MORNING BRIEFING HONG KONG STOCK MARKET SUMMARY. Indexes Performance

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1 HONG KONG STOCK MARKET SUMMARY Hang Seng Index H-share Index Indexes Performance 11/ 25 PER(x) Close Chg. (%) Net Chg. Day High Day Low (HK$mn) Chg.(%) Hang Seng Index , % , , Main board turnover 39, % HSI-Finance , % , , H S I stocks 10, % HSI-Comm & Ind , % , , HSCEI stocks 7, % HSI-Properties , % , , Derivative warrants 7, % HSI-Utilities , % , , Callable Bull/Bear 8, % HSI Volatility Index % Short-selling 3, % 11/ 25 PER(x) Close Chg. (%) 11/ 25 PER(x) Close Chg. (%) HS Composite Index , % HSCI-Financials , % Red Chip Index , % HSCI-Services , % HS H-share Index , % HSCI-Telecom , % H-share Financial Index , % HSCI-Prop & con , % HSCI-Utilities , % HSCI-Energy , % HSCI-Materials , % HSCI-Industrial goods , % HSCI-Consumer goods , % HSCI-I.T , % HSCI-Conglomerates , % Futures Market Close Net change Chg.(%) Day High Day Low Volume O/I HSI Futures HANG SENG Nov 11 17, % 17,828 17,568 93,133 59,840 HANG SENG Dec 11 17, % 17,808 17,554 38,548 53,772 HS CEI Futures HS C E I Nov 11 9, % 9,508 9,353 82,894 64,495 HS C E I Dec 11 9, % 9,500 9,361 53,395 89,947 HK Stocks in the U.S. In US In HK In US In HK Code Stock (HK$) (HK$) Chg. Code Stock (HK$) (HK$) Chg. 5 HSBC HOLDINGS % 857 PETROCHINA % 2888 STANCHART % 386 SINOPEC CORP % 945 MANULIFE % 883 CNOOC % 2628 CHINA LIFE % 338 SHANGHAI PECHEM % 941 CHINA MOBILE % 670 CHINA EAST AIR % 762 CHINA UNICOM % 1055 CHINA SOUTH AIR % 728 CHINA TELCOM % 902 HUANENG POWER % 1137 CITY TELECOM % 1171 YANZHOU COAL % 700 TENCENT % 2600 CHALCO % 992 LENOVO GROUP % 525 GUANGSHEN RAIL % 1

2 China inflation pressure is easing in mid-november Average price of food declined in mid-nov, according to the latest food price survey for the period during Nov conducted by the National Bureau of Statistics. We expect Nov CPI to ease further, as food accounts for one-third of the CPI composition. Opportunity cost of property owners will increase as real lending interest rates are rising. We expect home buyers to delay home buying decision as inflation expectations are falling. Negative wealth effect is mounting due to the correction of home prices, causing adverse impact on the retail market in the Q4 and earlier next year. So far, deflation expectations are dim but have chance to rise next year /02 03/03 07/03 One-year benchmark nominal lending rate and real lending rate (%) 11/03 03/04 07/04 11/04 03/05 07/05 11/05 03/06 07/06 11/06 03/07 07/07 11/07 03/08 07/08 11/08 03/09 07/09 11/09 03/10 07/10 11/10 03/11 07/11 Nominal rate Estimated real rate Average Price of Food in 50 Cities Period: 11-20/Nov Nov vs Nov vs Items Specification Units Average price (Rmb) Oct Sep Rice Japonica Rice Kg % 1.85% Flour Strong Flour Kg % 0.39% Flour Standard Wheat Kg % 0.00% Soy Products Bean Curd Kg % 0.80% Peanut Oil Pressing Liter % 0.16% Soya Bean Oil 5L Barrel Bulk Liter % -0.08% Rape seed Oil Grade 1 in Bulk Liter % 0.16% Pork Rump Kg % -7.33% Pork Belly Meat Kg % -6.70% Beef Leg Kg % 0.95% Mutton Leg Kg % 4.80% Chickens Frozen Fresh Chicken Kg % -2.21% Chickens Breast Kg % -1.49% Ducks Frozen Fresh Duck Kg % -1.32% Eggs Fresh Eggs Kg % -8.69% Live Carps Kg % -6.50% Live Grass Carp Kg % -5.49% Hair tails Kg % -0.39% Chinese Cabbages Kg % % Rapes Kg % % Celeries Kg % % Cucumbers Kg % -2.09% Tomatoes Kg % -1.86% Kidney Beans Kg % -0.70% Potatoes Kg % -6.27% Apples Fuji Apple Kg % -1.26% Bananas Domestic Products Kg % 16.52% Pasteurized Milk Liter % 3.37% Tetra Pak Milk Liter % -2.69% Source: National Bureau of Statistics of China, ABCI Securities Average -0.56% -3.91% Median 0.00% -1.32% Analyst: Philip Chan 2

