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PRESENTED BY IFAST FINANCIAL (HK) LTD
PAGE 2 3 5 21
INDICES MARKET INFORMATION MARKET AND SECTOR REVIEWS BONDS
p19. Russia p6. Europe p12. South Korea p5. USA p20. Technology p13. India p11. Thailand p8. Singapore p18. Brazil p10. Indonesia p17. Australia p14. China p7. Japan p15. Taiwan p16. Hong Kong p9. Malaysia
MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©
1600 1500 1400 1300 1200 1100 1000 900 800 700 Nov-07
US Market & Est PE
20 16 12 8
400 350 300 250 200
Stoxx 600 & Est PE
20 18 16 14 12 10 8 6 4
4 0 Nov-08 Nov-09 Jan-08 Jan-09 Jan-10 Jul-07 Jul-08 Jul-09 Mar-08 May-08 Mar-09 May-09 Mar-10 May-10 Sep-07 Sep-08 Sep-09 Jul-10
150 Nov-07 Nov-08 Sep-09 Nov-09 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Mar-08 May-08 May-09 May-10 Sep-07 Sep-08 Mar-09 Mar-10 Jul-10
S&P 500 (LHS)
Est PE (RHS)
Stoxx 600 (LHS)
Est PE (RHS)
SOURCE: BLOOMBERG & IFAST COMPILATIONS
SOURCE: BLOOMBERG & IFAST COMPILATIONS
18000 16000 14000 12000 10000 8000 6000 Nov-07
Nikkei 225 & Est PE
50 45 40 35 30 25 20 15 10 5 0
2400 2200 2000 1800
Nasdaq (Technology Heavy) & Est PE
30 25 20 15 1600 1400 1200 1000 Nov-07 Nov-08 Nov-09 Jul-07 Jul-08 Jul-09 Jan-08 Jan-09 May-08 May-09 Jan-10 May-10 Mar-08 Mar-09 Sep-07 Sep-08 Sep-09 Mar-10 Jul-10 10 5 0
Est PE (RHS)
NKY Index (LHS)
Est. PE (RHS)
SOURCE: BLOOMBERG & IFAST COMPILATIONS
SOURCE: BLOOMBERG & IFAST COMPILATIONS
3800 3400 3000 2600 2200 1800 1400 1000 Nov-07
FTSE STI & Est PE
22000 20000 18000
Hang Seng Mainland Enterprise Index & Est PE
30 25 20 15 10 5 0
16000 14000 12000 10000 8000
0 Nov-08 Nov-09 Jan-10 Jan-09 Jan-08 Jul-07 Jul-08 Jul-09 Jul-10 May-09 May-08 May-10 Mar-08 Mar-09 Sep-07 Sep-08 Sep-09 Mar-10
6000 Nov-07 Nov-08 Nov-09 Jul-07 Jul-08 Jul-09 Jan-08 Jan-09 Mar-08 Mar-09 Jan-10 May-08 May-09 Mar-10 May-10 Sep-07 Sep-08 Sep-09 Jul-10
FTSE STI (LHS)
Est PE (RHS)
Est PE (RHS)
SOURCE: BLOOMBERG & IFAST COMPILATIONS
SOURCE: BLOOMBERG & IFAST COMPILATIONS
22500 20000 17500 15000
SENSEX & Est PE
28 24 20 16 12
700 600 500 400 300 200 100 Nov-07
MSCI Asia ex-Japan & Est PE
12500 10000 7500 Nov-07 Nov-08 Nov-09 Jul-07 Jul-08 Jul-09 Jan-08 Jan-09 May-08 May-09 Jan-10 May-10 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Jul-10
8 4 0
5 Nov-08 Nov-09 Jan-08 Jan-09 Jan-10 Jul-07 Jul-08 Jul-09 May-08 May-09 May-10 Mar-08 Mar-09 Sep-07 Sep-08 Sep-09 Mar-10 Jul-10
Est PE (RHS)
MXASJ Index (LHS)
Est PE (RHS)
SOURCE: BLOOMBERG & IFAST COMPILATIONS
SOURCE: BLOOMBERG & IFAST COMPILATIONS
8% 6.0% 19.1 20.7% 61.3 16.59 17992 3096.2% 81.5% 28.2% 1.0 33.41 854.2 13.2% 7.16 21093.84 - P/E YR 2010 USA (S&P 500) Europe (DJ Stoxx 600) Japan (Nikkei 225)* Emerging Markets (MSCI EM) Asia ex Japan (MSCI Asia ex Japan) Singapore (STI) Hong Kong (HSI) Taiwan (Taiwan Weighted) South Korea (KOSPI) China (HS Mainland 100) Malaysia (KLCI) Thailand (SET Index) India (SENSEX) Indonesia (JCI) Russia (RTSI$) Brazil (IBOV) Australia (S&P/ASX 200) NASDAQ 100 (Technology Heavy) 13.9 3.3 19.4 15.3 1358.8% 53.1 5.5% 68.0% 87.7% 30.3% 45.0% 2010 RETURN YTD (%) -1.7 8.0% 3.6 11.68 66953. PRESENTED BY IFAST FINANCIAL (HK) LTD © MARKET INFORMATION (AS AT 29 JUL 2010) INDEX AS AT 29 JUL 2010 USA (S&P 500) Europe (Stoxx 600) Japan (Nikkei 225) Emerging Markets (MSCI EM) Asia ex Japan (MSCI Asia ex Japan) Singapore (STI) Hong Kong (HSI) Taiwan (Taiwan Weighted) South Korea (KOSPI) China (HS Mainland 100) Malaysia (KLCI) Thailand (SET Index) India (SENSEX) Indonesia (JCI) Russia (RTSI$) Brazil (IBOV) Australia (S&P/ASX 200) Technology (NASDAQ) 1101.3 14.7 11.5 14.84 488.4 12.2 9.4% 4.5 11.7 12.2% 4.71 0.3% 49.3% 3.4 15.0 10.5 12.02 993.0% 22.64 3.97 7.1% 0.5 9.8 12.8 16.0 29.8 9.72 12.9 SOURCE: IFAST COMPILATIONS.6 13.1% 0.1% 4.4 15.8281 4524.6 18.9 13.0 12.1 13.3% 5.3 22.8 18.8 16.6 18.8 11.816 1503.1 12.1 15.1 17.7 14.0% 78.7 12.0 6.8 6.7 10.6% 6.7% 6.8 11.41 2.1 11.4% -7.6% -4.8% 5.5 9.5% 5 YEAR BOND YIELD (%) 1.9 11.7 103.1% -2.0 29.9 8.0 21.0 0.9 69.6 13.3 27.8 63.94 4.9% 5.3 P/E YR 2011 11.6 14.1 27.3 17.88 6728.7 12.7 12.4% 7.53 6.1 8.99 1770.5 12.5 12.3% 8.PAGE 3 MARKET INFORMATION MONTHLY GLOBAL MARKET UPDATE AUG 2010.7% 5.0% 2009 RETURN (%) 23. BLOOMBERG ESTIMATES ALL EARNINGS GROWTH FIGURES WERE UPDATED AS AT END JUN 10 RETURNS ARE IN THE RESPECTIVE LOCAL CURRENCY TERMS AND MSCI INDEX RETURNS ARE IN USD TERMS .7 EARNINGS EARNINGS GROWTH 2010 (%) GROWTH 2011 (%) 35.2% 63.3 12.3% 3.3 10.3% 9.0 9.49 4.4 10.38 2.1 18.9 16.9% 5.4 9.5% 52.4% 0.56 7.0 10.7% 16.07 2981.3 CHANGE SINCE 30 JUN 2010 (%) 6.4 20.82 7798.6% 82.0% 128.2 37.3 9.3% 4.35 0.0 10.9% -8.6% 2.5 27.2% 0.6 13.3% 64.53 256.4 7.4 14.0% 74.61 1.5 13.3 10.6 10.9% -3.36 4.3 P/E YR 2012 10.3% 12.2% -3.4 13.4 90.66 1.1 1860.26 9696.5 83.
