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Fragile market sentiment in the HSI on policy risk

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Fragile market sentiment in the HSI on policy risk Powered By Docstoc
					                            EAST ASIA SECURITIES COMPANY LIMITED
                            9/F, 10 Des Voeux Road Central, Hong Kong.
                            Dealing: 3608 8000 Research: 3608 8096 Facsimile: 3608 6113
                                                                                                                                                 HONG KONG RESEARCH
 Restricted circulation                                                                                                                                  Weekly Report
                                                                                                                                                      th
 Analyst: Sabina Cheng                                                                                                                              19 November 2010



                                     HSI Weekly Movement                                                                       Weekly Market Statistics
                     300                                                       25,500                     Week ended                   19/11/2010 12/11/2010 Change    %
                     270                                                                                  Hang Seng Index               23,606     24,223    -617     -2.5%
                                                                               25,000
                     240                                                                                  HS Red Chip Index              4,221      4,337    -116     -2.7%
                           24,223                                              24,500
                     210            24,027                                                                HS China Enterprises Index    13,171     13,663    -492     -3.6%
                                             23,693                            24,000


                                                                                        Hang Seng Index
 Turnover (HK$ bn)




                     180                                       23,637 23,606                              HS Hong Kong 35 Index          2,600      2,653     -52     -2.0%
                     150                              23,214                   23,500                     HS Mainland 100 Index          7,343      7,559    -216     -2.9%
                           127.15
                     120                     101.88 103.04                                                Growth Enterprise Index        829        835       -5      -0.6%
                                    93.05                      92.36 97.00     23,000
                     90                                                                                   Avg Daily Turnover             97.5       115.8     -18     -15.8%
                                                                               22,500                     (HK$ bn )
                     60
                                                                               22,000
                                                                                                          Sectoral Indices
                     30                                                                                   Finance                       35,377     36,234    -856     -2.4%
                      0                                                        21,500                     Utilities                     42,461     43,207    -746     -1.7%
                                                                                                          Properties                    31,076     32,419   -1,343    -4.1%
                           5-Nov Mon          Tue     Wed       Thu    Fri
                                                                                                          Comm & Ind                    12,927     13,248    -321     -2.4%
                               Turnover                   Hang Seng Index


Review & Outlook of Market Performance
Hong Kong shares extended last Friday’s weakness and fell for four trading days out of five on policy risk.
Investors worried about Chinese government’s upcoming measures to curb inflation and potential liquidity-driven
asset rally. Besides, concerns over uncertain outcome of the Federal Reserve’s second round quantitative easing
programme and debt problems in Ireland also weighed on the fragile market sentiment. The rebound on Thursday
was short-live. Although the market rebound on Thursday, week-on-week, the Hang Seng Index (HSI) dropped
2.5% to 23,605.71, while the HSCEI lost 3.6% to 13,170.65. The daily average turnover shrank to HK$97.5 billion,
from HK$115.8 billion in the previous week.

Amid weaker market sentiment, the Hang Seng Index heavyweight, HSBC, fell 2% week-on-week at HK$82.85
per share. CCB, ICBC and BOC (with right issues activities within these few weeks) underperformed the HSI by
0.14% - 3.35% this week. Food counters tumbled after China announced four measures to control inflation.
Among the major food counters, Yurun Food and Tingyi shed 5.1% and 6.4% week-on-week respectively.
Tracking weakness in metals and material prices, mining and metal counters lost some 4% on average over the
week. On IPO front, Citic Dameng, benefited from a mild technical rebound on Thursday, finished the week at
HK$2.85, after posting a first-day return of 6.2%. In contrast, four other listing debutants ended the week down
between 0.5% (for Rongsheng) to 19.8% (for Leoch International), from their respective offer prices. Local
property counters fell 2.5% week-on-week on average on news that Hong Kong government would impose new
measures to cool down speculative activities. In fact, after the market close on Friday, the Government
announced additional stamp duty (ranging from 5%-15%) for property resales within two years effective 20
November 2010, while HKMA issued a circular to Hong Kong banks require them to strengthen risk management
in residential mortgage lending business through lowering the maximum loan-to-value ratios and maximum loan
amounts for certain properties.