3 Event: The National Bureau of Statistic of China (NBSC) released residential property prices in 70 medium and large-sized cities New residential property price MoM chg May Jun Jul Aug Sep Oct City number Stable Up Down Largest Gain 0.6% 0.4% 0.8% 0.4% 0.3% 0.2% Largest Loss -0.7% -0.3% -0.3% -0.5% -1.4% -4.9% Overall Chg 0.16% 0.10% 0.09% 0.02% 0.00% -0.14% Source: NBSC; ABCI The overall new residential property price in these 70 cites decreased 0.14%, the first MoM drop this year. New residential property price in 34 out of the 70 Chinese cities dropped in Oct from Sep, twice as many as in the previous month. Major 1st-tier cities Beijing, Shanghai, Guangzhou and Shenzhen posted the first MoM decline in new residential property since the government imposed home purchase restrictions. The prices in these cities had stalled for 3 consecutive months before the Oct drop. New residential property price in these 4 cities decreased 0.1%, 0.3%, 0.2% and 0.1% respectively in Oct. Comments: The downward correction of residential property market is spreading from large cities to small cities. The government s property policies are working. More cities were reported price decline together with the major 1 st -tier cites saw first drop. Price war among property developers will intensify. We expect to see more intensified price cut for developers in the next two months and the 1 st quarter next year. The highly-leveraged developers with tight cash flow, such as R&F Properties(2777) and Poly HK(119), will have strong incentive to cut price and to boost sales. Property stock prices are near two-year low of P/B. The valuation of the China property developers is near to the lower end of 2-year P/B, which is fair at current stage in our view. However, due to lack of catalyst for upward-revision, in view of sluggish demand and weak bargaining power of the developers, we remain cautious on the sector. Analyst: Vivian Li 3

4 Weekly Review of Consumer Staples Sector The sector tends to outperform when the market is weak. Want Want(151) and Tingyi(322) would be added to the Hang Seng Index on Dec 5 and we will see some buying interest from some Hang Seng Index Exchange-Traded Funds. Want Want and Tingyi gain 7.78% and 15.33% ytd respectively, compared with a 23.21% drop for Hang Seng index. Tsingtao Brewery outperformed the market by a 1.38% in a week but its short selling ratio reached to 52.5% high last Friday. Short-term downside risk of Tsingtao is expected to increase. Name Market cap(hkd mn) 25/11/2011 Short selling ratio 5D chg YTD chg FY 11 PE FY 12 PE RSI_14D Hangseng index 9,830, na -4.34% % Hangseng cons goods index 1,444, na -3.69% % China mengniu(2319) 47, % 2.30% 29.61% Tsingtao -H(168) 56, % 1.38% -0.37% Tingyi(322) 128, % 6.50% 15.33% Uni-president(220) 15, % -4.32% 6.49% Want want(151) 97, % 1.66% 7.78% China food(506) 17, % -0.33% 22.98% Hengan(1044) 86, % -0.56% 5.15% Vinda(3331) 9, % 4.88% 17.58% Tsingtao brewery Price/short selling ratio Source: Bloomberg, ABCI Securities Analyst: Judy Hu 4

5 HK stock market risks monitor Both China and HK CDS spread prices were rising, HK CDS spread price fetched to 105, near the year high in October. The trend of HK$/US$ forex rate hints outflow of fund. Systematic risk in the HK stock market is rising. HK$ /US$ (31/3/ /11/2011) Hang Seng Volatility Index (31/3/ /11/2011) China 5-year CDS (31/3/ /11/2011) Hong Kong 5-yr CDS (31/3/ /11/2011) 5

