Investment Daily. Market Overview. 4 Aug The Hang Seng Index is expected to trade at 21,600 to 22,000 today. Technical Analysis

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1 4 Aug 2016 Major Market Indicators Mkt. Turn.(mn) 70,000 63,400 67,900 Stock Advances Stock Declines 1, ,274 HSI 21,739 22,129 21,891 Change HSI Turn.($bn) HSCEI 8,978 9,129 8,958 Change HSCEI Turn.($bn) HSI Technical Indicators 10-days MA 22, days MA 20, days MA 21, days RSI 54.9 Primary resistance 22,200 Primary support 21, days MA 9, days MA 8, days MA 9, days RSI 53.1 Primary resistance 9,257 Primary support 8,766 HSI Futures Aug 21,679 22,120 21,774 Volume 91, , ,163 Open interests 120, , ,504 Sep 21,622 22,060 21,700 Volume 637 1, Open interests 7,005 6,793 6,106 HSCEI Futures Market Overview The Hang Seng Index is expected to trade at 21,600 to 22,000 today Hang Seng Index fell below 22,000 points on Wednesday. It closed at 21,739 points, decreasing 390 points. HSCEI closed at 8,985 points, dropping 143 points. Turnover was $70 billion. Several local banks released ordinary interim results, yet there s a bank announcing stock repurchase scheme so that its stock rose in the afternoon. In addition, New York oil futures fell below $40 per barrel, which was almost 4-month low. The oil stocks obviously declined. US gasoline reported inventory is below expectation, support the oil price to rebound 4% to close at 41 US dollar per barrel, oil stocks rose on Wednesday. Besides, latest private employment data remain strong, it increase the likelihood of US interest rate hike, banking stocks also performed well on Wednesday. As a result, US stock market reversed recent downtrend and rebound on Wednesday. The Dow and the Nasdaq rose 41 points (to 18,355) and 22 points (to 5,160) respectively. Local blue chips rebounded in the US ADR market, it might help to support HK stock to open higher today. However, as major central banks recent move disappointed the market, Hang Seng Index seems lack of further momentum when it is above 22,000. Investors current focus is on the Bank of England interest rate meeting tonight. Technical Analysis Hang Seng Index drastically fell on Wednesday. It seems that 14-day RSI is possibly forming peak divergence. MACD bearish gap reappears as well. If the index also falls below the middle of the Bollinger Band(21,601 points), the downside risk should become larger. On the contrast, if HSI can surpass 22,000 points in the short run, it still has chance to go up further. The first support of the index is 20-DMA 21,601 points, and the next support is 50-DMA 20,996 points. The first resistance is lowered to 22,000 points, and the next resistance will be 22,500 points. HSI Chart Aug 8,968 9,150 8,973 Volume 76,916 84,380 73,298 Open interests 243, , ,337 Sep 8,967 9,145 8,969 Volume 3,571 1, Open interests 72,949 74,708 74,265 Sources:etnet

2 Daily Focus Investment Daily Yuexiu Real Estate Investment Trust (405) An interim distribution to Unitholders for the 2016 Interim Period will be approximately RMB which is equivalent to HK$ If based on last closing price of HK$4.66, the annualized distribution yield would be 6.8% As Renminbi depreciated against Hong Kong dollar and US dollar in the Interim Period, the bank borrowings denominated in Hong Kong Dollar, United States Dollar and secured note loans denominated in United States Dollar resulted in an exchange loss of approximately RMB172,283,000. As at 30 June 2016, the overall occupancy rate of the properties was approximately 97.8%. The average renewal rate would be 77%, while and renewal rental income increased 3%yoy. Closed price 4.66 Forecast P/E (X) 41.8 Dividend yield (%) week high week low RSI 65.6 As at 30 June 2016, total borrowings of Yuexiu REIT amounted to approximately RMB11,285,156,000, which represented approximately 37.8% of total assets of Yuexiu REIT. Yuexiu NAV would be HK$5.66, current price is trading at 17.7% of estimated NAV. The group acquired Shanghai Yue Xiu Tower last year, expanding its operation location. Suggest investors accumulate with target price of HK$4.9. HSBC(0005): Repurchare Max US$2.5bn shares HSBC(0005) 1H16 pre-tax profit dropped 28.7% yoy to US$9.71bn while interim profit dropped 28.1% yoy to US$6.91bn, slightly below expectation. For 2Q16, its pre-tax profit dropped 45% yoy or 40% qoq to US$3.6bn. Closed price 51.6 HSBC gave up its gradual dividend increase policy, and will just keep dividend payout at current level. Besides, the Group also cancel its 10% ROE target. However, HSBC also announced that, as its first Tier capital ratio rose to 12.1% after the disposal of Brazil business, HSBC will buyback at most US$2.5bn share in 2H16. The Buyback plan might launch again in P/B (X) 0.9 Dividend yield (%) week high week low RSI 72.5 Asia is still HSBC major earnings contributor, felling 23.9% yoy to US$7.16bn or 73.7% of total pre-tax profit. Europe dropped 28.4% yoy to US$1.58bn, accounted for 16.3% total pre-tax profit. In fact, for all its business regions, only Middle East and North Africa have recorded growth. HSBC 1H16 provision was US$2.37bn, rose 64% yoy which mainly come from oil, metal and mining. The Group said it is mainly come from Brazil, US and Canada. Besides, HSBC said that it would continue to develop business in Asia especially Asset management and insurance. Since major countries bond yield dropped to very low level, it will hurt global banks including HSBC holdings net interest margin. Together with potential bad debt risk at emerging market (including China), HSBC earnings outlook is still not optimistic, Since the Group's divdend payout ratio will above 85% in 2016, it is not easy for HSBC to maintain such high payout in the future. Repurchase amount is maximum at 2% of total market capitalization, we expect it could only provide support to share price at low level. Current valuation is 0.9x tangible book value, it is not attractive. We suggest investors to consider buying the stock when it falls below 50 HK Dollar. 4 August