Looking ahead, the HSI should continue be under pressure on concerns over tightening measures in both Hong
Kong and China. On the other hand, any positive surprise from US economic data (e.g. 3Q’s GDP and
November’s consumer sentiment in particular) may lend support to the market.



This report has been prepared solely for information purposes and we are not soliciting any action based upon it.
Neither this document nor its contents shall be construed as an offer, invitation, advertisement, inducement or
representation of any kind or form whatsoever. The information is based upon information, which we consider
reliable, but accuracy or completeness is not guaranteed. Opinions expressed herein are subject to change without
notice. At time of this report, East Asia Securities Company Limited has no position in securities of the company or
companies mentioned herein, while its group companies may from time to time have interests in securities of the
company or companies mentioned herein.
          EAST ASIA SECURITIES COMPANY LIMITED

US & Regional Markets Weekly Update

Date                 US            US            JAPAN          SINGAPORE    MALAYSIA       BANGKOK          TAIPEI
                  Dow Jones      NASDAQ        Nikkei Avg           STI      KLSE Index     SET Index    Weighted Index

19th November     11,181.23*     2,514.40*     10,022.39         3,205.48        1,502.42    1,008.77       8,306.12
12th November      11,192.58      2,518.21     9,724.81          3,252.00        1,499.81    1,018.86       8,316.05
Change             -11.35        -3.81          +297.58           -46.52          +2.61       -10.09         -9.93
%                   -0.1%        -0.2%           +3.1%            -1.4%           +0.2%       -1.0%          -0.1%
                             th
Remarks: (*) closing at of 18 November 2010
                                                                            th
Major Changes in Index Constituent Stocks (Week ended 19 November 2010)
Hang Seng Index (HSI)
        Stock            Stock Closing Price         W-O-W Change                      Remarks / Comments
                         Code @19/11/2010
                                                   Absolute         %
 Hang Seng Bank          00011      HK$129.6       +HK$9.20       +7.64%    The counter was the best performed
                                                                            HSI constituent stock this week as
                                                                            investors chased recent laggard like
                                                                            HSB.
 Cathay Pacific          00293       HK$23.1       +HK$1.00       +4.52%    CX reported a 13.8% year-on-year rise
                                                                            in passenger traffic (in terms of revenue
                                                                            passenger kilometer) in October.
                                                                            Meanwhile, the airline’s cargo volume
                                                                            grew 24.0% year-on-year (in terms of
                                                                            cargo and mail tonne kilometer). In
                                                                            addition, the Company issued a positive
                                                                            earnings alert, expecting a net profit of
                                                                            at least HK$12.5 billion in 2010.

Hang Seng China Enterprises Index (HSCEI)
        Stock            Stock Closing Price         W-O-W Change                      Remarks / Comments
                         Code @19/11/2010
                                                   Absolute         %
 ZTE Corp                00763      +HK$29.8       +HK$1.25       +4.38%    The Company said it aimed to at least
                                                                            double its commercial fourth-generation
                                                                            wireless business next year, as carriers
                                                                            have been upgrading networks for
                                                                            faster data services and web surfing.

Hang Seng China-Affiliated Corporations Index (HSCCI)
        Stock            Stock Closing Price         W-O-W Change                      Remarks / Comments
                         Code @19/11/2010
                                                   Absolute          %
 China Agri-         00992           HK$9.9        -HK$1.26       -11.29% The worst performed counter in HSCCI
 Industries Holdings                                                      after China announced four measures
                                                                          to control surging food prices, including
                                                                          ensuring market supply, improving the
                                                                          subsidies, implementation of temporary
                                                                          price intervention and strengthening
                                                                          market supervision.




