HK & China - Market Direction 01 (May08 - Oct08)

[winston]

If you want to invest directly in the Chinese markets, there are these two ETF listed in HK:-
1) A50Chinatracker 2823
2) WISECSI300 2827

BROKER CALL - HSI end-2008 target raised to 28,000 points - HSBC

HONG KONG (XFN-ASIA) - HSBC Global Research raised its end-2008 target for Hong Kong's Hang Seng Index to 28,000 points from 26,000, citing higher earnings estimates.

The bank said Hong Kong stocks are about fairly valued now and the upward revision on the key index is mainly due to consensus earnings-per-share revisions over the past three months.

It also raised its end-2008 target for the Hang Seng China Enterprises Index (HSCEI) to 16,000 from 15,000, factoring in the strong first-quarter results of most Chinese companies.

The Hang Seng index closed today at 25,610.21 while the HSCEI ended at 14,118.31.

HSBC said there is pent-up demand for China stocks after foreign investors pulled 5 bln usd out of China stocks in the first quarter of this year.

It also noted the improving inflation situation in China and mainland government's pro-market policies.

The next market driver for mainland markets could be measures that will allow margin trading and short selling in A-shares. The measures could be rolled out as early as next month, HSBC said.

HSBC said it has "overweight" ratings on China banks and telecoms and "neutral" ratings on energy, airlines, power equipment and insurance.

It added PetroChina, Yanzhou Coal and Maanshan Iron & Steel to its model portfolio and removed CNOOC Ltd and Bank of Communications.

[winston]

Hong Kong stock index adds 2 Chinese companies, drops local ones
The Associated Press
Published: May 10, 2008

HONG KONG: Hong Kong's blue-chip Hang Seng Index has added two Chinese companies and removed two local ones, reflecting growing interest in mainland businesses.

Hang Seng Indexes Co. said late Friday it will remove billionaire Li Ka-shing's Cheung Kong Infrastructure Holdings Ltd. and fixed-line operator PCCW Ltd. from the list of stocks from which the index is calculated, starting June 10.

It said it will replace them with Tencent Holdings Ltd., operator of the Chinese instant-messaging service QQ, and Aluminum Corp. of China.

The moves raise the index's number of H-share companies, or China-registered companies traded in Hong Kong, to 10 from nine before the review.

Aluminum Corp. of China is an H-share company, while Tencent is a red chip — a company listed and registered in Hong Kong but with most of its assets in mainland China.

Traders said the addition of H-share companies reflects rising investor interest in China. The market expects the companies to report high earnings growth and investment returns, given the rapid economic growth in the communist country.

Analysts had not expected the index compiler to make changes after its latest review, and no reasons were given for the delistings. However, market participants have long anticipated that PCCW would be removed from the Hang Seng Index because the telephone company has reported low turnover since 2004.

The other nine H-share companies in the benchmark index are PetroChina, China Shenhua Energy, China Life Insurance Co., China Construction Bank Corp., Industrial & Commercial Bank of China Ltd., Bank of Communications Co., Bank of China Ltd., Ping An Insurance (Group) Co. of China Ltd. and China Petroleum & Chemical Corp.

[iam802]

Article published by Aberdeen on DollarDex.

http://www.dollardex.com/sg/index.cfm?c ... entID=3431
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China Market Update

Last updated 14/May/2008


Equities in China and Hong Kong rose sharply in April. In a bid to shore up sentiment, the government cut stamp duty on share transactions, which gave the Shanghai A-share market a sharp boost.

In the first quarter, China's economy grew by 10.6% year-on-year. Manufacturing activity accelerated in March, after the worst snowstorms in half a century disrupted production in the previous two months.

Mainland consumer prices remained stubbornly high in March, prompting the central bank to raise the banks' reserve requirements by another 0.5% to 16%, as it sought to curb money supply and credit growth.

Chinese president Hu Jintao met Taiwanese vice-president-elect Vincent Siew in the highest-level contact in almost six decades, raising hopes of closer cross-straits relations; the mainland also signed a bilateral free trade deal with New Zealand.