5% 11.5 4.5 OUR 3 YEAR VIEW Very Attractive Very Attractive Very Attractive Very Attractive Very Attractive Attractive Attractive Attractive Attractive Very Attractive Attractive Very Attractive Attractive SOURCE: IFAST FINANCIAL COMPILATIONS.3% 8.2% 6.E.7% 0.4% 3.6% 3. NO INVESTMENT DECISION SHOULD BE TAKEN WITHOUT FIRST VIEWING A FUND'S PROSPECTUS.0% 9.5% 5.4% 4. HSML100 INDEX DERIVES A MAJORITY OF THEIR SALES REVENUE FROM MAINLAND CHINA.5 4.1% 8.5 4. PRESENTED BY IFAST FINANCIAL (HK) LTD © EARNINGS YIELD EARNINGS YIELD 2010 (%) USA (S&P 500) Europe (DJ Stoxx 600) Japan (Nikkei 225)* Emerging Markets (MSCI EM)** Asia ex Japan (MSCI Asia ex Japan) Singapore (STI) Hong Kong (HSI) Taiwan (Taiwan Weighted) South Korea (KOSPI) China (HS Mainland 100)+ Malaysia (KLCI) Thailand (SET Index) India (SENSEX)* Indonesia (JCI) Russia (RTSI$) Brazil (IBOV) Australia (S&P/ASX 200) 8.3% 0.7% -1.0 3.8% 15.0% 0.0% 8.0% 3.0 3.0% 8. 2010 AND 2011 RESPECTIVELY AND ALL RETURNS ARE IN THEIR RESPECTIVE LOCAL CURRENCY TERMS.5 3. PAST PERFORMANCE AND ANY FORECAST IS NOT NECESSARILY INDICATIVE OF THE FUTURE OR LIKELY PERFORMANCE OF THE FUND.2% 4.3%) *JAPAN AND INDIA PE FORECASTS ARE BASED ON FISCAL YEAR ENDED MARCH 2009.5 4.3% 8.0% 0.8% EXCESS YIELD (%) 7.9% 3.5 4. OPINIONS EXPRESSED HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE.7% 6.4% 7.4% 2.5 3.6% 5 YEAR BOND YIELD (%) 1.5% 6.7% 1.9% 3.1% 7.6% 7.5% 4. EARNINGS YIELD IS THE RECIPROCAL OF THE PRICE-EARNINGS RATIO. IF A MARKET HAS AN ESTIMATED PE OF 12X. BLOOMBERG ESTIMATES.1% 10.0 4.3% 9.4% -2. ANY ADVICE HEREIN IS MADE ON A GENERAL BASIS AND DOES NOT TAKE INTO ACCOUNT THE SPECIFIC INVESTMENT OBJECTIVES OF THE SPECIFIC PERSON OR GROUP OF PERSONS.4% 7.7% 7.6% 1.5 3.5 3.7% 10.0 4. PURCHASE OR SALE OF ANY FUND.0 4.9% 4.0 3.8% MARKET Asia ex-Japan Emerging Markets US Europe Japan STAR RATINGS 4.0% 7.0 OUR 3 YEAR VIEW Very Attractive Very Attractive Very Attractive Very Attractive Attractive MARKET Singapore China Hong Kong Technology South Korea Indonesia India Thailand Malaysia Taiwan Brazil Russia Australia STAR RATINGS 4. THIS SUMMARY IS NOT TO BE CONSTRUED AS AN OFFER OR SOLICITATION FOR THE SUBSCRIPTION.0% 7. THE VALUE OF UNITS AND THE INCOME FROM THEM MAY FALL AS WELL AS RISE.7% 9. IT IS BASICALLY THE AMOUNT OF EARNINGS YOU PURCHASE FOR EVERY DOLLAR WORTH OF THE STOCK (I.5% 4. THE EARNINGS YIELD IS 8.PAGE 4 MARKET INFORMATION MONTHLY GLOBAL MARKET UPDATE AUG 2010.0 4.7% 12.5% 7. +THE HANG SENG MAINLAND 100 INDEX (HSML100) COMPRISES BOTH H-SHARE COMPANIES AND RED-CHIP STOCKS AS WELL AS SHARES OF OTHER HONG KONG –LISTED MAINLAND COMPANIES .6% 6. PLEASE READ OUR DISCLAIMER .9% 6.6% 6.3% 8.
000 in June.5% m-o-m in Jun 10 after a revised 1.7 in May 10 ISM Non-Manufacturing composite index fell to 53. corporate profits indicate that things are indeed picking up. and with volatility in existing home sales expected to continue over the next few months. kick-starting job creation in a big way.000 in June 2010. housing sales data may be less useful for analysis.6 million jobs.8 trillion for nonfinancial companies as at end March 2010. as nonfarm payrolls declined by 125. Nevertheless. June existing home sales plunged in the absence of the homebuyer tax credit. the low interest rate environment may soon force companies to deploy this cash into more profitable business investments. In contrast to the dim outlook painted by economic indicators. The conservative stance by most corporations has possibly had some impact on slowing the overall job-creation process. according to the Federal Reserve). As anticipated.2 in Jun 10 from 59.1% m-o-m decrease in May 10 Business inventories rose 0.1% m-o-m in May 10 after a 0. in stark contrast to 2009 where private employers collectively slashed 4. On the supply side.4 in May 10 Factory orders fell 1. after a revised 0. after a 2. but with corporations sitting on huge amounts of cash (US$1. but private payrolls gained just 83.0 STARS – VERY ATTRACTIVE) • • • • • • • • • • • ISM Manufacturing index fell to 56.000 forecasted.5% m-o-m in Jun 10 after a 0. after a revised gain of 433. a reflection of the better-than-expected earnings posted.4 in Jul 10 from 52. private sector additions have been positive for every month in 2010 resulting in net hiring of 593.2% decline in May 10 Consumer confidence fell to 50.8 in Jun 10 from 55.4% m-o-m in May 10 after a revised 1% increase in Apr 10 Nonfarm payrolls fell 125. Technology bellwethers like IBM and Microsoft have reported stronger-than-expected earnings.1% m-o-m in Jun 10. Payroll data was skewed by a decline in temporary census workers.7% in May 10 Advance Retail Sales fell 0. .000 in Jun 10. but maintained conservative outlooks given the uncertainty associated with European debt problems.3% decline in May 10 Existing home sales fell 5.5% in Jun 10 from 9.4% increase in Apr 10 Producer Price Index fell 0.PAGE 5 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010. Since 2Q 2010 reporting season began.000 in May 10 Unemployment rate fell to 9.000. PRESENTED BY IFAST FINANCIAL (HK) LTD © REGIONAL MARKETS UPDATE US MARKET (4.9 in Jun 10 Index of Leading Indicators fell 0. suggesting that homebuilders may have to scale down activity for a substantially long period to allow existing home stock to deplete. quarterly estimated earnings for S&P 500 companies have been revised upwards by 5% (year-on-year growth in quarterly earnings is almost 50%). Government policies continue to mask the true nature of demand in the US housing market.5% increase in May 10 MARKET OUTLOOK Unemployment continues to drag on the economy. less than the 110.2% m-o-m in Jun 10. inventory levels remain elevated.
