HK & China - Market Direction 01 (May08 - Oct08)

[HengHeng]

tan ku jiu wu mah ...

[kennynah]

Tan ka ku, kwnga char mah wu. Hahaha

[HengHeng]

haha .. nice one.

[winston]

China stocks may see Olympics honeymoon
Wed Jul 30, 2008 12:43pm IST
By Wei Gu

HONG KONG (Reuters) - Many investors who believed the Beijing Olympics would drive the Shanghai stock index to peaks to rival the Himalayas have lost their shirts.

Similarly, those who believe the index might dive as low as 2,008 after the 2008 Games, might miss a big rebound. The market might benefit from a short-term sentiment lift, particularly if China wins a lot of gold.

Investors -- disheartened by terrorist threats to the Games, summer power shortages, logistics nightmares, and factory closures in a bid for blue skies - are desperate for an Olympics honeymoon for stocks that could be just around the corner.

An upward jump in the market is possible partly because the Chinese index is among the worst-performing in the world this year, down some 45 percent.

The Olympics could send the index back above the 3,000 level, from current levels near 2,900. Whether the rally can be sustained, though, depends on Beijing's resolve in following through on much-needed reforms after the Games.

The market might benefit from a likely policy vacuum in the next month. Beijing probably won't introduce more tightening or any drastic reforms before the torch goes out, especially since President Hu Jintao recently stressed the need for economic stabilization to make sure the Games are a success.

"The Chinese culture has determined that the most publicized event in China's own history needs to start in great joy and end in enormous satisfaction," said Dong Tao, Asia ex-Japan economist for Credit Suisse. "Chinese leadership wants to make sure the economy and stock market prosper."

Investors in Chinese stocks certainly need all the help they can get. Just a year ago, almost every brokerage firm was churning out reports predicting the market could go through the roof before the Olympics. The only worry back then was about a post-Olympics lull. The subprime crisis, $140 oil, and the Sichuan earthquake were nowhere on the radar screen.

The Games opening ceremony is slated to start at 8:08 pm on the 8th day of the 8th month, because the number 8 in Chinese is a symbol of good luck and wealth. But it has been nothing but unlucky. Superstitious Chinese have even pointed at the five official Olympic mascots, believing that each one was a portent for the disasters the country has suffered so far.

Problems now cloud China's Olympic mood: dampening sales prospects for companies that have wished to make a killing out of the Games; beer makers have problems driving trucks into Beijing given heightened security; work at construction sites has been halted because authorities sent many migrant workers home; and Beijing hotels are lowering their rates as new travel restrictions have led to less demand.

The swirl of negative publicity that has accompanied the run-up to the Olympics has pushed sentiment so low that it could only improve when the overhang is removed, said Aaron Boesky, chief executive of China stocks focused Marco Polo Investments Group.

"When we are at the Olympics, that moment will galvanize public sentiment," Boesky said. "I would not ask for a better beacon for sentiment reversal."

History has shown that Olympics can boost asset prices. In the four years leading up to the games during the past nine Olympics, stocks of the host countries on average surged 56 percent, and property prices went up 13 percent, according to Credit Suisse.

China is no exception, other than the fact that the rally has come too fast and furious. Chinese stocks, after more than doubling last year and falling as much as 50 percent this year, are still double the level they were at two years ago.

Now investors are crossing their fingers for a more typical boost from the Games. Four out of the last five countries to host the Games have seen their domestic stock market rise during the Olympics month, with Australia being the only exception.

The Olympic honeymoon might have started already, with the index now up about 12 percent from its year low.

But the future of China's market depends more on whether Beijing can carry out market-oriented reforms than on the success of a sporting event.

Beijing might raise domestic fuel prices again this fall to help ease rampant power and energy shortages. Energy price hikes are inflationary in nature, but they could help reduce China's voracious appetite for energy.

China could also introduce the long-overdue start-up board and shorting mechanism after the Games, which might increase market volatility in the short term but improve its efficiency longer term. The biggest question on everyone's mind now is whether China's super growth cycle is coming to an end.

"It is more important to watch what Beijing does after the Olympics, whether it can bring confidence back into China stocks," said Yang Liu, chair of Atlantis Investment Management.

"Other than us Chinese, few investors now think the Olympics will move the market in one way or another."

[winston]

China Strategy from UOB-Kay Hian

Adjusting our sector ratings

A further recovery in the stock market is likely in August, driven by the loosening of the government’s policy tightening, sharply lower crude oil prices, and further improvement in inflation outlook.

We expect the central government to adjust gasoline and power tariffs more frequently post-Beijing Olympics, which favour Independent Power Producers (IPPs) and refiners, but not energy-intensive sectors, such as mining.

We upgrade our rating on power sector from UNDERWEIGHT to OVERWEIGHT
but downgrade shipping sector from MARKET WEIGHT to UNDERWEIGHT and
metals sector from OVERWEIGHT to MARKET WEIGHT.

Our biggest bets are still financials, infrastructure and consumer sectors.

[-dol-]

Shanghai down 1.82% as of now... market doesn't seem to be heeding the buy call, yet. May be the $$$ went to the US to boost the rally there? US$ is firming against the yuan recently.

[winston]

TOL:-

1) US was quite strong yet Shanghai dropped and HK was flat

2) Is the hope of an "Olympic Rally" just that ? Hope only. Having said that, the statements recently has been very market friendly.

3) Is everybody waiting to sell into the rally when it comes ?

4) Maybe there will not be a strong rally. As long as there is no big crash, the authorities would be happy.

5) Maybe the authorities have limited bullets so they would want to use it sparingly. Examples: Windfall tax on oil companies, Income Tax changes, Margin accounts, M&A deals among the SOE companies, Stabilization Fund, Social Security, Buybacks by SOE, raising gasoline and Electricity prices ( maybe after olympics ) etc.

[-dol-]

Chances are good that China will not crash - it has crashed already.

I think we have to be careful about predictions - often times, they sound convincing but the end result can be disappointing if we believe too much. The fact is no one knows.

Last year, Shanghai Composite heading towards 8,888 looks plausible (I was dreaming about the fabulous profits my China/HK portfolio will show!) - then, they say it is going to 1,888 this year - neither came true, yet.

For HK, some of the public have been badly hurt by following what Lee Shau Kee said about the HSI targets - it seems like a moving target to me... constantly being revised.

Then there is the Taiwan bull story about the benefits of strengthening cross-straits ties with China. And the Taiwanese reporters (presumably heavily invested in Taiwan stocks) were pestering President Ma when is he going to save the stock market?!

Another seeming no-brainer is the yuan exchange rate against US$. Many HK people have been converting their HK$ to yuan. Recently, the yuan weaken against the US$ - and now the Chinese govt is targetting growth rather than inflation. The yuan can take a breather here.

The market will do what it wants to do...

[millionairemind]

DOL,

Everytime I read your posts, I learn something

Next month when you have time, lets meet for kopi again..

Cheers,
mm

[-dol-]

MM,

I believe I learn even more from you.

kopi is fine, orange juice even better