Moderating growth
The Chinese economy's momentum slowed in the first quarter, with GDP growth expanding by 10.6%, down from 11.9% for the whole of 2007. This was due partly to severe winter storms, which disrupted production early in the quarter, although manufacturing activity recovered strongly in March. A slowdown in exports, particularly to the US, also hurt growth; imports, on the other hand, were costlier due to higher commodity prices. This led to the trade surplus shrinking for the first time in three years. The higher import costs also contributed to price pressures, as inflation remained high, at 8% in the first quarter.

Positive corporate results
Our holdings posted strong first-quarter results. AEON Stores' earnings were aided by sound cost controls; Giordano's earnings were buoyed by solid demand; China Merchants Bank's bottom-line was supported by loan growth and fee income; China Mobile's net profits rose on healthy subscriber growth; while CNOOC's results were lifted by record oil and gas prices. Despite higher revenues, PetroChina's profit margin was squeezed by the cap on domestic fuel prices; separately, it agreed to buy three million tonnes of gas annually from the Qatargas 4 project.

We hold all the companies highlighted.

Portfolio News
We reduced our exposure to Huaneng International Power, following its disappointing first-quarter results.

Aberdeen Asset Management Asia Ltd
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[kennynah]

u guys know i dont trade the chinese mkt...winston for one is very into it...

perhaps, just an "outsider" and certainly not very qualified view of shanghai and shenzhen markets...

i see the chinese govt wanting to prevent any form of mkt crash...and that means from time to time, the chinese govt will intervene whenever the equities mkt get too hot... eg...tighten money supply ... but at the same time, it seems logical that they would still want it to grow along the way...

just as they wish for conitnuous GDP growth while controlling inflation...

as we all know, they cant get both at the same time...so they play the musical chair game.... let mkt rise, and along with it...bubble gets bigger...but not big enough to burst..then they start intervening...

same for growth stimulus...they stimulate up until inflation is quite unbearable and then they press inflation down...and repeat...so on and son on...

i guess, if i were to play chinese or even HK markets, i would need to attune myself with this "pulse" and i should do ok...

you think?

[HengHeng]

Basically , i actually share the same view as lena . On macro-economic view , probably winston is correct. But issue is sometimes looking at the big picture might not be enough. An earthquake brought up micro economic problems like corruption which might be one of the reason why many buildings collapsed. One must understand , China's investors have a herd mentality. Most of them are small investors and mostly directionless.

At this present juncture , i'm toward the idea of looking toward liquidating most of my china stocks for cash. It might be mad to say this but we can consider putting some cash into USD for it might be strenghtening slightly as least til the end of the year.

As i mentioned before i'm waiting for 4th quater to see if there are big movements in the 3th quater before deciding to enter or not. Though i'm still looking into some stocks but might not be commiting til a later time.

[winston]

JP Morgan sees China stocks up 20 pct this year

May 16 (Reuters) - China's key stock index is expected to rise 20 percent by the end of the year with economic tightening steps likely to be delayed after this week's devastating earthquake, JPMorgan Chairman of China Equities Jing Ulrich said on Friday.

"The government is unlikely to announce new tightening measures anytime soon," said Ulrich, who expected the quake to help push inflation above 7 percent for 2008.

She added that Chinese banking stocks would benefit from a widening spread between deposit and lending rates, while rising costs of coal and crude oil would boost profits at resource firms.

But oil refiners such as Sinopec Corp (600028.SS: Quote, Profile, Research) and PetroChina (601857.SS: Quote, Profile, Research) will be squeezed by rising crude oil prices as the government is unlikely to relax restrictions on retail fuel prices this year, while low-end manufacturers will continue to suffer from rising labour and resource costs, yuan appreciation and an economic slowdown.

She also dismissed worries over the possibility of massive supplies of additional shares flooding the market following the expiry of lock-up periods linked to reforms for state-held shares. "I'm quite optimistic on the A-share market, especially during the period leading up to the Beijing Olympic Games," she said.

"Reconstruction following the earthquake may even be a positive factor for the economy," she added.

