Made in China:Asia Steel,CN Banks,Consumer Staples,Food Retail,Hotel Trip;Sunny Optical

We see plenty of evidence indicating that the new norm of the steel industry formulated due to Chinese Supply Side Reform (SSR). Our recent trip to China increased our convictions, as we believe the government's will to carry on this political agenda is still strong. We believe that sustaining profitability of steel mills will rid investors’ of their skepticism in the end, and we re-rate the sector further based on its strong fundamentals. Thus, we upgrade our TPs on steel stocks and reiterate our Buy recommendations. (James Kan - 852 2203 6146) .

    Today we hosted a group conference call with Mr. Sun Haibo, an expert specializing in China’s financial regulations and policies. We discussed the process, outlook and impact of financial deleveraging. Mr. Sun expects the deleveraging to continue for perhaps two years, but the worst period should have passed. The impact on the economy should be limited, as the tighter rules have forced funds to support the real economy, rather than circulating within the financial sector. We provide details of the replay here, which will be available for one week until 10pm, 24 July 2017, HKT (Mandarin only). (Hans Fan - 852 2203 6353) .

    We identify three new-normal trends in the consumer staples sector in 2017: 1) volume growth is stabilizing, with no further decline but no rebound either; 2) raw material price tailwinds are turning into headwinds; and 3) premiumization trends continue. We believe companies that can launch new products, improve their efficiency by restructuring, and upgrade their product mix should outperform. Our top picks are Mengniu, Moutai, Dali, and Yili. (Mark Yuan - 852 2203 6181)