Left Brain Right B - the DBS Vickers Securities Equities Research

More documents

Recommendations

Info

Regional Equity Strategy 4Q 2009 Country Assessment Market Data Index Close Chng -1 mth -3 mth -6 mth - 12 mth 52-Week 17-Sep-09 Net 1 m (%) (%) (%) (%) High Low Hang Seng 21,769 1631 8 20 69 23 21,930 10,676 HS China Ent 12,668 1273 11 18 69 46 12,815 4,792 HS China Aff 4,080 -28 -1 7 37 26 4,457 2,173 HS Mid Cap 4,317 337 8 20 76 27 4,326 2,065 HS Small Cap 2,284 306 15 31 115 28 2,295 832 Transactions: YTD Volume (bn shs) 16,897 Value (HK$bn) 10,821 Source: Bloomberg 3Q09 Review Volatility of Hang Seng (HS) Index increased substantially driven initially by further improvement in sentiment towards US economic outlook, followed by fear towards China liquidity tightening, then by speculation of favourable policies before the 60 th anniversary of China and by the further weakening of USD. Beside stretched valuation, probably due to large number of IPOs, and concern about exit timing/strategy from global quantitative easing, market turnover has continued to fall. USD carry trade has become a new source of funding for the equity market. The Hang Seng Index and Hang Seng China Enterprises Index (HSCEI) gained 20% and 18% respectively in 3Q09. From the trough in Oct 08, the HSI and HSCEI have rebounded by over 98% and 154% respectively. China economic growth continues to be substantially driven by pump-priming through fixed asset investment. Consumption growth remains stable while exports and foreign direct investment (FDI) remain in downward trend. The August FDI showed 7% YoY growth, first positive growth in 7 months, but the PRC government officials indicated this was due more to the low-base effect. Among HS Index constituent sectors, Commerce and Industry and Hongs/Conglomerates were the best performing sectors, gaining 35% and 28% in the quarter respectively. HSI Sectors Performance - 3Q Sector % gain Comm/Ind 35% Hongs/Conglomerates 28% Properties 24% Banking and Finance 22% Power, Infra & Utilities 11% Telecom 4% Source: DBS Vickers, Bloomberg HS Index & HSCEI – Past 1 year 26,000 24,000 250-day MA HSI 22,000 20,000 18,000 16,000 14,000 12,000 50-day MA 10,000 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 16,000 14,000 250-day MA HSCEI 12,000 10,000 8,000 6,000 50-day MA 4,000 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Source: Bloomberg Page 65
Regional Equity Strategy 4Q 2009 Country Assessment Market Outlook – Meaningful correction unavoidable We continue to believe the stock market is due for a meaningful correction (Hang Seng Index returning to around 14,000) as the equity market has been way too much ahead of the fundamentals driven by (1) expensive valuation and (2) appearance of either one of the following four events (in order of probability) happening: US economic disappointment. Market may become less optimistic on global economic outlook causing significant flight to safety, ie US Treasuries. The resulting USD technical rebound then brings down equity and commodity markets. This chain reaction was seen in the 17 August correction. China economic disappointment. Although our economist believes China is on a recovery path, any sign that China may not be able to decouple from the US and that its 2010 economic growth may be slower could trigger a meaningful correction. Although we believe China can still increase its pump-priming through its significant amount of reserves, it would likely happen after a major or a series of disappointment in the US or its economic conditions in order to avoid further inflating the stock and property market overheating. US economic data remains mixed. No government would do anything, ie liquidity remains abundant supporting the currently over-valued stock market. However, the stock market will continue to be volatile and range bound. The widespread USD carry trade came as a surprise, which has provided significant amount of new liquidity to the stock market. If the USD continues to weaken, we will likely see a longer stock market rally. However, the