3 Hang Seng Bank(0011)earned net profit of $8.01 billion in 1H 2016 Hang Seng Bank announced 1H 2016 result. Its net profit tumbled 60.07% yoy to reach $8.01 billion. If excluding the residual from the disposal of Industrial Bank, the net profit declined 14.95%. The bank distributed second interim dividend of $1.1 per share. Closed price P/B (X) 1.89 The net interest income increased 5.38% to $11 billion. Client loan amount balance slightly grew 0.81% to reach $ billion mainly due to mortgage loans. The manufacturing and trading refinancing loans were sliding. The net interest margin narrowed 1 basis point to 1.85%. In addition, the non-interest income dropped 31% to $4.21 billion. Among which, the revenue coming from securities broking and related services drastically decreased 53.3% to $545 Dividend yield (%) 52 week high 52 week low 14RSI million. The retail investment funds income dropped 29.5% to $741 million. The net trading income also fell 66.96% to $455 million. For the aspect of asset quality, as at the end of June, the loan amount balance in Mainland China decreased 10.08% yoy to $79.82 billion. It possessed 11.74% of the entire loan portfolio, decreasing 1.41 percentage points in the past 12 months. However, the related loan impairment allowances increased 30% to $1.41 billion, leading to 0.55 percentage point increase in terms of loan impairment rate to reach 1.77%. Therefore, the entire loan impairment rate for the bank increased 0.15 percentage point, reaching 0.55%. Hang Seng attributed the rising loan impairment to the restructuring of corporate and private enterprises, especially those bothered with overcapacity. While local governments provided assistance for restructuring, Hang Seng prudently classified these loans with impairments. The new accounting standard IFRS 9 will become effective from 2018 onwards. Hang Seng explained that the new standard required the bank to make 12-month provision once the loan is lent. There should be even a lifetime provision once the loan quality worsened. The extent of the impact is still under evaluation since it still has plenty of time before 2018 approaches. Moreover, the new wealth management product regulation should be an opportunity for the bank because it usually promoted conservative products with stable yield. The bank planned to promote more such products in both China and Hong Kong in the second half of this year. Hang Seng Bank s loan amount balance maintains a small growth but the performance of non-interest income is worse than expected. Nevertheless, the non-interest income should stabilize in 2H 2016 given a lower comparable revenue basis. The good factors include warming retail investment funds and insurance sales businesses whereas the bad factors are the decreasing securities broking and cards fee. For the net interest income, it s expected that mortgage loans will be a pillow for the entire loan growth. However, the net interest margin should be under pressure based on low mortgage rate plans launched recently. Generally speaking, the profit of Hang Seng is forecast to stabilize in the second half of Yet in terms of valuation, the net asset value of Hang Seng as at June 2016 is $ The price-to-book ratio is 1.89x, much higher than 1.35x for BOCHK(2388). We rate Neutral for Hang Seng Bank. 4 August

