MOONCAKE MADNESS
* STOP PRESS: Today was CLSA’s best-ever volume day by a country mile. Granted, part of it may be ‘forum effect’ but a lot of funds are also being reallocated from US/Europe to Asia. Also, today is the first day since this rally really started on August 17th that we saw real sector country rotation from leaders to laggards. Up to now, HK/China/India had been a very concentrated bull market – a bit too concentrated for some appetites. Small and mid-caps remain out of favour, but we are seeing big buy flow into the likes of Sony, Samsung Electronics, TSMC, FIH, Shinhan Financial, Infosys, and Nintendo. We think this diversification into other sectors and countries is a very healthy technical development for Asian markets. Despite all our positive anecdotal stories below on HK property, the reality is the HSP index is sitting on an RSI of 68, is +38% since Aug 17, and we still have over a month until the next FOMC (86% chance of 25bp cut and 14% chance of none). An HSP back-and-fill consolidation at 30-32,000 would be timely and healthy – already been hitting resistance at 32k for the past few days.
* Meanwhile, more worldly concerns were on the minds of local HK property realtors yesterday. Having dim sum with my wife & son yesterday late morning (gotta beat the rush), my wife received a call on her mobile. Then another. Then another. And another. We turned her phone off after that. Overall 50 calls and messages were left on her phone from HK property realtors and end-users/buyers/sellers. My wife & I have been active in the HK soho flat market, buying / fixing up / and then selling or letting to newly arrived bankers / lawyers / accountants / teachers. It appears that the 50bp Fed cut and subsequent 25bp cut by HK banks have stimulated animal spirits. WE THINK THIS STORY HAS ONLY JUST STARTED. * WHY THE HIBOR MARKET IS STILL TIGHT: Since mid-August, the Libor-US Treasury spread has been easing (as commented by Chris Wood), when markets took off and Fed Fund Futures started pricing in a 50bp cut on 18-Sep. However, Hibor rates have not moved down in line with Libor and US treasuries. Meanwhile, the HKD has been strengthening on robust economic growth and cutting prime and deposit rates only 25bps, less than the Fed's 50bps. AI has two theories regarding this: 1) since HK only cut 25bps, it should have attracted global funds for higher HKD yields. This explains the stronger HKD, but not the tight money market conditions, 2) Large Hedge Funds have been borrowing heavily in the HKD money markets as a HKD CARRY TRADE.
* HK HOTELS AS AN INTERESTING SECONDARY ASSET PLAY: Looking into this as these have in past cycles been good inflation plays (see our technical analyst Laurence Balanco’s views on hotel plays attached). Mandarin & Shangri-La lead in performance.
* DULL H-SHARE PERFORMANCE POST-A-SHARE IPOS: With PetroChina gaining approval to list A-shares and CCB (939 HK) listing on Shanghai today, we’ve taken another look at the potential impact on the listed H-shares in the run-up and after a mainland public offer. We first wrote about this in the 21 June edition of AI and observed that while the H-shares do outperform pre- the A-listing they underperform post the IPO. Next up for mainland listing is COSL (expected date 28 Sept) and then Shenhua Energy (9 Oct). We would suggest taking profits on these H-shares just before or on the A-share IPO date.
* BUY THE OLD LADY: On Wednesday, we heard our Alan Chen calling on HFs to buy SEC (005930 KS). There were few responses until today. Alan cited cheap valuations, potential for DRAM bottoming, strength in NAND and 4Q tech seasonality. Of course, today, in one of the biggest turnover day for CLSA, SEC was one of the top net buys on our pad. SEC was up 4.5% and fellow tech laggard Hynix (000660 KS) was up 6%. Further, Hynix today reported that it has stopped selling DRAM through the spot market and is planning to sell only to long-term customers. Hynix pointed out that there is demand from personal computer makers.
* RISK LOVE RETURNS: No matter how one measures the degree of risk appetite present in the financial markets, the appetite appears to have come back to the financial markets in most of the major asset classes. The exhibit below shows the typical “carry trade” cross (AUDJPY, inverted), along with the VIX index, and the European Crossover credit spreads, all showing very similar optimistic dynamics.
* FAST-MONEY BULLETS: regional property, plantations, rubber, SET hidden breakout, FIH