resulting inflationary pressure will make interest rate hike more pending. As discussed in the recent extensive roadshow, economic data will continue to be satisfactory in 3Q2009 while it is still premature for any tightening to be implemented. The earliest time for major correction will only be towards the end of 2009 or early 2010. Differing from our regional strategist’s view, the author continues to believe in W-shape recovery. Even if the author were wrong, it would likely be that the correction may be more remote (> 12 months) than he had anticipated, not whether there would be a meaningful correction or not. 2010 GDP growth should be the focus China economic tightening. Although the policy direction has certainly reversed towards tightening, we continue to believe China will remain passive and any meaningful tightening will happen only after China is comfortable US is firmly on a recovery path. Exit from global quantitative easing. There seems to be more talks about exit strategy and timing both in the media and by some US officials. With the experience learnt from the US Great Depression and Japanese bubble burst, we continue to believe this will likely be more remote than many believe. The situation would be even worse if the exit is driven by return of inflation as some fear for, rather than economic recovery. Attaining 8% GDP growth for China in 2009 is probably a done deal. The market focus will gradually shift towards whether 2010 GDP growth outlook will maintain or grow. DBS economist expects 8% and 9% GDP growth in 2009 and 2010 respectively. China real GDP Growth Yoy, % 14 13 12 11 Strong support except for the above catalysts We acknowledge that there is a significant amount of liquidity in the system. If we do not see major catalyst like any of the above, there would be strong support for the Hang Seng Index at 18,000-19,000 level. Scenarios that could make our call wrong 10 9 8 7 6 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09F 3Q09F 4Q09F 1Q10F 2Q10F Sharp V-shape global recovery. If this were to happen, the excitement towards global economic outlook will more than offset the negative impact from liquidity tightening by China and global central banks. Source: CEIC, DBS Economics Research The “decoupling” of Chinese economy so far has substantially been driven by significant credit expansion driving fixed asset investment, which may be at the expense of creating Page 66
Page 1:
Equity Strategy and Large Cap Stock
Page 4 and 5:
Regional Equity Strategy 4Q 2009 Ta
Page 6 and 7:
Regional Equity Strategy 4Q 2009 St
Page 8 and 9:
Page 10 and 11:
Page 12 and 13:
Page 14 and 15:
Page 16 and 17: Regional Equity Strategy 4Q 2009 St
Page 40 and 41: Regional Equity Strategy 4Q 2009 Re
Page 42 and 43: Regional Equity Strategy 4Q 2009 Co
Page 56 and 57: Regional Equity Strategy 4Q 2009 Mo
Page 58 and 59: Regional Equity Strategy 4Q 2009 Si
Page 60 and 61: Regional Equity Strategy 4Q 2009 SP
Page 62 and 63: Regional Equity Strategy 4Q 2009 Su
Page 64 and 65: Income Statement (S$ m) Balance She
Page 82 and 83: Regional Equity Strategy 4Q 2009 Ba
Page 84 and 85: Regional Equity Strategy 4Q 2009 Ba
Page 86 and 87: Regional Equity Strategy 4Q 2009 Ch
Page 88 and 89: Regional Equity Strategy 4Q 2009 Ch
Page 90 and 91: Regional Equity Strategy 4Q 2009 MT
Page 108 and 109: Income Statement (RM m) Balance She
Page 110 and 111: Regional Equity Strategy 4Q 2009 MI
Page 116 and 117:
Regional Equity Strategy 4Q 2009 Co
Page 118 and 119:
Page 120 and 121:
Page 122 and 123:
Page 124 and 125:
Page 126 and 127:
Regional Equity Strategy 4Q 2009 Si
Page 128 and 129:
Regional Equity Strategy 4Q 2009 Th
Page 130 and 131:
Regional Equity Strategy 4Q 2009 To
Page 132 and 133:
Page 134 and 135:
Page 136 and 137:
Page 138 and 139:
Page 140 and 141:
Income Statement (Rp bn) Balance Sh
Page 142 and 143:
Income Statement (Rp bn) Balance Sh
Page 144:
Regional Equity Strategy 4Q 2009 2)
show all

Left Brain Right B - the DBS Vickers Securities Equities Research

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?