[winston]

TA KUNG PAO

Securities circles expect the Hong Kong bourse to keep fluctuating in the short term, and investors may have to wait until July for the market direction to become more apparent.

[winston]

Investor Lee Shau-kee to turn aggressive in August
StephanieTong
Tuesday, May 20, 2008

Billionaire investor Lee Shau-kee said his investment strategy will switch to aggressive from defensive in August, and he forecasts the Hang Seng Index to hit 30,000 by that time.

"The present moment might not be a good chance to enter the market. As I mentioned before, the right chance to buy more stocks is when [the Hang Seng] is at about 22,000," Lee told reporters yesterday after the annual general meeting of Hong Kong and China Gas (0003).

Lee said the market will be "quiet" in summer, when stocks' performance tends to be unsatisfactory. "I will rather be defensive instead of aggressive," he said.

Lee expects the blue-chip index will hover around 27,000 in the summer. "The investment environment will improve in August. When opportunities come, I will invest more."

Recently, Lee added Datang Power (0991) to his long-term investment portfolio, which also includes CITIC Pacific (0267), Country Garden (2007) and China Overseas Land (0688). "They are not alright [for reaping profits] in the coming few months. You've got to hold these stocks for two to three years," he explained.

Meanwhile, Lee sees continuing weakness in the US dollar in the coming 12 months.

"Three years ago we already converted the currency of our assets into the Australian dollar when it was at about 70 US cents. With the Aussie dollar having increased to about 95 US cents, the value of our assets has risen about 30 percent," said Lee.

[winston]

GETTING THE BEST OUT OF CHINA
22/05/2008 by Li Shulin

Chinese equities have been very volatile and tricky to invest in. Henderson Global Investors offers a unique fund that may appeal to those looking to invest in the Greater China region.

Fund manager, Mr. Andrew Mattock, tells us more about the fund and Henderson’s views on the region.


Why China?

China is currently the 4th largest economy in the world in terms of gross domestic product (GDP) but it is ranked only 128th in terms of GDP per capita. Coming from a low base, China presents a huge long-term opportunity that should not be ignored.

For five straight years, China has been clocking an economic growth rate of more than 10 per cent per annum.

The International Monetary Fund (IMF) expects China’s economy to expand by 9.3 per cent this year, slower than its earlier forecast of 10 per cent but this is still one of the fastest growth rates in the world given the current global turbulence.

China is generating very large current account surpluses and Chinese households are likely to continue searching for returns higher than what they currently receive on their savings in banks. The impact on China’s bourses will probably be amplified given that the amount of bank deposits far surpasses the free-float capitalisation of the country’s stock market.

Even though price/earnings (PE) valuations in China seem high compared to their peers, there are still opportunities to uncover attractively priced growth stocks.

Funds can help mitigate some risk

Many Chinese companies are majority-owned by the government, which results in independent directors often being nominated and elected by the majority shareholders - with robust challenge and constructive debate in the board room possibly lacking as a result.

Controlling shareholders, in collaboration with allied securities dealers and some investment funds, have often operated in ways that information flows can be controlled and prices can be manipulated.

In those segments of the market that are open to foreign investors, transparency and attentiveness to the interest of non-controlling investors are of priority although it is oftentimes difficult to establish.

For now, investors are unlikely to see progress towards a culture of genuine independent directorship and hence need to rely upon fund managers’ expertise in having an innate understanding of the fundamentals of each individual company.

In addition to the lack of a high standard for disclosure, governance and investor protection, foreign fund management companies (other than QFII licensees) are also prohibited from buying directly into Chinese stock markets by the securities regulator.

Hence to date, fund companies which invest in China listed stocks are limited to using exchange traded funds and sophisticated derivative techniques as they would elsewhere in the world.

A unique China fund

The Henderson Horizon Fund - China Fund A2 (ACC) (the “Fund”) offers a unique investment proposition. It aims to seek long-term capital appreciation through investments in securities listed primarily in China, Hong Kong and Taiwan. The fund manager may also invest in companies incorporated elsewhere that have significant assets, business, production, trading activity or other interests in China, Hong Kong or Taiwan.

