Fears of earlier-than-expected end of easing triggered selloff

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1 9/F, 10 Des Voeux Road Central, Hong Kong. Dealing: Research: Facsimile: HONG KONG RESEARCH Restricted circulation Weekly Report Analyst: Carmen Wong 22 nd February Turnover (HK$ bn) Fears of earlier-than-expected end of easing triggered selloff 23, HSI Weekly Movement 23,382 23,144 23, , , Feb Mon Tue Wed Thu Fri Turnover Hang Seng Index 24,000 23,500 23,000 22,500 22,000 21,500 21,000 Hang Seng Index Weekly Market Statistics Week ended 22/2/ 15/2/ Change % Hang Seng Index 22,782 23, % HS Red Chip Index 4,532 4, % HS China Enterprises Index 11,317 11, % HS Hong Kong 35 Index 2,622 2, % HS Mainland 100 Index 6,780 7, % Growth Enterprise Index % Avg Daily Turnover % (HK$ bn ) Sectoral Indices Finance 32,117 33,179-1, % Utilities 53,988 54, % Properties 31,770 32,931-1, % Comm & Ind 12,736 13, % Review & Outlook of Market Performance Hong Kong market slumped with global selloff, amid speculation over the end of the Federal Reserve s easing cycle, fear of monetary tightening in China as well as further policy curbs to cool growing home prices in China. In the latest Federal Reserve s Open Market Committee (FOMC) minutes, there were some divisions over the stimulus measures among committee members, as some expressed concerns about potential costs and risks arising from further asset purchases and suggested the FOMC should be ready to slow the pace of asset purchases. The discussion led to increased uncertainty about the duration and size of the quantitative easing program. Over the week, the Hang Seng Index lost 662 points or 2.8% weekon-week to 22,782, while the HSCEI dipped 4.5% week-on-week. The daily average Mainboard turnover amounted to HK$65.7 billion, up from HK$52.3 billion in the previous week. Macau gaming stocks were hit by worse-than-expected gross gaming revenue (GGR) of MOP15 billion for the first 17 days of February. Citi lowered its forecast for February GGR to MOP25 billion, merely up 2% y-o-y. In addition, some investors switched their holdings from coal producer shares to stocks related to environmental protection on anticipation of new measures to improve air quality. Wind power sector was broadly strong, with shares of China High Speed Transmission (658.HK) and Goldwind (2208.HK) up 11.8% and 16.4% w-o-w respectively. Besides, utilities stocks, which are defensive plays during market downturn, also outperformed other sectors. On the economic front, China s foreign direct investment declined for the eighth month to US$9.3 billion in January, down 7.3% y-o-y. The significant drop was likely due to rising labor and land costs and slower expected economic growth, which diminished China s attractiveness as a destination for foreign investors. Separately, China s housing prices kept rising at accelerated pace. 53 out of 70 major Chinese cities posted new home price increase of around 2.2% from a month earlier, compared to 54 cities recording 1.2% m-o-m rise in December. In Hong Kong, unemployment rate rose surprisingly to 3.4% for the three-month period ended January, compared to 3.3% in the October to December period and market consensus of 3.3%. While the overall business sentiment remains cautious and corporations normally review their annual staffing position after the Lunar New Year, the unemployment rate will still see some upward pressure in the near term. After the market close on Friday, the Hong Kong government announced additional curbs on the red-hot property market. For all kinds of properties including residential and commercial ones which are priced over HK$2 million, rates of stamp duty will be doubled, bringing the maximum rate to 8.5% from currently 4.25%. For properties under HK$2 million, stamp duty will be 1.5% of the transaction value, compared to the recent charge of HK$100. Yet, the new policies will not be applicable to firsttime homebuyers. As such, we think Hong Kong property stocks will likely plunge in the coming week. On the other hand, investors should eye on the Budget Speech by the Hong Kong Financial Secretary on 27th February (Wednesday) with the announcement of new Land Application List for FY/ Meanwhile, there will also be earnings release for a number of blue chips including the Bank of East Asia (23.HK), the HKEx (388.HK) and SHKP (16.HK). The benchmark index may continue under pressure, negatively affected by weak market sentiment. This report has been prepared solely for information purposes and we, East Asia Securities Company Limited are not soliciting any action based upon it. Neither this document nor its contents shall be construed as an offer, invitation, advertisement, inducement or representation of any kind or form whatsoever. This document is based upon information, which we consider reliable, but accuracy and completeness are not guaranteed. Opinions expressed herein are subject to change without notice. At the time of preparing this report, we have no position in securities of the company or companies mentioned herein, while other Bank of East Asia Group companies may from time to time have interests in securities of the company or companies mentioned herein.

