。21 February 2019 Asia Equity StrategyTable Of Contents It's all happening up North.3 DBHKNI8N: Feb 2019 Northbound Impact Basket.8 Northbound vs Southbound Report Card.11 Key ndings......11 Northbound vs. Southbound: valuation preference.....12 Northbound vs. Southbound: quality preference.........14 Northbound vs. Southbound: dual-listed pair discount/premium........15 Northbound vs. Southbound: Connect investor activeness.....17 Northbound Report Card..19 Shenzhen Connect Update.......20 Single stock data: Northbound holding update...........21 Aggregate data: Northbound ow breakdown25 Basket recommendations.........28 Risks......28 Page 2Deutsche Bank AG/Hong Kong 21 February 2019 Asia Equity StrategyIt's all happening up North Northbound holdings have increased by 10% in less than 2 months YTD After steadily accumulating positions during last year's volatile 3rd quarter, Northbound investors have become aggressive buyers of A-shares in 2019. This has accompanied a rally of ~14% from decade valuation lows. The US$ 13.6bn inow YTD represents more than 10% of the total Northbound holding as of the beginning of the year. On a daily basis, Northbound has been running at an average net inow of US$ 600mn /day for the past 1 month. Figure 2: Northbound net ow impact has reached an all time high of 1.2% Figure 3: Buy ow has exceeded sell ow by nearly US$ 600mn 7.9% 1.2% -2% 0% 2% 4% 6% 8% 10% No v-1 4 Fe b-1 5 Ma y-1 5 Au g-1 5 No v-1 5 Fe b-1 6 Ma y-1 6 Au g-1 6 No v-1 6 Fe b-1 7 Ma y-1 7 Au g-1 7 No v-1 7 Fe b-1 8 Ma y-1 8 Au g-1 8 No v-1 8 Gross Flow to SH+SZ Turnover (%, 1mma) Net Flow to SH+SZ Turnover (%, 1mma) 2079 1491 0 500 1,000 1,500 2,000 2,500 De c-1 4 Ma r-1 5 Ju n-1 5 Se p-1 5 De c-1 5 Ma r-1 6 Ju n-1 6 Se p-1 6 De c-1 6 Ma r-1 7 Ju n-1 7 Se p-1 7 De c-1 7 Ma r-1 8 Ju n-1 8 Se p-1 8 De c-1 8 NB Buy Flow (US$ mn, 1mma) NB Sell Flow (US$ mn, 1mma) Source: Deutsche Bank, Bloomberg Finance LP, HKEx, CCASS.Source: Deutsche Bank, Bloomberg Finance LP, HKEx, CCASS. Figure 4: Activity has been primarily driven by ow to MSCI targeted stocks. MSCI names have seen their average NB FF stake increase by 0.5% YTD Figure 5: We have seen NB net inow across almost all industries 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Ju n-1 6 Au g-1 6 Oc t-1 6 De c-1 6 Fe b-1 7 Ap r-1 7 Ju n-1 7 Au g-1 7 Oc t-1 7 De c-1 7 Fe b-1 8 Ap r-1 8 Ju n-1 8 Au g-1 8 Oc t-1 8 De c-1 8 MSCI Target ( 3.03%)Non-MSCI Target ( 0.82%) Food,Beverage &Tobacco ConsumerServices 0% 20% 40% 60% 80% 100% 0%10%20% No rm ali ze dFl ow Normalized Northbound Holding Inflow %Outflow % Source:Deutsche Bank, Bloomberg Finance LP, HKEx, CCASS.Source:Deutsche Bank, Bloomberg Finance LP, HKEx, CCASS. Breaking down the ow, we see MSCI-targeted names have attracted signicantly higher inow than the non-targets. In 2019 YTD, the NB stake for MSCI-included stocks has increased by 0.5% (vs. 0.1% for non-targets). This may indicate that consensus is expecting the MSCI to proceed with its proposal to quadruple the A- share inclusion factor in EM. We expect an announcement at the end of February for two-phase inclusion in 2019. Finally, we note that nearly all industry groups have recorded net Northbound inow. Deutsche Bank AG/Hong KongPage 3 21 February 2019 Asia Equity StrategySignicant Northbound impact on large cap stocks For the rst time since 2016, we have seen 10%+ Northbound turnover impact on some of the large-cap, ultra-liquid names (e.g. Kweichow Moutai, Gree Electric and Bank of Communication). In addition to cherry-picking the individual cases where NB impact has been signicant recently, we use the below scatter chart to demonstrate that the large-cap impact from NB has been increasing on average in 2019. Figure 6: Many large cap names (as proxied by names with high index weight) saw above 10% net NB impact YTD in 2019 Figure 7: Record high NB impact on individual large cap names -20% -10% 0% 10% 20% 30% 40% 0%2%4%6% NBav era geda ilyne t im pa ct MSCI China A Index Weight NB Impact (2019 YTD) NB Impact (2H18) Large cap names has seenhigher NBimpact YTD in 2019 -10% -5% 0% 5% 10% 15% 201620172018 NBim pa ct(ro llin g 2 m) KWEICHOW MOUTA-AGREE ELECTRIC-A BANK OF COMMUN-A Source:Deutsche Bank, Bloomberg Finance LP, HKEx, CCASS.Source: Deutsche Bank, Bloomberg Finance LP, HKEx, CCASS. Page 4Deutsche Bank AG/Hong Kong 。。。。。。