Typically Chinese equity funds use long-only strategies, and even the small number of hedge funds that offer exposure to Chinese equities, are mostly benchmarked to cash, which can limit their gains.

Henderson’s China Fund is able to adopt both long and short strategies and use derivative instruments, but unlike hedge funds that are benchmarked to cash, it is benchmarked to the all-equity MSCI Golden Dragon Index.

However, the Fund is not constrained by its benchmark and shows investment conviction by taking concentrated bets in a small portfolio with the average position size being 4-5%.

“Even in the event of a slowing stock market environment, the long/short approach allows a band of flexibility for the Fund to continue delivering good performance. This can be done by either shorting richly valued stocks with slowing business momentum, or by adjusting the equity market exposure of the Fund,” said Mr. Mattock.

Positive on China and HK but negative on Taiwan

According to Mr. Mattock, despite several sharp corrections in the past year, China remained one of the best performing markets in the world recording an impressive return of more than 60 per cent last year.

“Although China equities will remain volatile, there are also expectations for China to do well in the coming months as the recent sell-off appears to be overdone and has made the market more attractive at these levels,” said Mr. Mattock

He is also positive on the medium-to long-term prospects, although he highlights that the road ahead will be a bumpy one.

Mr. Mattock said that China’s industrialisation is still in its early stages and large amounts of capital expenditure will be undertaken over the next few years.

However he alluded to the risk that inflation could pose problems and may cap the performance of Chinese equities if left unchecked by the government.

Overall however, he is sanguine on China-related equities despite the global turbulence.

While the Fund is overweight in Hong Kong and China versus the benchmark, it is underweight in Taiwan as Mr. Mattock feels that the euphoria about the recent political changes in Taiwan is over-stated. Consequently, the Fund had a nearly 20 per cent short position in Taiwan at the end of April.

[iam802]

Henderson positive on outlook for China (via DollarDex)

http://www.dollardex.com/sg/index.cfm?c ... entID=3442

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The Chinese stockmarket has been languishing of late as inflation fears and sub-prime concerns take their toll on the market. Overall, the secular growth story and long-term prospects of the Chinese economy remains intact. However, this bullish view does not come without any concerns, specifically the impact of a US recession and lingering inflation problems.

"A sharp slowdown in the US economy could suppress demand for China's exports, a major growth driver for the Chinese economy. But having said that, the impact may be cushioned given that China's exports have become better diversified and more balanced. Furthermore, we firmly believe that China's domestic economy will take on a bigger role and this is evident in the resilient growth of retail sales," says Singapore-based Andrew Mattock who manages the Henderson Horizon Fund - China Fund.

China's CPI inflation path remains uncertain but is expected to slow. Month-on-month CPI growth fell off its peak in February and headline year-on-year figures are expected to moderate come the second half of this year as the base of comparison becomes relatively higher.

The fund was launched recently on 25 January 2008 with a unique long/short approach that allows it to take advantage of opportunities arising from prevailing market conditions and in doing so, increase the potential of outperformance.

According to Mr Mattock, some of the growth opportunities for China through the course of this year include attractive valuations in mid-cap industrials supported by strong earnings momentum, the possibility of pricing reforms that will ease tightening margins should inflation concerns abate as well as resilient consumer sales.

The fund continues to short stocks operating amidst a difficult environment such as airlines affected by soaring jet fuel prices. However with the downside risks looking minimal in comparison to the upside potential, the strategy now is to average into the market especially in sectors we like but are currently still relatively expensive such as those exposed to consumers.

On the topic of Taiwan, which the fund is allowed to invest in, Andrew commented, "While Ma Ying-jeou's presidential victory triggers hopes of improved cross straits relations with China, the big positive impact to the domestic economy is unlikely to occur soon. Near term, Taiwan still has to grapple with a slowing global economy and cope with the impact of gasoline and electricity price hikes. But contrary to what the fund's net short position in Taiwan depicts, we are not extremely bearish on Taiwan. The short position instead acts as a funding source for us to increase our exposure to Chinese companies for which we are relatively more positive on."


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