Expect China market turnover to rebound, prefer CITICS-H and CICC-H

China A-share market turnover has dropped from RMB2.6tn per day in Jul/mid-Aug to RMB1.9tn in the past four weeks. The drop did not occur only in Mainland China, but also in the largest stock markets (NYSE and NASDAQ) and the key Asia markets (Japan, Korea, Hong Kong, and Taiwan). We think the global drop/less active trading could be attributed to the concerns on U.S. rate hikes as uncertainties rose. Generally speaking, higher market rates usually lead to tightening liquidity in the stock market. However, short-term trends can go against long-term momentum from time to time, especially when China itself expects no near-term rate hike. The overall market leverage now is at 7.0% in China. As margin financing balance and activity ratios start to stabilize, we see upside room for leverage and market turnover. There are also no major regulation changes to impair liquidity. Our base case is that A-share turnover rebounds to the RMB2.2-2.4tn level and further upside, if any, depends on marke