2 US & Regional Markets Weekly Update Date US US JAPAN SINGAPORE MALAYSIA BANGKOK TAIPEI Dow Jones NASDAQ Nikkei Avg STI KLSE Index SET Index Weighted Index 22nd February 13,880.62* 3,131.49* 11, , , , , th February 13, , , , , , ,906.65^ Change % -0.7% -1.9% +1.9% +0.0% -0.6% +1.2% +0.5% Remark: (*) closing as of 21 st February ; (^) closing as of 8 th February Major Changes in Index Constituent s (Week ended 22 nd February ) Hang Seng Index (HSI) Belle International HK$ HK$ % Shares plunged, after the Company said its 2012 net profit would come in at the lower end of analysts expectations, just marginally higher than that in China Coal HK$7.45 -HK$ % China Shenhua HK$ HK$ % Hang Seng China Enterprises Index (HSCEI) Minsheng Bank HK$ HK$ % Citic Bank HK$4.83 -HK$ % China Merchants Bank HK$ HK$ % Some investors switched to stocks related environmental protection from coal producers, as pollution in China spurs speculation of government measures to improve air quality. Chinese banking stocks fell on worries over monetary tightening, as The People s Bank of China returned to using long-term forward repos to drain funds for the first time since June A record net of RMB910 billion was drained from the interbank market this week. Zijin Mining HK$2.67 -HK$ % 2012 net profit fell 9.02% y-o-y to 5.19 billion yuan, mainly attributable to declining selling price of non-gold products, loss in smelting entities, and rising production costs. Besides, gold prices tumbled to 7-month lows. Hang Seng China-Affiliated Corporations Index (HSCCI) Poly Property HK$5.50 -HK$ % Franshion Properties HK$2.64 -HK$ % Rumor said downpayment for second home mortgage would be raised to 70% from 60% and interest would be hiked from 1.1x of the benchmark interest rate to 1.3x. Additionally, the State Council reiterated some property tightening measures on Thursday, including extension of experimental property tax reforms to new regions and setting price control targets by local governments. 2

3 Summary of US Economic News Indicator Change/Index Comments Housing Starts January -8.5% m-o-m Housing starts declined by 8.5% m-o-m to an annual rate of 890,000 in January (vs. consensus of 914,000), as a result of weak multifamily component which posted a 24.1% monthly drop. The headline producer price index was up 0.2% from the previous month, slightly lower than Producer Price Index January +0.2% m-o-m market expectations of 0.3%. The inflation was mainly driven by rising food costs (+0.7% m-o-m) which offset weak gasoline prices (-0.4% m-o-m). Initial Jobless Claims week ended 16 th February Consumer Price Index January PMI Manufacturing Index Flash - February Existing Home Sales January +20,000 Unchanged % m-o-m Applications for initial jobless claims rose for the first time in 3 weeks, adding 20,000 to 362,000. However, the increase may be distorted by seasonal factor, as the 16 th week was a four-day week and four states including California had to estimate the figures. The four-week average was up 8,000 in the week to 360,750. Consumer prices were flat for a second straight month in January (vs. consensus of 0.1% m-o-m), backed by weak gasoline prices and food prices. However, core inflation climbed 0.3% m-o-m, which posted the largest gain since May The manufacturing sector showed fairly slower growth in February, as the PMI flash index slightly slipped to 55.2 from the final reading of 55.8 in January (vs. consensus of 55.5). The index for new export orders showed monthly contraction and was down nearly 3 points, as a result of weakness in foreign markets. A shortage of homes in the market held down sales of existing homes which rose 0.4% m-o-m to a slightly higher-than-expected annual rate of 4.92 million. Housing supply in the market was 4.2 months, down sharply from 4.5 and 4.8 months in the 2 prior months. Forthcoming Important Announcements / Events 25 th February 2012 (Monday) 26 th February 2012 (Tuesday) HK : External Merchandise Trade Statistics for January ANTA Sports Products Ltd (02020) - final results CLP Holdings Ltd (00002) - final results Pacific Century Premium Developments (00432) - final results Sany Heavy Equipment International (00631) - final results US : Lowe's Companies Inc 4Q12 results HK : Bossini International Ltd (00592) - interim results China Modern Dairy Holdings Ltd (01117) - interim results HKT Trust (06823) - final results New World Department Store China (00825) - interim results NWS Holdings Ltd (00659) - interim results TCL Multimedia Technology Holdings (01070) - final results Bank of East Asia Ltd (00023) - final results China Everbright Ltd (00165) - final results US : New Home Sales January Consumer Confidence February Home Depot Inc 4Q12 results Macy's Inc 4Q12 results Priceline.com Inc 4Q12 results 3

4 Forthcoming Important Announcements / Events (Cont d) 27 th February 2012 (Wednesday) 28 th February 2012 (Thursday) 1 st March 2012 (Friday) HK : Gross Domestic Product for 4Q12 and whole year 2012 AIA Group Ltd (01299) - final results Dah Chong Hong Holdings Ltd (01828) - final results Esprit Holdings Ltd (00330) - interim results Great Eagle Holdings Ltd (00041) - final results Hong Kong Exchanges and Clearing Ltd (00388) - final results New World China Land Ltd (00917) - interim results New World Development Co Ltd (00017) - interim results PCCW Ltd (00008) - final results Sino Land Co Ltd (00083) - interim results SJM Holdings Ltd (00880) - final results US : Durable Goods Orders January Pending Home Sales Index January Target Corp 4Q12 results J C Penney Company Inc 4Q12results HK : CITIC Pacific Ltd (00267) - final results Giordano International Ltd (00709) - final results Hui Xian Real Estate Investment Trust (87001) - final results Pacific Basin Shipping Ltd (02343) - final results Sun Hung Kai Properties Ltd (00016) - interim results Xinyi Glass Holdings Ltd (00868) - final results China Everbright International Ltd (00257) - final results US : GDP 4Q12 Initial Jobless Claims week ended 23 rd February Gap Inc 4Q12 results Best Buy Co Inc 4Q13 results HK : China Overseas Grand Oceans Group (00081) - final results United Company RUSAL Plc (00486) - final results China Resources Cement Holdings Ltd (01313) - final results US : PMI Manufacturing Index February Consumer Sentiment February ISM Mfg Index February Construction Spending January 4

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