the economy grew by 1. euro appreciated by 6.8 in Jun 10 • Preliminary estimates for PMI manufacturing rose to 61.6% m-o-m in Jul 10.3% q-o-q growth in 1Q10 MARKET OUTLOOK UK was the first major European economy to announce advance estimates for 2Q 2010 GDP growth. Bank of England will have to carefully weigh their options when next deciding on the benchmark interest rate. up from actual 54. after a revised 0. Based on their adverse scenario analysis.5% m-o-m in May 10.4 in May 10 • Rightmove House Prices index decline 0. down from a revised 66 in May 10 • PMI manufacturing decline slightly to 57.7% in 2010 and 2011 respectively. up from 101. after a 0. . a poor reflection of current market rates. For example. analysts are not expecting any rate hikes to take place until early 2011. This translates to a forward PE ratio of 11. We maintain Europe at 4 stars “Very Attractive.1% month-to-date as of 27 July 2010. The Stoxx 600 index has recorded a gain of 6.2 in Jul 10.7 in Jun 10 • German IFO Business Climate index rose to 106. However.PAGE 6 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010.5 billion euro.7% m-o-m in May 10. PRESENTED BY IFAST FINANCIAL (HK) LTD © REGIONAL MARKETS UPDATE EUROPE (4.0 points mark which indicates growth.2% against USD month-to-date.6% growth. after a revised 3.3% gain in Jun 10 • UK GDP advance estimates grew by 1. suggesting that investors deem the findings as credible. On 23 July 2010. at least for now.6% in 2Q 2010.9X for 2010 and 2011 respectively (in local currency terms). down from 28. All three major European economies continue to see their manufacturing and services sector expand as the PMI indices for respective sectors and countries remain above the 50.3 in Jul 10. Germany saw the biggest increase in both manufacturing and services sector as the PMI manufacturing index rose to 61. up from actual 60.3 in July.0 STARS – VERY ATTRACTIVE) GERMANY • Industrial production gained 2.7X and 9.6% m-o-m in May 10.8 in Jun 10 FRANCE • Industrial production gain 1.3 in Jul 10.4% and 18.7% decline in Apr 10 • Nationwide consumer confidence fell slightly to 63 in Jun 10.2% gain in Apr 10 • ZEW economic sentiment survey decline to 21. euro has appreciated against other major currency since hitting a recent new low.8 in Jun 10 UNITED KINGDOM • Industrial production rose 0.5% decline in Apr 10 • Business confidence indicator rose to 98 in Jul 10.4 in Jun 10. However the response from the market since the official release of test results has been positive.2 in Jul 10. The economy grew 1. While upward revision of consensus earnings estimates has slowed. The stress tests scenario were leaked before the scheduled press release and analysts are criticizing that the stress scenario used are overly optimistic. surprising on the upside of analysts’ expectation of a milder 0. it is still expecting earnings to grow at 33.1% quarter-on-quarter in 2Q 2010. The stress test is conducted on a sample of 91 European banks which represents 65% of the European market in terms of total assets.2 in July and PMI services index rose to 57. down from actual 54.1% q-o-q in 2Q10. 7 banks would see their Tier 1 capital ratios fall below 6% (threshold of 6% is used as a benchmark solely for the purposes of this stress test) and will need to raise a total capital of 3.2 in Jul 10.5 in Jun 10. On a year-on-year basis. after an actual 0. after a revised 1.2% gain in Apr 10 • Factory orders fell 0. up from actual 58. after a 0. with doubt over the sustainability of current rate of growth.7% m-o-m in May 10. Europe remains attractively priced among developed markets. the Committee of European Banking Supervisors (CEBS) released the bank stress test results. With inflation above target and stronger-than-expected growth. down from actual 55. This is the fastest pace of growth in four years. On top of that.8 in Jun 10 while preliminary estimates for PMI services rose to 61. down from actual 58 in May 10 while PMI services decline slightly to 54.4 in Jun 10 while preliminary estimates for PMI services rose to 57.7 in Jul 10. up from a revised 96 in Jun 10 • Preliminary estimates for PMI manufacturing fell to 53.
7% y-o-y in Jun 10 after rising 32. Large companies forecast rising sales will drive profits 21.6% year-on-year in June 2010.1% y-o-y in Jun 10.6% from earlier estimate of 1. Machine Orders rose 4. .6 in Jun 10 as compared to 42. We believe that the pace of Japanese economy recovery is accelerating.4% while the yen surged 5. It hiked the growth projection to 2.0 STARS (ATTRACTIVE) • • • • • Bank of Japan (BOJ) held rate at 0. thanks to robust demand from Asia. It is the first gain in three years. It is believed that the earnings of manufacturing exporters could be hurt by the rapid appreciation of Japanese yen.1X and 16. Core CPI which excludes food and energy prices dropped 1. Japanese government warned that an abrupt drop in stock prices or an appreciation in the yen could hurt the economy.7 in May 10. global central banks have slashed rates to record-low level and injected liquidity into the financial system. However. Thus. Therefore. Estimated PE for the Japan’s market is at 18. Consumer confidence rose to 43. any potential intervention could be effective only in short-term. Merchandise Trade Export rose 27.1X for 2010 and 2011 as at 27 July 2010.7% in the second quarter of 2010.8%. Industrial production grew 20. Japanese government has officially announced the country has entered into a deflationary state in November 2009.6% higher in this fiscal year. The Bank of Japan (BOJ) raised its forecast on the country’s real economic growth for 2010 financial year ending March 2011 amidst growing concerns on the Europe debt woes. Tankan Large Manufacturers Index in the second quarter of 2010 climbed to 1 from negative 14. Large manufacturers called for a government intervention in currency market as the yen surged to an unaffordable level. the first positive reading since the second quarter of 2008.1% y-o-y in May 10.4% y-o-y in May following a revised 20. the bank remains its stance on deflationary risk and said the CPI to turn positive as early as 2011 financial year. We expect that Japan would recover at a slower pace than other regions and countries. unlike the intervention in 2004. The business confidence indices for all the categories of companies improved in the quarter. In the following weeks. The improvement in manufacturer’s sentiment also exceeds the market consensus of minus 4.4% for this financial year ending March 2011. we still give Japanese market an attractive rating of 3 stars. up slightly from its previous forecast of 21.3% y-o-y in May 10. the sharpest drop in history. the first time since 1994.8% y-o-y increase. PRESENTED BY IFAST FINANCIAL (HK) LTD © REGIONAL MARKETS UPDATE JAPAN – 3. A positive reading means optimists outnumber pessimists. Merchandise Trade Import increased 26. The large manufacturers planned to raise capital spending by an average of 4.3% growth. Japanese listed companies will announce the first quarter earnings result. However.2% increase y-o-y in Apr 10. Nikkei 225 Index plunged 15. less than the market consensus of 10.PAGE 7 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010.1%. MARKET OUTLOOK Confidence of Japan’s large manufacturers rebounded for a fifth straight quarter.
2010. Given the sudden dropoff in biomedical production.9% in May 10.3% gain in May 10 Jun 10 CPI rose 2.4% lower in June. but just 13X based on 2011 estimated earnings. the government raised its full-year growth forecast to between 13% and 15%.7 in May 10 Non-oil Domestic Exports rose 28.7% y-o-y in Jun 10. Given that the bulk of the strong growth seen in 2Q 10 was due to the surge in biomedical and electronics manufacturing. 2011 and 2012 earnings for STI companies have been revised upwards by 20. In light of the strong 1H 2010 which saw the economy expand by 18.1% and 6.2% increase in May 10 Retail sales fell 0. rather. In addition.1% year-on-year. following the 3. after a revised 24. Singapore’s growth is still highly dependent on the sustainability of manufacturing sector growth.9% in 1Q 10 MARKET OUTLOOK GDP growth in 2Q 2010 came in at 26% quarter-on-quarter annualised.0 STARS (VERY ATTRACTIVE) • • • • • • • • Purchasing Managers Index fell to 51.0%. dragging industrial production 23. 13. after a 5.PAGE 8 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010. June’s industrial production came in weaker-than-expected with the biomedical manufacturing sector index losing 51. 1Q 2010 GDP growth was revised upwards from 32. This should not be interpreted as a “double-dip” recession. with little evidence of a contagion impact on the Singapore economy. We maintain a 4 star “very attractive” rating on the Singapore equity market. The Singapore market now trades at an estimated 14. and it is highly likely that Singapore’s economy will contract in the 2H 10. up from 7% to 9% previously. we are looking at 2Q 10’s GDP growth being revised lower. European debt problems appear largely contained at the moment.1% quarter-on-quarter (annualised) to 45.4% m-o-m in Jun 10.3 in Jun 10 from 52. the drop-off in growth simply reflects the huge fluctuations in the cyclical manufacturing sector.1% respectively (as of 29 July 2010). .9%.7% y-o-y.5 in Jun 10 from 53. after a 17. after a revised 2% m-o-m decline in Apr 10 Industrial production fell 23.3% y-o-y increase in Apr 10 Advance GDP estimate for 2Q 10 at 26% q-o-q annualised from revised 45. stronger than the 23% growth forecasted.2 in May 10 Electronic Sector PMI fell to 50.7X 2010 earnings.2% increase in May 10 Bank loans and advances rose 8% y-o-y in May 10. PRESENTED BY IFAST FINANCIAL (HK) LTD © SOUTH EAST ASIA SINGAPORE – 4.9% month-on-month. On the back of positive earnings news flow.
