng Motor; Agile Property; and PICC. On the other end, Jiangsu Exp, CCB and ACC Acoustic belong to the low beta and high yield league."
- Multi-Strategy: Add Risk — "Multi-Asset points toward continued stabilization. Slowing US economy points to weaker USD, which helps Chinese equities. 1) Buy Cyclicals Basket, 2) Futures Pair: Long HSCEI, Short SPX, 3) Long Outperformance Call Option (HSCEI – SPX), and 4) Buy HSCEI calls outright."


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