德银今日中国股票策略报告，26页：

We expect 1Q17 A-share earnings growth to rebound to 6-year highs
A-share earnings growth rebounded notably in 2H16 and came in stronger than expected. We expect the momentum to extend and 1Q17 growth to surge to 21%, the highest since 2Q11, driven by accelerating sales, expanding margins and recovering financial earnings. In 1Q17, we expect to see:
   1) Accelerating sales: The rising volume (Keqiang index at 6y highs and PMI at 5y highs) and broadening price hikes (PPI at 8y highs and core CPI at 5y highs) could raise nominal GDP and non-financial sales growth.
   2) Expanding profitability: The stronger pricing power (wider PPI-CPI gap) and lower unit fixed costs (improving capacity utilization) may lift profit margins; also thanks to higher asset turn, ROE seems set to pick up further.
   3) Recovering financial earnings: Less NIM contraction, slightly better volume and smaller credit costs could boost banks’ earnings growth, while insurance/brokers may gain from higher bond yields and equity returns.


High-frequency data also support a stronger 1Q17 results, including:
   Industrial profits surged to 32% in 2M17, boding well for A/H nonfinancial earnings given their close historical correlation. See Surging industrial profits to strengthen earnings upgrades, 27 Mar.
   1Q17 A-share pre-announcements hit 5-year highs with 69% cap alerted profit rise (highest since 2Q11) and 14% warning a drop (lowest since 2Q11), a positive sign for A-share non-financial earnings growth.

Cyclicals and financials continue to lead, while defensives still lag the most
By sector, we expect cyclicals and financials to lead and see the biggest expansion, while defensives may continue to lag due to lack of pricing power in a reflationary macro backdrop. More specifically, we find that:
   Key sector-level indicators have clearly suggested a strong 1Q17 rebound, from significant yoy increase in upstream commodity prices, to ascending mid-stream machinery sales, construction new orders and power production growth, and to improving downstream durables sales and recreation services. See more details in Figure 28~43 on page 12~15.
   Sell-side consensus has been upgrading 2017/18E estimates in recent months, focusing on cyclicals (Materials, Discretionary and Energy) and financials (Insurance and Banks), while defensives (Telecom, Utilities and Staples) saw persistent cuts. See Figure 45~48 on page 16.


Reiterate our positive view and preference for Financials, Energy & Industrials
While H-share valuations look undemanding and global investors’ positioning stays light, we believe the market has not fully priced in the potential earnings upside. We reiterate a positive market view and continue to OW Financials, Energy and Industrials. On single stocks, we recommend: 1) our top-10 picks, 2) capex resurgence basket; and 3) consumption upgrade basket.