1%.2%). indicating that the economic growth in 2H 2010 could slow down. IPI growth reported a 12.9% y-o-y in May 10. caused by the decrease in crude oil sector. Backed by the strong economy rebound and better economic fundamentals. In tandem with global economic recovery.5 stars “Attractive” rating for Malaysia market.2% y-o-y. Imports growth soared to 34.7% in June 2010 (May 2010: 1. Inflation is expected to remain between 2% to 3% in 2010. Corporate earnings growth is expected to be 27.25% to 3. Mining sector registered a marginal decrease of 0.6%). which rose 35. Imports growth could remain strong. We maintain a 3. due to the increases in manufacturing and electricity sectors.5 STARS (ATTRACTIVE) • • • • • Exports grew at a smaller pace of 21.5% year-on-year in May 2010 (April 2010: 10. but will remain supported by the improving domestic and external demand.7% in Jun 10.0%).4 and 119. the mining sector posted a marginal decrease of 0. Bank Negara Malaysia (BNM) raised the OPR (Overnight Policy Rate) by 25 basis points to 2.6 respectively in 2Q 2010.7%).8% for 2011. Leading index grew at a slower pace of 3. Interest rate hike might pause for the remaining of this year in view of the cautious stance by the central bank towards the global economic recovery. Imports growth soared to 34. However.50% in 2011 as the economy recovers. MARKET OUTLOOK Malaysia exports grew at a slower pace of 21. mainly due to a pullback in demand for E&E products exports. Leading index growth slowed to 3.1%. CPI increased at a faster rate of 1. and we expect the negative impact to the equity market to be minimal. as measured by MIER’s CSI (Consumer Sentiment Index) and BCI (Business Conditions Index) of 110. pointing to a slower economic growth in 2H 2010.2% year-on-year in May 2010 (April 2010: 27.6%). Consumer Price Index grew at a faster pace of 1. Nonetheless. Inflation is expected to grow moderately as Malaysian government has taken its first step to reduce its subsidy bill by increasing the prices of fuel and sugar.5X and 13.PAGE 9 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010. BNM raised Overnight Policy Rate (OPR) by 25 basis points to 2. driven by the firm consumer and business confidence. boosted by the growth of intermediate goods. which only rose 12.6%).2%. Malaysia market remains attractive with PE for 2010 and 2011 at 15.7X respectively as of 29 July 2010. . The IPI growth reported a 12. supported by the strong demand in the global E&E sector.9% year-on-year in May 2010 (Apr 10: 26.75% during its latest Monetary Policy Committee meeting on 8 Jul 2010 to normalise monetary conditions.2%.7% for 2010 and 12.8% (April 2010: 21.5% in May 10 with growth easing in manufacturing and electricity sectors. mainly due to a pullback in demand for E&E (Electronic & Electrical) exports. The subsidy rationalisation programme will be implemented gradually.1% in May 2010 (Apr 10: 4. we opine that OPR could normalize back to around 3.75% during its latest Monetary Policy Committee meeting on 8 Jul 2010 to normalise monetary conditions. exports growth is expected to remain healthy. PRESENTED BY IFAST FINANCIAL (HK) LTD © SOUTH EAST ASIA MALAYSIA – 3.
rising 36. after a revised 42.2% year-on-year increase in May.PAGE 10 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010.5% year-on-year increase.6% year-on-year growth in April.8% increase in May. Consumers remain optimistic for the fifteen straight months as the economy continues its robust expansion. We are expect GDP growth in 2Q 2010 to show robust growth as the economy benefits from both strong domestic consumption as well as external trade driven by strong Asian demand.9 in May 10 Inflation rose to 5.1X for 2010 and 2011 respectively.1X and 12. rising 180.5% year-on-year growth in April.4 in Jun 10.0% to 6.9 in May. PRESENTED BY IFAST FINANCIAL (HK) LTD © SOUTH EAST ASIA INDONESIA – 3.8 billion USD in April to 2. they believe the economy can afford to be patient for a longer period of time. up from 4. consumer confidence index rose to 111.4% gain in Apr 10 Consumer confidence rose to 111. rising only 31.6% year-on-year in May compared to a 67. imports growth slowed at an even faster pace.3% and 16. exceeding analysts’ expectation of a 4. The central bank is expecting inflationary pressure in the coming months but given the robust growth expected. appearing mild in comparison.1% year-on-year in June after a 4. up from 109. This translates to a forward PE ratio of 14. Non-oil & gas exports grew 27.0% year-on-year in May.5 STARS (ATTRACTIVE) • • • • Exports rose 36.4% month-to-date as of 27 July 2010 as global equity markets recovers from April’s sharp correction. Bank Indonesia kept reference rate unchanged for eleventh month at 6. They are particularly optimistic that family income will continue to improve as the sub indicator of family income for present situation and future expectations remains above 120 points. The JCI index gained 4. The key contributors of exports growth was from oil products.0%.5 stars. However.5 billion USD in May. As a result. Valuation based on 2011 earnings appears undemanding as we maintain Indonesia equity market at an “Attractive” rating of 3. trade balance spiked from 0. . which excludes items with volatile price movement such as energy and food products. increased 4.9% in 2010 and 2011 respectively. Bank Indonesia will however monitor inflationary pressure closely and will adjust its monetary policy as and when needed so as to keep inflation rate within the targeted range of 4. Despite the spike in inflation. Core inflation.4% year-on-year in May. up from 109.4% year-on-year gain in April. Inflation accelerated to 5. Both sentiments on present situation and future expectations improved in June.5% on 5 Jul 10 MARKET OUTLOOK Exports growth slowed in May.5%. Consequently. up from a 160. Consensus estimated earnings growth for Indonesia equity market was 36.4 in June.2% y-o-y in May 10 Bank Indonesia kept reference interest rate unchanged at 6.0% yearon-year in June after a 3.1% y-o-y in Jun 10. bucking the rate rising trend in Asia region.0% y-o-y in May 10.0% year-on-year in May after a 42.
1% gain in May 10 Consumer confidence rose to 69.3% y-o-y in Jun 10.4X for 2010 and 2011 respectively.9% in Apr 10 Thailand central bank hike benchmark interest rate by 25 bps to 1.5%.2% y-o-y in May 10. It is likely that the MPC will continue raising interest rate gradually over the next few scheduled meetings as present level of 1. Political violence was highlighted as the key factor for the slowing growth as factories suspended work during the same period. This translates to a forward PE ratio of 12.5% year-on-year gain.5 stars. PRESENTED BY IFAST FINANCIAL (HK) LTD © SOUTH EAST ASIA THAILAND – 3. modest compared to historical average. The Thai government believes that the slowdown will only be temporary and should rebound in June. Following the Monetary Policy Committee (MPC) meeting scheduled on 14 July 2010. rising to 69.8% year-on-year growth in April.3% and 16. after a revised 21. after a 3. BoT also expects 2H 2010 to grow favorably as well. the fastest growth in more than 18 years. . the impact of the domestic political situation has on the Thai economy in 2Q 2010 proved to be limited as Thailand recorded strong economic growth in 1H 2010.1% month-to-date as of 27 July 2010 (in local currency terms) after rising by 6. Consensus estimated earnings growth for Thailand equity market was 14. rising 46. Inflation rate retracted slightly to 3.5% gain in May 10 Manufacturing production gained 17.6 in May 10 Consumer price index gained 3. up from 62. in line with robust economic expansion. down from 3.5% remains accommodative and supportive of further growth. According to the MPC. Industrial production growth slowed in May.6 in May on the back of strong economy activity. Consumer confidence is also on the mend.3% y-o-y in Jun 10.1 in Jun 10. rising 17.3% in May 10.5 STARS (ATTRACTIVE) • • • • • • Customs exports rose 46. The problem in Europe has shown minimal impact on exports as the country continues to benefit from strong Asian demand. the central bank believes that inflationary pressure will return next year. after a 42. The SET Index gained 7.3% year-on-year in June. the Bank of Thailand (BoT) raised the benchmark interest rate for the first time in almost two years.2% in June.1% in 2010 and 2011 respectively.3% year-on-year in June after growing 42.0X and 10. Exports growth is significantly stronger than analysts’ expectation of a 34. The benchmark interest rate is hike by 25 basis points to 1. However.1% year-on-year in May.2% year-on-year compared to a revised 21.PAGE 11 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010.5% in May. up from 67.1 in June. Valuation based on 2011 earnings appears undemanding as we maintain Thailand equity market at an “Attractive” rating of 3.5% on 14 July 2010 MARKET OUTLOOK Thailand exports surpasses record value set before the global financial crisis.8% gain in Apr 10 Industrial capacity utilization rose to 67. up from 67.
