Hong Kong: Celestial Research Daily Report

Market Outlook

Hong Kong stocks might decline today. Hong Kong stocks soared by more than 200 points on Tuesday. The benchmark Hang Seng Index opened by 181 points higher but retreated to its day-low of 20,588 points afterwards. As approaching the closing hours, the index regained its rising momentum amid the strong performance of Europe’s futures market. The Hang Seng Index finally closed at 20,790.98 points, standing above its 10-day and 250-day moving averages. On the other hand, the China Enterprises index closed at 10,859.49 points, up 200 points or 1.88%. Market turnover
recorded to HK$63.14 billion. Yet, European stock markets declined on Wednesday. Spain had its new round bond auction of 2.59 billion with the surging borrowing costs, which was far below the planned ceiling of 3.5 billion Euro. The news renewed the market's concerns over the European debt crisis and dragged down the stock market
performance. Coupled with the contracting Euro zone composite PMI and Services PMI announced yesterday, the three major European stock indices tumbled substantially. UK FTSE 100 index closed down 134.57 points or 2.3% to 5,703.77 points. France CAC 40 Index closed down 93.31 points or 2.74% to 3,313.47 points. Germany DAX 30 index closed down 198.22 points or 2.84% to 6,784.06 points. Wall Street also tumbled
overnight. Investors had been hoping the Fed would move toward QE3, but those prospects seemed less likely following Tuesday's release of minutes from last month's meeting of the central bank. The news made three major indices in U.S. plummet. The Dow Jones Industrial Average closed down by 124.80 points or 0.95%, to 13,074.75 points; The S&P's 500 index declined by 14.42 points, or 1.02%, to 1,398.96 points; Nasdaq composite index tumbled by 45.48 points, or 1.46%, to 3,068.09 points. HK ADRs also followed the external markets to decline. Thus, Hong Kong stocks are expected to open lower substantially today. Hong Kong stock markets closed yesterday in light of the Ching Ming Festival. The Hang Seng Index fluctuated to rise on Tuesday. Transaction activities became active as approaching the closing hour. The index finally closed to recover its 10-day and 250-day moving average, which is a signal of strong rising momentum. However, dragged by the weak performance from external markets, Hong Kong market is expected to decline and fell below its 10-day and 250-day moving average again today. On top of that, the transaction volume might remain low as investors will likely stay in the sideline before the coming long Easter holiday.


Sector Update

Department stores and hypermarkets shares might benefit from China’s Consumption Promotion month. In order to boost domestic demand, the Chinese Government has launched a Consumption Promotion Month since 2 April. The activity will last till 4 May. According to the preliminary statistics provided by the Commerce Department, more than 80,000 enterprises will come together with the local Ministry of Commerce and Industry Association to launch more than 800 large-scale theme promotions. During this period, eight commercial banks including ICBC (01398) and three largest consumption financing companies will cooperate with large-sized stores and introduce a "zero fee, zero down payment, low interest rates” installment plan for durable goods. It is widely believed that this consumption promotion month will have a stimulating effect, however, as the extent of subsidy is much lesser than what has been given last year, market in general are rather conservative on the end result. Yet, we still believe that this event will provide a boost to the income of department stores, hypermarkets and other related business. Investors are advised to pay attention to the related stocks, in particular, those who operate in second and third tier cities, and to bargain hunt for medium term investments when the market finishes its recent adjustments.


Stock Pick

Kunlun Energy (00135) placed 800 million shares. On Tuesday, Kunlun Energy announced to place 800 million shares at a price of HK$13.10 per share, representing 9.96% of the outstanding share capital after placement. In face of this placement announcement, Kunlun’s share price once plummeted by 5.5% to HK$13.40 on Tuesday. Subsequently, the loss narrowed down and the share price finally closed at HK$13.78, standing above its placement price. In the medium to long run, as driven by the company’s robust sales of downstream oil and gas as well as strong growth of pipeline gas transmission business, the company’s future profitability is expected to be unaffected. We are still optimistic about the prospects of the company. On the other hand, the market is looking forward to a gradual injection of PetroChina ’ s downstream natural gas assets into Kunlun, which would serve as a catalyst of Kunlun’s future share price. However, buying-in at the current price level might be unfavourable. Kulun’s stock price has climbed more than 23% since the beginning of year 2012, achieving the target price we set earlier. As the scale of this placement is large, the Company’s earnings per share would be obviously diluted. We do not exclude the possibility that its shares will face some selling pressure in short-term. Investors are only suggested to consider buying-in when the share price falls back to around HK$13.40.


Daily Review

- On Tuesday, the Hang Seng Index closed at 20,790.98 points, up 268.72 points, an increase of 1.31%; H-share index closed at 10859.49 points, up 200.73 points, an increase of 1.88%; market turnover of HK $ 63.138 billion.

- On the back of some satisfactory manufacturing data of the U.S. and China, the U.S. and European markets advanced overnight. Hong Kong stocks opened high in the morning. During the afternoon session, the gain was expanded amid good performances of some blue chip stocks such as HSBC and CCB. The benchmark index finally closed near its day-high. Turnover volume also expanded.

- Bank stocks rose across the board. Bank of China rose by 1.91%. ICBC rose by 2%. CCB and ABC advanced by 1.83% and 2.4% respectively. For international financial sector, HSBC flourished by 1.31% and Standard Chartered Group jumped by 1.82%.

- Chinese property stocks closed up as transaction volume of residential housing in Beijing rebounded by 46.6% mom. Shimao Property rose by 7.69%, Evergrande rose by 7.5%. Agile hiked by 5.68%. For property stocks in Hong Kong, China Resources Land escalated by 5.1% and New World Development rose by 3%.

- China’s Vice Premier Li Keqiang stated that urbanization shall be the hugest driving factor for China’s domestic demand, which hinted that the economic growth will still rely on investments. This stimulated the building material stocks. BBMG, China Resources Cement, Asia Cement was up by 6.59%, 6% and 5.39% respectively. China Building Materials, Anhui Conch Cement and China Liansu all advanced by more than 3%.

- New energy sector rallied across the board. China solar flourished by 7.69%. Comtec Solar rose by 4.55%. Solargiga jumped by 4.11%. Trony solar and GCL rose by more than 3%.

- Infrastructure stocks were on the spotlight. China Railway rose by 8.55%. China Rail Cons rose by8.41%. Xiangyu Dredg and China Communications Construction hiked by 7.04% and 4.12% respectively.