Top Down Strategy and Large Cap Stock Picks - the DBS Vickers ...

Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
Fig. 34: HKEX: Breakdown of stock trading turnover by investor
group, June 2006
%
100
-
90
80
70
60
50
40
30
20
10
73
63 63
67
32 32 30
22
5 5 5 3 4
56 56 58 57 56
40
37 39
7
3
36 36
53
41
7 8 7
1996/97 1998/99 2000/01 2002/03 2004/05
Local Investor
Exchange Participant
Overseas investor
Fig. 35: HKEX: Breakdown of derivatives trading
by investors group, June 2006
Exchange
Participants'
princial trading
48%
Overseas
institutional
investors
21%
Overseas retail
investors
2%
Local
instituional
investors
8%
Local retail
investors
21%
A more realistic expectation is for Hong Kong and China
valuations to converge. But do not assume that this is
a one-way street. The narrowing of the premium can
also happen if the Chinese market were to correct
from current levels. If this happens, Hong Kong H shares
will not hold up as well. This implies that volatility in
the Hong Kong market will also be higher, but investors
will also be rewarded with higher returns.
We recommend investors to focus on companies with
strong earnings growth and profitability; and sectors
with good structural themes.
Fig. 36: A-share P/E premium over H share
x
10
2
1
Delay in retail QDII possible
0
The recent hype surrounding the pilot retail QDII scheme 94 95 96 97 98 99 00 01 02 03 04 05 06 07
makes us slightly cautious in the near term. We believe
the delay in the retail QDII scheme may reflect the
fact that the foreign capital control system is not yet in place. We do not exclude the possibility of implementation
being pushed back beyond two months. However investors should not view such a delay negatively, especially
if one believes that the long-term policy is to provide outlets for domestic liquidity in China, whilst promoting
Hong Kong as one of the elite Chinese cities. We also do not rule out the possibility that the scheme may
specify a limited list of stocks, which meet minimum requirements, as part of a safeguard for the retail
Chinese investors.
9
8
7
6
5
4
3
18