The “sudden” rate hike surprises the market as they believe the rate hike will come only in August or September.5 STARS (VERY ATTRACTIVE) • • • • • Korean Won (KRW) depreciated against USD by 1. announced a larger-than-expected slump of 90% in operating profit. LG Electronics. upward momentum are expected to gain continuously owing to the increase in demand-pull pressure associated with improving economic activity.9% y-o-y in Jun 10. Although the price level remained within the bank’s target band of 2% to 4% for the next three years. the earnings growth in 2010 and 2011 is estimated to increase by 63. Estimated PE for the market is at 9. the BOK needs to take action to maintain the price stability when the time is right.9% YTD as of 30 Jul 10. Hynix.2%.5% in the second quarter of 2010.1X for 2010 and 2011. MARKET OUTLOOK South Korea’s central bank has unexpectedly raised its benchmark seven-day repo rate by 25 bps from a record low of 2% to 2.3%. investment and consumption. . faster than the market estimate of 1.9% in June 2010 up from April 2010 forecast of 5. reported record earnings for the second quarter in 2010. the consumer price rose 2.4% y-o-y while imports increased by 36. South Korean economy expanded 1. we maintain South Korea market a very attractive rating of 4. The BOK said that the main drive for possible rate hikes is the growing inflationary pressure.6% y-o-y in Jun 10 after a rise of 2. It hints that the monetary policy may shift from economic growth to price stability.PAGE 12 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010.5 stars. Thus. It was the first rate hike since August 2008. According to the market consensus. The first half GDP growth was at 7. The Bank of Korea (BoK) raised its forecast for the country’s GDP growth in 2010 again to 5. The company suffered a loss in its mobile phone business as it lags behind its main competitors like Apple and Samsung. It is expected that CPI may grow by around 3% in the second half. as at 27 July 2010.3% and 9. higher than the central bank’s target of 2. The robust recovery and rising inflationary risk increase the possibility of further rate hike.7% y-o-y in May 10 Unemployment rate rose to 3. In the first half of 2010.5%. The better-than-anticipated GDP growth was underpinned by exports. the world’s biggest technology company based on revenues.9X and 9. Exports grew strongly at 32.6%.25% The Consumer Price Index (CPI) grew at 2. the world’s second largest TV maker. the fastest pace in 10 years. On the corporate front.7% year-on-year. posted a record operating profit in the same quarter.5% throughout Apr 10 to Jun 10.25% in 9 July 2010. As the valuation became attractive compared with other countries. the world’s second-largest computer-memory chipmaker. Samsung. PRESENTED BY IFAST FINANCIAL (HK) LTD © NORTH ASIA SOUTH KOREA – 4. Bank of Korea (BOK) raised interest rate by 25 bps to 2. On the contrary. On the other hand.3% growth.
2%. However. The inflation has been in double digits since February.0 in May 10 Production at factories. the estimated PE ratio for SENSEX was at 18. The RBI again increased the key policy rates on 27 July 2010 during the monetary policy review. We maintain India market at 3. Going further.6% and for the month of May was 10.5% y-o-y to 27. The RBI has also increased the projection for inflation for March 2011 from 5.5% to 6%.6% y-o-y in Apr 10 May exports up by 35.4X for fiscal year 2010 (ending March 2011) and 2011 (ending March 2012).5% on a year on year basis.7% and the imports grew by 0. along with an already high level of inflation has forced RBI to increase the key policy rates twice in July. April imports and exports growth is high primarily due to base effect.75% and the Reverse Repo rate was increased by 50 bps to 4. Estimated earnings growths for the market are 14. Although lower than the estimates. fuel price de-regulation. Going forward.5 stars – “Attractive”. which is 4. .7% lower than the Bloomberg estimate of 16. utilities and mines for the month of May increased to 11.5% and 4.0 in May.5%. As of 27 July 2010. On 2nd July. Also.6% and for the month of May was 10.0% respectively. The WPI for the month of June is 10.4 Billion USD as compared to 43.5 STARS (ATTRACTIVE) • • • • • • The June Purchasing Managers’ Index fell to 57.7% and 20. the RBI increased the Repo and Reverse Repo rates by 25 bps to 5. indicating a decrease in the industrial production in June. However.PAGE 13 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010.5% y-o-y in May 10. The recent fuel price hike. Repo rate was increased by 25 bps to 5.5X and 15. exports dropped by 4. RBI is trying hard to rein in inflation without sacrificing the growth of the economy or aggravating the scarcity of liquidity in the system.1 Billion USD as compared to a 36. on a month-on-month basis. after increasing 17.2% y-o-y rise in Apr 10 exports May Imports up by 48.3 from 59.8%. utilities and mines increased 11. The WPI for May is lower than the Bloomberg estimate of 10.2%. the RBI has increased the projection for GDP growth for FY 2010-11 from 8% to 8. PRESENTED BY IFAST FINANCIAL (HK) LTD © SOUTH ASIA INDIA . we expect moderation in production growth to happen as the base effect kicks in.5%.2% The Reserve Bank of India cumulatively increased the Repo rate by 50 bps and Reverse Repo by 75 bps in July. Production at factories.3 from 59.3% y-o-y rise in Apr 10 Imports WPI for the month of June was 10.3% for the two respective years. The next mid quarter policy meet is due on 16 September 2010.3.3%. the RBI will have mid-quarter policy review meetings to take a stock of the situation.1% y-o-y to 16. in two separate rate hikes MARKET OUTLOOK The Purchasing Managers’ Index for June fell to 57. the RBI is taking a slow and steady approach to rate hikes. the production growth is still in double digits.
