Left Brain Right B - the DBS Vickers Securities Equities Research

Regional Equity Strategy 4Q 2009
Country Assessment
Hong Kong/China
Party continues
While becoming a new stock market driver, the latest
USD carry trade may quicken the return of inflation and
then exit from Quantitative Easing. High volatility will
continue, substantially driven by speculation of
government policies, still mixed economic data points
and USD direction. While we continue believing stock
market expectation is too good to be true, pair trade
remains our preferred strategy.
Triggered by the Qualified Foreign Institutional Investor (QFII) news, although
basically irrelevant, the resumption of speculation of favourable policies before
China’s 60 th anniversary has brought about another major short-squeeze. While the
widespread USD carry trade came as a surprise, USD direction will become a major
determinant of stock market performance in 4Q09.
We continue to expect the earliest time for major correction to be late 2009 or
early 2010 for the fact that economic statistics will continue to be satisfactory
before then while it is pre-mature for any tightening to emerge on investors’ radar
screen.
Without one of the four major catalysts kicking in, there continue to be strong
liquidity support at around 18,000-19,000 Hang Seng Index level. However, 14,000
level continues to be our “worst case” 12-month support level when these
catalyst(s) emerge.
Among the big caps for long-only funds, we like MTRC (66 HK), Sinopec (386 HK),
China Railway Group (390 HK), Bank of China Hong Kong (2388 HK) and Bank of
China (3988 HK)
Derek Cheung (852) 2971 1703 derek_cheung@hk.dbsvickers.com
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Refer to important disclosures at the end of this report
ed: LM / sa: TW