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Notes from Hong Kong-Week of 17 May 2010

Week of 17 May 2010

Last week's relief rally was across the board except for some commodities. The Chinese economy remains a point of concern but the main focus for the market in the past 7 days and for the coming week remains Europe. This being an expiry week for options trading in the US, we are likely to see more volatility

Hong Kong announced on May 14 that the economy grew by 8.2% from the year earlier. For 2010 GDP is expected between 4 and 5%. The main concern remains the property market. Efforts by the government to cool the market by boosting land supply may start to show some results. A land auction on May 11 brought in a third less than estimates. The Properties sector is the worst performing sector for the past 4 weeks. On Thursday May 20, Hong Kong CPI figures will only confirm what daily necessities already tell us, food prices are rising. Figures release last week for China indicate that year on year inflation rose 2.9%. More reasons to expect new measures from Beijing to cool the economy. The US releases its CPI on Wednesday.

Hong Kong may not be technically in a bear market but with Big Brother down 22%, it certainly feels like it. The immediate outlook depends on what direction the S&P 500 takes. We all know by now that Beijing is likely to continue tightening its monetary policy.

While Properties are to be avoided in China/Hong Kong, US REITS have shown an amazing performance. As good as gold in fact.

Over the past few weeks, gold has been the only place to be in commodities. Worries of a slow down in the world economy weigh on prices of oil, metals, agriculture products.

If you were not in gold in the past 4 weeks, the only other refuge were bonds, US bonds that is. Flight to so called quality pushed 30-year Treasury bond price up more than 4%. For foreign investors add the rise of the US dollar. The US dollar index surged 6.5% over the same period.

PERFORMANCE 1 week 4 weeks YTD
Hang Seng Index 1.1% -7.9% -7.9%
Financials 1.3% -7.6%  
Commerce 1.1% -3.5%  
Properties 0.3% -11.3%  
Utilities 1.1% -7.8%  
HS China Enterprises 1.8% -7.7% -9.4%
FTSE/Xinhua A50 2.3% -15.2% -22.2%
“A” Financials 4.1% -10.9% -18.8%
“A” Infrastructure 2.5% -8.3% -12.2%
“A” Materials 3.2% -10.0% -17.2%
“A” Engineering 4.0% -12.3% -23.0%
S&P 500 2.2% -4.7% 1.9%
Europe 350 4.8% -7.3% -2.7%
Nikkei 225 0.9% -5.8% -0.8%
India Sensex 1.3% -3.4% -2.7%
Bovespa 0.9% -8.7% -7.5%
US DJ REITS 3.4% 2.0% 11.3%
DJ Global Ex-US REITS 1.9% -7.8% -5.9%
CRB -1.1% -6.4% -8.8%
Oil (WTIC) -4.7% -14.0% -9.8%
Gold (Spot) 1.9% 8.3% 12.3%
GSCI Agriculture -0.7% -3.0% -14.9%
GSCI Industrial Metals 3.5% -9.8% -2.5%
Global Bond Index 0.3% 1.1% 2.6%
Emerging Mkts Bonds 2.2% -1.1% 4.4%

FTSE Xinhua A50 is a market capitalization weighted index comprising the 50 largest “A” (domestic) shares listed in China. In Hong Kong the ETF 2823:HK tracks the index; in the US, FXI tracks a sister index including only the 25 largest companies. The Hang Seng China Enterprises Index covers 40 “H” shares mainland companies listed in Hong Kong. In Hong Kong the ETF 2828:HK tracks the index. The Hang Seng Index currently covers the 43 largest Hong Kong listed companies by capitalization. These HK listed companies include a number of Chinese companies. In Hong Kong the ETF 2800:HK tracks the index. In the US, EWH tracks the MSCI Hong Kong Index which is substantially different from the Hang Seng Index.

Disclosure: Long CRB, DBA, Gold, IYR, RWX