4% for 2010 and 2011.3% increase y-o-y in May 10 Retail sales grew by 18.5% increase y-o-y in May 10 Imports increased 34. A slower growth in industrial is led by the drop in PMI since May.6X for 2010 and 2011. We are expecting slower growth in the second half of this year due to the higher base in 2H 2009.3X for 2010 and 2011.7% in June.5% against USD in the next 365 days. Hang Seng Mainland 100 Index [HSML100]: As of 28 July 2010.4 Billion Yuan New Loans in Jun 10 2Q GDP expanded 10.5% year-to-date as of end Jun 10 Industrial production grew y-o-y by 13. According to the Chinese government. Property market finally showed signs of cooling down. the estimated PE ratio is at 14. .5X and 11.1% increase y-o-y in May 10 Export increased 43. we remain very positive on both A share and China equity listed in Hong Kong in medium of three years.3% for 2010 and 2011. However.7% in Jun 10 as compared with 16.7X and 11. PRESENTED BY IFAST FINANCIAL (HK) LTD © GREATER CHINA CHINA – 4.9% and 18.3% y-o-y in Jun 10 as compared with 18. it is not likely to see a rate hike in the near term. the highest rating among all countries.3% and 16. In 1H 2010.1% month-on-month in June.1% y-o-y in Jun 10 as compared with 48.3% y-o-y MARKET OUTLOOK China’s GDP expanded 10. Industrial production only rose 13. Estimated earnings growth is at 22. RMB appreciated about 0. Shanghai A: As of 28 July 2010. In addition.4% and 18.2% year-on-year in the 1H 2010. As of 27 July 2010.9% y-o-y in Jun 10 as compared with 48.1% growth.PAGE 14 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010. Inflation remains moderate at 2. Hang Seng Mainland Enterprise Index [HSCEI]: As of 28 July 2010.7% year-on-year in 1H10. Estimated earnings growth is at 25. Second hand property dropped 0. New property prices dropped 0. The 1 year non-deliverable forward (NDF) shows that the market expects the RMB will appreciated about 1.6X and 12.7% increase y-o-y in May 10 Fixed Assets Investment grew y-o-y by 25. the estimated PE ratio is at 13. rebound in exports also gives strong support to the economic growth.7% and 24. under the 3 year horizon.3% mom in the same month. We give the China market 4. At its current valuations. Exports grew 43.5 STARS (VERY ATTRACTIVE) • • • • • • • • • • CPI increased 2. Estimated earnings growth is at 26.6% y-o-y in Jun10 respectively 603.9% year-on-year growth in the first quarter.8% against USD after the People’s Bank of China (PBoC) surprisingly decided to proceed with further reform of the RMB exchange rate regime and to increase the RMB exchange rate flexibility.1 point in Jun 10 M1 and M2 grew 15.5 stars – very attractive.1% for 2010 and 2011. But we are still believed that the People’s Bank of China is likely to announce a rate hike in the 4Q 2010.3% year-on-year in 2Q 2010. lower than May inflation rate.6X for 2010 and 2011. the estimated PE ratio is at 13. it is still higher than the governments’ annual target of 8% in 2010. Together with a lower than expected inflation. Iower than market estimation of 15. inflation remains one of the key concerns of the Chinese government.1% year-on-year and import grew even faster at 52. mainly due to the drop in fresh fruit prices.9% y-o-y in Jun 10 as compared with 3. Although the pace of growth is slowing.5% increase y-o-y in May 10 Purchasing Manager Index dropped to 52. strong economic growth is driven by robust investment and domestic consumption. investment and retail sales increased 25% and 18. slower than a 11.9% in June.
0% in 2010 and 2011. the consensus earnings growths for 2010 – 2012 have well surprised our estimates made in July 2009. According to industry group SEMI.2% and 64. the world’s largest custom chipmaker announced a US$9.0 STARS (VERY ATTRACTIVE) • • • • • • CPI went up 1. Taiwan Semiconductor Manufacturing Co. compared to a 71.3% respectively in the first half of 2010 compared to a year earlier.0% y-o-y gain in May 10 Exports grew 34. under the three-year horizon.22% in May 10 to 5. Noteworthily.0% y-o-y gain in May 10 MARKET OUTLOOK Trade data has pointed to a strong export recovery of Taiwan.75% y-o-y increase in May 10 Export orders rose 22. compared to a 0. The market expects the earnings to grow 83. Despite the impressive 1H data. capital spending amongst Taiwan’s technology companies continue. The newly signed cross-strait Economic Cooperation Framework Agreement (ECFA) will likely increase the bilateral trade between Taiwan and China but the impact on trade will not materialise until 2011 when the tariff concession in the early harvest list starts.4% y-o-y in Jun 10. capital equipment and consumer products imports have both hit record high in the first half of the year.5% y-o-y in Jun 10. the consensus PE ratio stood at 13. PRESENTED BY IFAST FINANCIAL (HK) LTD © GREATER CHINA TAIWAN – 4.8 billion in capital expenditure excluding the new plant for this year. compared to a 31.3% y-o-y in Jun 10. TSMC is expected to spend $4.3 billion expansion plan on a new chip plant in expectation of higher demand for the advanced technology. Exports and imports jumped 49. As of 28 July 2010. In particular. suggesting a comeback of corporate and consumer demand. This huge spending will be equal to 15% of global chip-equipment revenue and is a vote of confidence for the industry outlook. Therefore. (TSMC). investors should not be surprised by a much slower growth in the months ahead.3X and 11. .2% y-o-y in Jun 10.0 stars. thanks to the robust Asia’s demand and the governments’ massive stimulus package. compared to a 57.2% in Jun 10 Industrial production expanded 24.1% y-o-y in Jun 10.8X for 2010 and 2011 respectively. On the corporate front.4% y-o-y gain in May 10 Unemployment rate (seasonally adjusted) went down slightly from 5. compared to a 34.PAGE 15 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010. we think that the growth of trade data has peaked and will likely slow down in the second half of the year.9% y-o-y gain in May 10 Imports grew 40. We give Taiwan a “Very Attractive” rating of 4.8% and 13.
the estimated earnings growth for 2010 and 2011 is 21.4% and 27. compared to a 15. Based on our revised figures.4 billion.8% y-o-y in Jun 10. the result of its survey indicates that there is a favorable hiring climate in the third quarter.5% increase y-o-y in May 10 Unemployment rate stayed to 4. Shipments to the US and Asia increased 29. We believe that we are near the peak of the property market.2 in May 09 Retail sales by value increased 19. However. Retail sales rose for a ninth straight month in May due to increase in visitors.6% m-o-m to 81. PRESENTED BY IFAST FINANCIAL (HK) LTD © GREATER CHINA HONG KONG – 4.4% increase y-o-y in May 10 Centa-City Leading Index. Sales grew 19.7% year-on-year in June. The price is within market estimation of between HKD 8 to 12 billion. the estimated PE for the Hong Kong market stands at 12. Unemployment rate stayed at 4. compared to 24.7% y-o-y in Jun 10.6% increase in Apr 10 CPI increased 2. compared to 2. which tracks the secondary residential property market.6% month-onmonth as of 23 July 2010. a plot of land in the Peak district was auctioned by a privately owned developer for HKD 10. On 28 July.18 point as of 23 July 10 MARKET OUTLOOK Exports rose for a eighth straight month in June. It increased 26. rose 2.6% in Jun 10 Exports increased 26. Property prices in Hong Kong surged as Centa-City Leading Index which tracks secondary residential property prices rose 2. Therefore.7% y-o-y in May 10.PAGE 16 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010. according to the Manpower Services (HK) Ltd. . We maintain Hong Kong market at a very attractive rating of 4.7X for 2010 and 2011.6% in June 2010 as there are more graduates and school leavers joining the labor market. It signals that there is an increase in demand in the US.7% year-on-year in May.5% and 17. the rebound in unemployment rate is temporal.5% respectively. compared to 53. As of 28 July 2010. It shows that luxury residential continues to be hot even when the government announced new measures to tackle the drastic rise in property prices.4% year-on-year respectively.6 in Jun 10.5 stars.6X and 10.5 STARS (VERY ATTRACTIVE) • • • • • • Purchasing Managers Index dropped to 52.
