Earnings watch: Chinese earnings buffet with lithium and banks in focus

Outside banks we will keep a tight watch on Ganfeng Lithium, the most valuable stand-alone lithium miner in the world, which is part of our battery theme basket and a critical input for electric vehicles. Lithium prices have surged 615% since late 2020 and Tesla has hiked prices on its EV models twice the past month. Analysts expect Ganfeng Lithium to increase EPS by 554% y/y in Q4 and increase FY21 revenue to CNY 12bn up 119% y/y and another 136% y/y in FY22 with revenue reaching CNY 28.3bn. There are 13 sell-side analysts covering the stock and they have all a buy recommendation on the stock with consensus price target being 83% above previous closing price. The key risks to the lithium mining industry is new supply coming to the market pushing down prices again. Long-term growth in electric vehicles will keep demand strong if not some new battery technology overtakes lithium-ion batteries.

Chinese equities are not cheap

In many client conversations Chinese equities come up and the question is always whether we believe Chinese equities are cheap. Based on the difference in dividend yield of the MSCI China and MSCI World compared to recent history our answer is no. The counterargument, and the one used by some investment firms, is that Hang Seng is really cheap. But if we measure Hang Seng on its relative dividend yield it is also not outright cheap relative to global equities. Why use an antiquated metric such as dividend yield? It is our preferred measure on emerging markets because it measures actual cash flows leaving corporates going into investor accounts and thus cannot be manipulated.