4 Shanghai-Hong Kong Stock Connect Statistics Northbound Southbound RMB(bn) HKD(bn) Balance Balance as % of Quota Amount Investment Daily Top 10 Most Actively Traded Stocks (Northbound) Stock Name Stock code Buy Trades Sell Trades Turnover KWEICHOW MOUTAI ,742,265 37,776, ,518,651 DELUXE FAMILY ,771, ,920, ,692,016 SHANGHAI INTERNATIONAL AIRPORT ,959,073 26,101, ,060,799 SAIC MOTOR ,760,275 42,927,529 91,687,804 PING AN INSURANCE ,297,618 76,034,265 89,331,883 ZHENGZHOU YUTONG BUS ,337,285 3,486,593 73,823,878 INNER MONGOLIA YILI INDUSTRIAL ,836,752 21,010,041 71,846,793 FUYAO GLASS INDUSTRY ,999,654 41,693,993 70,693,647 ANHUI CONCH CEMENT ,216,344 46,537,716 58,754,060 POLY REAL ESTATE ,988,193 45,428,502 49,416,695 Sources: HKEx Top 10 Most Actively Traded Stocks (Southbound) Stock Name Stock code Buy Trades (HKD) Sell Trades Turnover (HKD) (HKD) CCB ,520, ,112, ,632,870 TECH PRO ,092, ,121, ,214,144 HSBC HOLDINGS 5 168,751,240 67,568, ,320,053 CAR INC ,114,470 38,145,040 99,259,510 POWER ASSETS 6 93,062, ,375 93,873,425 SUNAC ,993,910 24,108,090 83,102,000 TENCENT ,662,550 51,711,050 74,373,600 HUANENG POWER ,007,480 31,547,860 67,555,340 CITIC BANK ,430,840 7,100,620 66,531,460 SINOPEC CORP ,466,540 32,958,420 66,424,960 Other Statistics Ten Most Actively Traded Stocks Stock Name Code Change Closed Price Turnover(Million) TENCENT % HSBC HOLDINGS % CNOOC % CCB % AIA % PING AN % CHINA MOBILE % TECH PRO % ICBC % CHINA LIFE % August

5 Ten Short Sell Stocks Stock Name Code Short Sell Turnover Short Sell Ratio TRACKER FUND HK M 2.13B 35.90% HSBC HOLDINGS HK M 2.87B 22.90% CNOOC HK M 1.51B 21.88% CHINA LIFE HK M M 29.59% CCB HK M 1.36B 17.48% PING AN HK M 1.30B 16.59% HKEX HK M M 28.05% SHK PPT HK M M 27.41% CKH HOLDINGS HK M M 23.54% WHARF HOLDINGS HK M M 37.21% Source: AAStocks Economic Calendar Date Country Event Survey Prior Mon H.K. CLP Holdings (0002) releases interim result China Jul. Official Manufacturing PMI Jul. Caixin Manufacturing PMI U.S. Jul. ISM Manufacturing Tue H.K. HYSAN (0014) releases interim result Jun. Retail Sales Value (YoY) -8.1% -8.4% Australia RBA Cash Rate Target 1.50% 1.75% U.S. Jun. PCE Core (YoY) 1.6% 1.6% Wed H.K. HSBC (0005), Hang Seng Bank (0011) and Standard Chartered (2888) release interim result Thu H.K. MGM China (2282) releases interim result U.K. Bank of England Rate Decision 0.25% 0.50% Bank of England Asset Purchase Target 375B Pounds 375B Pounds U.S. Initial Jobless Claims (Jul. 30) 266K Continuing Claims (Jul. 23) 2,139K Jun. Factory Orders -1.9% -1.0% Fri H.K. China Resources Cement (1313) releases interim result Brazil Olympics commenced in Rio de Janeiro U.S. Jul. Unemployment Rate 4.8% 4.9% Jul. Non-Farm Payrolls 180K 287K Jul. Average Hourly Wages (YoY) 2.6% 2.6% Disclaimer Some of KGI Asia Ltd. equity research and earnings estimates are available electronically on KGIEWORLD.COM. Please contact your KGI representative for information. The information and opinions in this report are those of KGI Asia Ltd. internal research activity. KGI Asia Ltd. does not make any representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. The information and opinions contained in this report are subject to change without any notice. No person accepts any liability whatsoever for any loss however arising from any use of this report or its contents. This report is not to be construed as an invitation or offer to buy or sell securities and/or to participate in any investment activity. This report is being supplied solely for informational purposes and may not be reproduced or published (in whole or in part) for any purpose without the prior written consent of KGI Asia Ltd.. Members of the KGI group and their affiliates may provide services to any companies and affiliates of such companies mentioned herein. Members of the KGI group, their affiliates and their directors, officers and employees may from time to time have a position in any securities mentioned herein. 4 August