We believe the central bank may keep the benchmark interest rate unchanged in the next policy meeting on the back of the European debt problems and signs of Chinese economic slowdown.PAGE 17 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010.5 STARS (ATTRACTIVE) • • • • • • Westpac Consumer Confidence Index was 113. PRESENTED BY IFAST FINANCIAL (HK) LTD © OCEANIA AUSTRALIA – 3.3% in Jul 10.7X and 11.1 in July 10.8% decline in Apr 10 Trade balance widened from A$ 134 million surplus in April 10 to A$ 1645 million surplus in May 10 Unemployment rate dropped from 5. historical data has shown that business cycle plays a more dominant role. compared to a 1. up from 101. We hence expect to see a rebound in the Australian equities as well as the Australian dollar.1% in Jun 10 Consumer inflation expectation dropped slightly to 3. Compared to the earlier Resource Super Profits Tax (RSPT) proposed by former Prime Minister Kevin Rudd.2% in May 10.5% MARKET OUTLOOK The new Prime Minister Julia Gillard’s Minerals Resource Rent Tax (MRRT) proposal has been agreed by the Australian mining giants including BHP Billiton and Rio Tinto.1X for the estimated 2009 and 2010 PE ratios (Australia's fiscal year ends in June – FY2009 ends in June 2010). the recent data points to an easing inflation. Australian equities represented by S&P / ASX 200 Index.4% in June. lower than expected while the consumer inflation expectation dropped slightly to 3. is trading at 12. to 5.5 stars.3% in July. . On the economic front. This suggests that the multiple rate-hikes by the central bank to curb inflation have started to effect.9 in Jun 10 Home loans went up 1. the new proposal includes a lower tax rate (from 40% to 30%). The market expects earnings to grow 14. under the three-year horizon. We maintain Australia at a “Attractive” rating of 3. the Prime Minister Gillard has also called for Federal Election on 21 August 2010. compared to 3. Although the election season often makes investors worried over the political uncertainties. compared to 3. Following the revised tax proposal. The resolution of the resources tax will likely ease investors’ fear over the impact on the resource sector which had supported the Australian economy during the global crisis. The consumer prices went up 3. According to the consensus. a higher cut-in rate and more depreciation allowances.1% year-on-year in June.9% m-o-m in May 10. Poll data suggests Gillard’s Labor Party with a lead of 10 points (55% vs 45%) over the conservative Liberal/National coalition.5% in 2010 (as at 28 July 2010).4% in Jun 10 The benchmark cash rate stayed at 4. following the resolution of the resources tax.
after a 1.7% y-o-y gain in May 10 Imports grew 50. as of 28 July 2010.2% y-o-y in Jun 10.5% in May 10 to 7% in Jun 10 The central bank raised the benchmark interest rate by 50bps to 10.3% y-o-y gain in May 10 Vehicle Sales dropped 12. The headline CPI further decelerated to 4.7% y-o-y gain in May 10 Headline CPI decelerated to 4. Regarding the valuation.2% y-o-y in Jun 10.75%. the lowest since February this year.7 in Jun 10. Overall.8% in June from 5. the consensus PE ratio stood at 11.PAGE 18 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010. compared to a 52.2% y-o-y in May 10 Unemployment rate went down from 7. two giants in the Bovespa Index.8% y-o-y in May 10. compared to a 47.2% in May.3% respectively. the recent correction of iron ore prices and the flattish crude prices are likely to affect the earnings outlook of Vale and Petrobra. PRESENTED BY IFAST FINANCIAL (HK) LTD © EMERGING MARKETS BRAZIL – 3. compared to 52.4 in May 10 Industrial production surged 14.5 STARS (ATTRACTIVE) • • • • • • • • PMI Manufacturing advanced slightly to 52. Consumer data also suggests a slower domestic growth. effective on 22 Jul 10 MARKET OUTLOOK The central bank raised the benchmark interest rate by 50bps to 10.2X and 8. We maintain Brazil at an “Attractive” rating of 3.8% y-o-y in Jun 10.75% in July.7X for 2010 and 2011 respectively. Brazil may be vulnerable to the slowdown in Chinese economy – one of the largest markets for its exports of commodity and agricultural products. Retail sales went up by 10. In particular. The lower-thanexpected rate hike suggests that the consumption-driven economy may run out of steam amid concerns over the global economic slowdown.75%.5% y-o-y in Jun 10.5 stars. .1% and 28.2% year-on-year in May. The consensus estimated earnings growths for 2010 and 2011 are 30. lower than expected. we expect the pace and the magnitude of rate hike to decrease and the peak of this rate hike cycle will likely be lower than the prior cycle of 13. Apart from a deceleration of domestic growth. while consensus estimated a 75bps hike. after a 17.2% y-o-y increase in Apr 10 Export grew 18. compared to a 5.
up from 52.7X and 6. thanks to a pickup in risk appetite and oil prices.8% (in USD terms.3% in May 10 MARKET OUTLOOK Russia’s worst drought in a decade has brought concerns on inflationary risk and economic recovery. compared to a 59. compared to 6% in May 10 Unemployment rate declined to 6. the easing inflation may end earlier and this may cause the central bank to hike rate earlier than the consensus forecast. High temperatures have destroyed 32% of land under cultivation. compared to a 30.9% by Nymex crude oil (in USD terms. as of 27 July 2010) compared to 1.6% (in USD terms. PRESENTED BY IFAST FINANCIAL (HK) LTD © EMERGING MARKETS RUSSIA – 4.6 in Jun 10.5X for 2010 and 2011 respectively.7% y-o-y in Jun 10. In spite of this.3% y-o-y gain in Apr 10 Retail sales gained 5.5% of its GDP. we expect to see debates between the energy companies and the government. This is in line with our view that the Russian equities could trend higher in the current price range.8% y-o-y in Jun 10. .0 stars. compared to a 5. as of 27 July 2010) from the previous bottom on 25 May 2010.6% y-o-y increase in May 10 Exports grew 39.1% increase in May 10 Consumer Prices rose 5.2% y-o-y gain in Apr 10 Imports surged 40. We maintain Russia at a “Very Attractive” rating of 4.6% y-o-y in May 10. the consensus PE ratio stood at 7. as of 27 July 2010). compared to 7. The estimated earnings growth for 2010 and 2011 is 69. As of 27 July 2010. We however think the drought has limited impact to the Russian economy because the agricultural sector merely accounts for 4. The Finance Ministry has proposed to raise taxes in the years ahead for oil/gas companies and some metallurgical companies in order to reduce budget deficit next year. Prices of agricultural products may rise sharply and cause a spike in the food prices.8% y-o-y in Jun 10. Regarding the equity market.1% and 18.0 STARS (VERY ATTRACTIVE) • • • • • • • PMI Manufacturing was 52. Therefore. it is premature to conclude the impact on Russian equities and its economy as these plans are just proposals and may be subjected to revision. It is important to point out that the RTS Index substantially outperformed the oil in July and gained 10.0% respectively. the dollar-measured RTS Index has jumped 20. after a 12.8% in Jun 10. Meanwhile.0 in May 10 Industrial production rose 9.7% y-o-y in May 10. At this stage.PAGE 19 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010. domestic energy companies have warned of possible production cut and investment delay amid uncertainties.
Its earnings grew by 48% compared to the same period a year ago. Earnings of technology companies continue to beat the expectation on average. Its revenues went up by 34% and topped US$ 10. the NASDAQ 100 Index is trading at 15. 24 of them (75%) have beat the consensus. These results suggest a start of the technology replacement cycle and are likely to fuel a brighter industry outlook.0 star “Very Attractive” rating.8% while NAND chip prices have declined 6. under the threeyear horizon. PRESENTED BY IFAST FINANCIAL (HK) LTD © SECTOR TECHNOLOGY (4. This suggests that the market starts to re-price the earnings and growth outlook of the technology companies amid uncertainties over the global economic slowdown.PAGE 20 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010. Despite the earnings upgrade. . We maintain the technology sector at a 4. the valuation is still cheap compared to the historical average.7 billion in the second quarter.0% y-o-y in May 10.8% and 15.5% in Apr 10 ASIAN TECHNOLOGY • Semiconductor Equipment Association of Japan (SEAJ) book-to-bill ratio for Japanese fab-tool vendors went down from 1. suggesting further re-ratings ahead.5X for the 2010 and 2011 PE ratios.07 in Apr 10 to 1.5X and 13. after jumping 17. we expect the market to continue revising the estimates upwards. Intel reported the best-ever quarterly earnings along with 34% sales growth due to the increased technology spending by the corporate customers.12 in May 10.2% in 2010 and 2011 respectively (as at 28 July 2010). Microsoft. in USD). on the other hand reported record revenue due to strong sales of the Windows 7 operating system and Office products. The earnings are expected to grow by 23.13 in May 10 • YTD (as of 28 June 2010. after contracting 5. According to the consensus estimates.0 STARS – VERY ATTRACTIVE) GLOBAL TECHNOLOGY • North American Semiconductor Equipment Manufacturers book-to-bill ratio was 1. On the corporate front. Of 32 companies in the S&P 500 information technology index that have reported earnings.5% in Apr 10 • US inventory for computer and electronic products declined 4. Following the earnings surprises that we have seen so far.3% y-o-y increase in Mar 10 • US new orders for computer and electronic products rose 13.13 in Apr 10 • Global chip sales surged 50. down from 1. It is worthwhile to point out that the 2010 consensus earnings for the technology sector represented by NASDAQ 100 Index have already surpassed our earlier estimate made in February 2010. benchmark DRAM chip prices have dropped 14.0% MARKET OUTLOOK The US earnings season has started again with corporations reporting their 2Q results.4% y-o-y for Apr 10.0% y-o-y in May 10. compared to a 58.