6 Europe debt crisis monitor (Update to 25/11) Both Markit itraxx SovX Western Europe Index and Markit itraxx Europe Senior Financials Index fetched to year high, which hints the sovereign debt and financial crisis in Europe are deepening. Purpose:Tracking the sovereign debt crisis in Europe Markit itraxx SovX Western Europe Index Purpose:Tracking financial risks of European financial institutions Markit itraxx Europe Senior Financials Index Purpose:Monitor systematic risk in Europe Euro Stoxx 50 Volitility Index Remarks: Indices indicate the default risks of sovereign debt and debts of financial institutions. Increase in index implies risk of debt crisis is rising and vice versa. Source:Bloomberg, Markit 6

7 SHORT SELLING ACTITIVIES (11/ 25) Price Price Code Stock (HK$) Chg Short sell ratio Notes: 168 TSINGTAO BREW-H % 53% The main short selling sectors: 83 SINO LAND CO % 51% 12 HENDERSON LAND % 51% 293 CATHAY PAC AIR % 46% 1919 CHINA COSCO HO-H % 42% 267 CITIC PACIFIC % 39% 23 BANK EAST ASIA % 39% 494 LI & FUNG LTD % 36% 388 HONG KONG EXCHNG % 34% 763 ZTE CORP-H % 32% 386 CHINA PETROLEU-H % 30% 16 SUN HUNG KAI PRO % 29% 1138 CHINA SHIPPING-H % 29% 144 CHINA MERCHANT % 27% 13 HUTCHISON WHAMPO % 27% Properties & construction - Sino land(83),henderson Land(12),Sun Hung Kai Properties(16) Export & transportation - Cathay Pacific(293), China Cosco (1919), China Shipping (1138), China Merchant (144) and Hutchison (13) Remark: Ranked by top 15 short-selling turnover to total stock turnover ratios among Hang Seng Index, Red-chip index or H-share index. Short sell ratio = Short selling transaction value of the stock/total transaction value of the stock Top 10 Percentage Gainers and Losers (Nov 25) Hang Seng Index stocks Top 10 percent gain stocks Top 10 percent loss stocks Rank Code Stock Price (HK$) Change Code Stock Price (HK$) Change ESPRIT HLDGS % 1898 CHINA COAL ENE-H % 2 17 NEW WORLD DEV % 494 LI & FUNG LTD % CHINA RES POWER % 700 TENCENT HOLDINGS % BOC HONG KONG HO % 1199 COSCO PAC LTD % CHINA RES LAND % CHINA LIFE INS-H % 7 83 SINO LAND CO % HANG LUNG PROPER % 9 4 WHARF HLDG % PING AN INSURA-H % H-share Index stocks Top 10 percent gain stocks Top 10 percent loss stocks Rank Code Stock Price (HK$) Change Code Stock Price (HK$) Change ZTE CORP-H % 1186 CHINA RAIL CN-H % AIR CHINA % 3323 CHINA NATL BDG-H % JIANGXI COPPER % 1898 CHINA COAL ENE-H % CHINACOMSERVICE % 1211 BYD CO LTD-H % CHALCO % 390 CHINA RAIL GR-H % CMOC % 2601 CHINA OILFIELD-H % PETROCHINA % 2883 GUANGZHOU AUTO-H % PICC P&C % 2238 CHINA SHIPPING-H % CHINA COAL % 1138 ZIJIN MINING-H % ZIJIN MINING % 2899 AGRICULTURAL-H % Red Chip Index stocks Top 10 percent gain stocks Top 10 percent loss stocks Rank Code Stock Price (HK$) Change Code Stock Price (HK$) Change SINO OCEAN LAND % 817 FRANSHION PROP % CHINA AGRI-INDUS % 1313 CHINA RES CEMENT % CHINA RES POWER % 297 SINOFERT HOLDING % CHINA RES POWER % 270 GUANGDONG INVEST % COSCO PAC LTD % CHINA RES LAND % KUNLUN ENERGY CO % LENOVO GROUP LTD % SHOUGANG INTL EN % CNOOC LTD % 7

8 Interest Rates Monitor 3-month HK$ HIBOR, US$ LIBOR 3-month GBP LIBOR, EUR LIBOR Overnight, 1-month, 3-month HK$ HIBOR Overnight, 1-month, 3-month RMB SHIBOR Commodity Monitor Commodity Research Bureau Index vs US dollar Index Light Crude Oil Future vs US dollar Index Gold price vs US dollar Index 8