                                                            2
         EAST ASIA SECURITIES COMPANY LIMITED

Summary of US Economic News
Indicator                       Change/Index                           Comments

Retail sales                                     Retail sales rose unexpectedly by 1.2% m-o-m in
                                   +1.2%,        October, after surging 0.7% in September, even though
 – October 2010                                  there was high unemployment.
                                   m-o-m
Business inventories               +0.9%,        Business inventories rose 0.9% m-o-m in September, in
                                                 line with market expectations. Inventories in the retail
 – September 2010                  m-o-m         climbed 0.8% led by autos and building materials.

Producer price index               +0.4%,        Producer prices climbed 0.4% m-o-m in October from
                                                 September. The rise was significantly below market
  – October 2010                   m-o-m         forecast for a 0.8% increase.
                                                 Industrial production was unchanged in October,
Industrial production                0.0%,       following a 0.2% drop in September. Growth in
  – October 2010                     m-o-m       manufacturing component was offset by a sharp drop in
                                                 utilities output.

Consumer price index               +0.2%,        CPI posted a 0.2% m-o-m rise in October, following a
                                                 0.1% gain in September. Excluding food and energy,
 – October 2010                    m-o-m         CPI was unchanged for the third month in a row.
                                                 Housing starts fell unexpectedly by 11.7% m-o-m to
Housing starts                    -11.7%,        519,000 units in October, following a downwardly
 – October 2010                    m-o-m         revised 4.2% decline in the previous month, led by
                                                 multifamily starts.
                                                 Initial jobless claims rose only 2,000 to a lower-than-
                                                                                                       th
Initial jobless claims                           expected level of 439,000 in the week ended 13
                       th                        November 2010 from a revised level of 437,000. The
 – the week ended 13 November      +2,000
                                                 four-week average dropped more than 15,000 to
    2010                                         443,000 from a month ago, reflecting solid improvement
                                                 for November payrolls.
                                                 Leading indicator rose 0.5% m-o-m in October, roughly
Leading indicators                 +0.5%,        in line with the market expectation after Federal
 – October 2010                    m-o-m         Reserve’s Quantitative Easing II announcement in the
                                                 same month.

Forthcoming Important Announcements / Events
  nd
22 November 2010 (Monday)       HK     :   CPI – October 2010
                                US     :   Hewlett-Packard – Q4 2010 results
  rd
23 November 2010 (Tuesday)      HK     :   No important announcement or event
                                US     :   GDP (annualized) – Q3 2010
                                           Existing home sales – October 2010
                                           FOMC minutes
  th
24 November 2010 (Wednesday)    HK     :   TPV Technology (00903) – Q3 2010 results
                                           Goodbaby International (01086) – trading debut
                                US     :   Durable goods orders – October 2010
                                           Personal income and outlays – October 2010
                                                                                     th
                                           Initial jobless claims – the week ended 20 November 2010
                                           Consumer sentiment – November 2010
                                           New home sales – October 2010
                                           Tiffany & Co. – Q3 2010 results
  th
25 November 2010 (Thursday)     HK     :   Trade balance – October 2010
                                           Kingworld Medicines (01110) – trading debut
                                US     :   US Holiday: Thanksgiving Day
  th
26 November 2010 (Friday)       HK     :   China Modern Dairy (01117) – trading debut
                                US     :   No important announcement/event


                                                 3
         EAST ASIA SECURITIES COMPANY LIMITED

Important Disclosure / Analyst Certification / Disclaimer

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This report has been prepared solely for information purposes and has no intention whatsoever to
solicit any action based upon it. Neither this report nor its contents shall be construed as an offer,
invitation, advertisement, inducement or representation of any kind or form whatsoever. The
information is based upon information, which East Asia Securities Company Limited considers reliable,
but accuracy or completeness is not guaranteed. Information and opinions expressed herein reflect a
judgment as of the date of this document and are subject to change without notice. Any
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