90% -0.PAGE 21 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010.286 1.49 12-MONTH 0. *BENCHMARK INTEREST RATE HAS BEEN CHANGED SINCE LAST MONTH .2286 0.0494 0.05 0.1975 0.524 0.90% 1.4393 0.60% 2.12 0.16% 1.71%.90% 1.30% 2.095 0.13 0.70% 2.79 1.05 1-WEEK 0. Maturity 08/16/2010 HKGB.946 2.024 1.13 0.10% 6. PRESENTED BY IFAST FINANCIAL (HK) LTD © BONDS SGS BONDS HKGB.16% 3.15 0.70% 5. Maturity 06/25/2018 HKGB.57 0.50% 2.375% 4.3% SOURCE: IFAST FINANCIAL HONG KONG INTERBANK RATES (HIBOR) OVERNIGHT 25-Feb-10 31-Mar-10 30-Apr-10 28-May-10 30-Jun-10 31-Jul-10 0.A.064 0.084 2.25% 1.313 OFFER YIELDS INCLUDE SALES CHARGE OF 0.03 0.215 0.351 0.80% 3.079 0. Coupon 2.60% 2.05 0. Maturity 02/20/2023 BENCHMARK 2 year 5 year 7 year 10 year 15 year YEARS TO OFFER INDICATIVE YIELD (%) OFFER INDICATIVE YIELD (%) MATURITY AS AT 30 JUNE 2010 AS AT 29 JUL 2010 1.045 0.699 0.5%.50% 3.70% BENCHMARK INTEREST RATES AS AT 28 JUL 2010 0.2689 0.1% AND COMMISSION CHARGE OF 0.90% 4.55% 2.75%* 2.78 0.36 6-MONTH 0. Coupon 2.05% 1.10% 0.18% 10.50% 3.52 0.30% 2.0986 0.546 2. Coupon 3. Coupon 3. Maturity 06/17/2013 HKGB.10% 0.261 2-MONTH 0. Maturity 06/22//2015 HKGB.56%.20% CPI VALUE ON 30 JUN 2010 (YOY) 0.4 0.1 0.90% 2.59 0.36%.00% 0.31 3-MONTH 0.24 0.07 1-MONTH 0.50%* N.74% 10.00% 0.84 SOURCE: HKMA COUNTRY / REGION US Europe Japan Indonesia Malaysia South Korea Hong Kong Thailand China Taiwan India Singapore PARAMETER CPI (core) CPI (all items) CPI (core) CPI (nationwide.25%* 0.80% -0.25 0.52 14.57 0.50%* 5.28 6.31% 1.0497 0.0811 0.19 0.466 1.0696 0.048 0.50% 1.51 9.549 0.663 1. all items) CPI CPI CPI (all items) CPI (composite) CPI CPI (consumer prices) CPI WPI CPI CPI VALUE ON 30 MAY 2010 (YOY) 0.00 4.25 0. Coupon 2.88%.
0 0.5 2.5 0.0 HKG Bond Yield Curve 12 10 8 6 4 2 0 (%) Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Mar-06 Mar-07 Mar-08 Mar-09 1 Year 2 Year 5 Year 10 Year 1 Month 3 Month 6 Month 15 Year 6/30/2010 7/31/2010 AA 10 YR Spread BB 10 YR Spread SOURCE: BLOOMBERG & IFAST COMPILATIONS SOURCE: BLOOMBERG & IFAST COMPILATIONS Mar-10 Jul-10 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 2 Years Bond 10 Years Bond SOURCE: BLOOMBERG & IFAST COMPILATIONS Yield (%) 5.5 1. PRESENTED BY IFAST FINANCIAL (HK) LTD © BOND CHART OF THE MONTH Asian Dollar Debt is Attractive 14 12 10 8 6 4 2 0 Jul-07 Jul-08 Jul-09 Jan-07 Jan-08 Jan-09 Oct-06 Oct-07 Oct-08 Oct-09 Jan-10 Apr-07 Apr-08 Apr-09 Apr-10 Jul-10 Asian dollar debt delivered a total return of 2.0 0.0 Historical Yields of US Treasuries Yield (%) Corporate Bond Spreads Against US 10-Yr Treasury .0 0.0 1. we believe this current spread still presents attractive investment opportunities for the bond investors.0 4.5 2.50% in the month of July as the yields fell about 40 bps.0 2. given the better debt profile of Asian economies.5 1.5 0.0 1.5 4. a lower spread could be justified and thus.0 Historical Yields of HKG Bonds 6.0 3.PAGE 22 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010. However.5 3.0 1.0 2.0 4.0 2. This is in line with historical average.0 5. The difference between Asian dollar debt and 5-year US Treasuries have widened in the month of June but came down significantly to 306 basis points.0 3. New JACI Composite (JACN) Non Investment Grade Composite Spread to US 5 Year T Note SOURCE: JP MORGAN & IFAST FINANCIAL COMPILATIONS Jun-08 Jun-09 Oct-07 Oct-08 Oct-09 Apr-08 Apr-09 Feb-08 Feb-09 Aug-07 Aug-08 Aug-09 Dec-07 Dec-08 Dec-09 Feb-10 Jun-10 Apr-10 2 Years Bond 10 Years Bond SOURCE: BLOOMBERG & IFAST COMPILATIONS Yield (%) 3.
Expectations of RMB appreciation have spurred capital inflows into Hong Kong. PRESENTED BY IFAST FINANCIAL (HK) LTD © KEY DEVELOPMENTS Central banks of major economies like Japan and Eurozone kept their benchmark interest unchanged in July’s meeting.1% in June. It was the tenth consecutive monthly increase.8% year-on-year in June 2010 after a 2. . HIBORs continued to drop in June 2010.PAGE 23 SECTOR REVIEW MONTHLY GLOBAL MARKET UPDATE AUG 2010. IMF has warned that given Europe’s development. Sufficient liquidity in banking system drives down the local interbank rates. In IMF’s latest report. reflecting investors spike in risk aversion. India had an unscheduled meeting on 2 July to raise interest rate in order to arrest the inflationary threat while South Korea’s decision to hike rate was also out of economists’ expectations. (All data refers to month-to-date data as at 27 Jul 10 in USD terms) In Hong Kong. In fact. central banks continue to tighten their monetary policies. Other risky bond classes like emerging market debt and high yield bonds have also performed well with the return of risk aversion. emerging market and high yield bonds. Current yields are the lowest in a year.04%) and 3 bps (to 0. the year-on-year increases were mainly contributed by electricity. . there is significant downside risk in the second half. On the other hand.5% gain in May 2010. this came on the back of better than expected economic growth in the first half of the year. Yields on 10 year and 2 year UST gained 11 bps (to 3. the monetary policy would have to be accommodating for economic growth. gas and water prices. Meanwhile. However. US Treasuries as represented by iBoxx USD Treasuries Total Return Index gained a flat 0. the CPI rose 2. Amongst the CPI components. global economic growth in 2010 has been upgraded to 4. Better economic growth numbers in Asia economies and robust earnings from US and European companies have led to a 8.6%. The issues of rising deficits and an improving economic landscape should work to the favour of investment grade. As countries in Eurozone embark on austerity measures which mean reduced government spending.63%) respectively.5% gain in global equity markets. in Asia region where inflationary pressures are starting to build. We believe the short term yields in Hong Kong government bond will continue to decline because of the aggregate balance expansion and ample liquidity in the banking system. On the other hand.