HONG KONG MARKET REVIEW – 21 JULY 2010

Last Change Chg (%)

Hang Seng Index 20,487.23 222.64 1.10%
Shanghai Stock Exchange 2,535.39 6.66 0.26%
Nikkei 225 9,278.83 -21.63 -0.23%

Top 5 Gainers Last Change Chg (%)

China Merchants Holdings HK$27.70 HK$ 0.90 3.36%
New World Development HK$13.56 HK$ 0.44 3.35%
COSCO Pacific Limited HK$9.90 HK$ 0.28 2.91%
China Telecom Corp. Ltd. HK$3.80 HK$ 0.10 2.70%
China Shenhua Energy Co. HK$29.60 HK$ 0.70 2.42%

while loan growth seen to have picked up in 2Q.

Hang Seng Index Took Cues
From NorAm
Hang Seng stocks enjoyed soaring 1.1% or 222.64 up
to 20,487.23 after it traded between 20,334.35 and
20,494.18. The index took cues from DJIA overnight
gains after it dodged a three-digit loss to claw back
to the positive area. DJIA ended at 10,229.96 or up
0.7% as the market prefers to wait until Fed’s Chief
Ben Bernanke testified before the Congress
regarding monetary policy. Commodities were stars
of the day while New World got started at
OVERWEIGHT and another death reported at
Foxconn. Sinopec went up after a report of
processed oil got released.
Morgan Stanley Sees Tepid Earnings
for HK Banks in First Half 2010
Near-term outlook for HK banks may not be great as
net interest margin contraction expected to continue
Deposits also seen lackluster with slower asset
growth in 1H10 vs. 2H09. Should China takes further
steps on CNY, growth outlook in HK will improve as
China-linked loan growth for HK banks increases
along with fees income, thus improve long-term
outlook for HK banks’ revenue such as BOC HK. MS
itself sees BOC HK heading towards HK$25 after its
target raised from HK$20. BNP Paribas sees BOC HK
at HK$22.81. MS also ups target for ICBC from HK$19
to HK$24.
UOB Remains Positive on China Banks
UOB KayHian sees no hard-landing for China, as it
expects no increase of loan target, no lowering of
required reserve ratio, while expects series of
window guidance measures to ease credit
environment.
Another Staff Died At Foxconn
Another worker died yesterday after falling from a
dorm building and while not expected to do
significant negative impact on FIH, so far the stock
underperforms the market. Any possible fall is seen
limited.
New World at OVERWEIGHT
Morgan Stanley puts New World Development at
OVERWEIGHT with target price at HK$18. Stock
trades at 53% discount or 7.6x FY10 P/E, vs. industry
average of 17.7x.
Mount Nicholson Seen As N/T Peak
BNP Paribas suggests near-term peak of luxury
residential sales and thus the climax of the current
property cycle. Very bullish result of auction at
Homantin site on June 8 had set recoveries of prices
and activities after two months of consolidation. HK
property sector now rated as NEUTRAL. On the other
hand, BNPP raised Hang Lung Properties target to
HK$29 from HK$27.4 after raising NAV to HK$30.81
vs. HK$29.77 due to assumption revisions. HLP has
not made any new moves since sale of 415
Harbourside units. BNPP expects HLP to time new
sales to coincide with its capex needs in China.
Further investment in HK residential is likely to be
very low on priority list at current prices given HLP’s
current business strategy.
Cathay Pacific Fuel Surcharges
Approved
Fuel surcharge for short-haul flights is expected to
fall to HK$98/journey from HK$105, while long-haul
seen at HK$505, down from HK$513. This brings the
charges for August down by up to 6.7% due to weak
global fuel prices.
Sinopec 1H Refinery Throughput Up
17%
China Petroleum & Chemical Corp. (Sinopec)’s
throughput of crude oil was up 17% (YoY) to 101.45
million metric tons. Between January and June
gasoline production reached 17.77 million tons, up
4.6% (YoY). Diesel output was 36.72 million tons or
up 13%, domestic sales of refined oil products were
up 18% to 68.15 million tons, and crude oil
production during 1H reached 149.19 million barrels
or up 0.05%. Natural gas output was up 41%.
HK Jobless Rate Seen Below 4% By
Year-End
As European issues and potential contagion to Asia
now mostly under control, service exports are
expected to fuel continued economic recovery while
being a catalyst for improvement in labor market
conditions in 2H10 according MS.
HK CPI Seen +2.8% in June (YoY)
After rising by 2.5% in May, HK CPI is seen up 2.8% in
June (YoY) due to higher rental fees and
transportation costs. Low interest environment also
contributed to the inflationary pressure. Increase in
subway fares by an average of HK$0.15 from June
added pressure from transportation costs as
transports weigh by 10% to CPI calculation. Here is
the breakdown of each house’s forecast: UBS +2.3%,
Standard Chartered +2.6%, Credit Agricole +2.7%,
Hang Seng Bank +2.7%, Daiwa +2.8%, Morgan
Stanley +2.8%, Citigroup +2.9%, JPMorgan Chase
+3.0%, ING +3.2%, Consensus (median) +2.8%, vs.
May +2.5%.
HANG SENG INDEX FUTURES JULY’10

Commentary:
HSI moved past 20,440-20,450 resistance area and reached 20,540 before it settled at 20,535 by the end of the
day. This flips the outlook from NEUTRAL to MILDLY BULLISH as the index now aims at 20,730 (trendline resistance)
and 20,788 (prior swing high), en route to 20,942 (June 22). Support is seen at 20,500 first, before 20,350 and
20,305. Relentless push upwards could provoke mild corrective pullbacks which could be seen as an opportunity to
enter LONG position as long as the index does not reach 20,730 first. The contracting price channel offers range-
play by placing SHORT at channel resistance and LONG at channel support.

DISCLAIMER
This report has been prepared by ATF Capital on behalf of itself and its affiliated companies and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to
sell, or a solicitation of any offer to buy. This report has been produced independently and the forecasts, opinions and expectations contained herein are entirely those of ATF Capital. While all reasonable care
has been taken to ensure that information contained herein is not untrue or misleading at the time of publication, ATF Capital makes no representation as to its accuracy or completeness and it should not be
relied upon as such. This report is provided solely for the information of clients of ATF Capital who are expected to make their own investment decisions without reliance on this report. Neither ATF Capital nor
any officers or employees of ATF Capital accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. ATF Capital and/or persons connected with it may
have acted upon or used the information herein contained, or the research or analysis on which it is based, before publication. ATF Capital may in future participate in an offering of the company's equity
securities.