9 Appendix: H-Share and A-share Price Comparison Table (25/11) H-share H-share price A-share price premium H-share A-share Stock Price chg Price chg (discount) Code Code Name (HK$) (%) (RMB) (%) to A-share PER PER PER P/B CCB % % -10.4% ICBC % % -19.2% ABC % % -1.2% BANK OF CHINA % % -33.2% BANKCOMM % % -13.7% CM BANK % % -2.7% CITIC BANK % % -21.4% MINSHENG BANK % % -15.3% CHINA LIFE % % -9.5% PING AN % % 19.0% CPIC % % -3.8% CITIC SEC % % -0.3% PETROCHINA % % -20.4% SINOPEC CORP % % -10.1% SHANGHAI PECHEM % % -69.4% YIZHENG CHEM % % -83.2% CHINA OILFIELD % % -44.1% SHANDONG MOLONG % % -69.0% SHENHUA ENERGY % % 3.7% CHINA COAL % % -23.8% YANZHOU COAL % % -46.0% HUANENG POWER % % -29.0% DATANG POWER % % -54.9% HUADIAN POWER % % -62.2% CHINA EAST AIR % % -44.6% CHINA SOUTH AIR % % -46.0% AIR CHINA % % -36.8% CHINA RAILWAY % % -38.5% CHINA RAIL CONS % % -26.1% CSR % % -27.2% GUANGSHEN RAIL % % -33.0% JIANGSU EXPRESS % % -2.8% SHENZHENEXPRESS % % -34.0% ANHUIEXPRESSWAY % % -17.7% SICHUAN EXPRESS % % -44.3% TIANJIN CAPITAL % % -73.0% BYD COMPANY % % -40.5% GREATWALL MOTOR % % -25.9% WEICHAI POWER % % -20.6% ZOOMLION % % -25.9% BEIREN PRINTING % % -73.4% JIAODA HIGHTECH % % -75.2% NE ELECTRIC % % -80.8% DONGFANG ELEC % % -25.2% SH ELECTRIC % % -57.1% GOLDWIND % % -63.4% JINGWEI TEXTILE % % -72.6% TSINGTAO BREW % % -6.6% SHANDONG XINHUA % % -74.3% GUANGZHOU PHAR % % -62.2% SH PHARMA % % -13.1%

10 MCC % % -56.7% ANGANG STEEL % % -27.4% MAANSHAN IRON % % -39.5% CHONGQING IRON % % -70.9% CHALCO % % -64.0% JIANGXI COPPER % % -45.9% ZIJIN MINING % % -42.2% ANHUI CONCH % % 13.2% BBMG % % -53.7% BEIJING N STAR % % -66.4% ZTE % % 1.9% NANJING PANDA % % -81.3% GUANGZHOU SHIP % % -74.0% CHINA COSCO % % -56.4% CSCL % % -63.9% CHINA SHIP DEV % % -48.7% DALIAN PORT % % -52.2% HISENSE KELON % % -75.3% LUOYANG GLASS % % -84.2% CHENMING PAPER % % -53.0% Source: Bloomberg 10

11 Analyst Certification I, Chan Sung-yan, Philip, being the person primarily responsible for the content of this research report, in whole or in part, hereby certify that all of the views expressed in this report accurately reflect my personal view about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. ABCI Securities Company Limited and its member companies will pursue financial interests to the companies mentioned in the report in the future. Chan Sung-yan, Philip has financial interest in Ping An H-share. I, Li Hong-ying, Vivian, being the person primarily responsible for the content of this research report, in whole or in part, hereby certify that all of the views expressed in this report accurately reflect my personal view about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. ABCI Securities Company Limited and its member companies will pursue financial interests to the companies mentioned in the report in the future. I, Lee Oi Yee, Lisa, being the person primarily responsible for the content of this research report, in whole or in part, hereby certify that all of the views expressed in this report accurately reflect my personal view about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. ABCI Securities Company Limited and its member companies will pursue financial interests to the companies mentioned in the report in the future. I, Hu Zhaoling, Judy, being the person primarily responsible for the content of this research report, in whole or in part, hereby certify that all of the views expressed in this report accurately reflect my personal view about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. ABCI Securities Company Limited and its member companies will pursue financial interests to the companies mentioned in the report in the future. Disclaimer This report is for our clients only and is for distribution only under such circumstances as may be permitted by applicable law. It has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. 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