Document 6554757

Asia Pacific Equity Research | Singapore
MARKET
PULSE
Key Idea
Key Singapore Indices
STI
Catalist
Finance
Property
Electronics
Vol(m)
Val(S$m)
Close
3253.2
160.8
831.7
735.1
438.9
1400.6
925.9
Chg
24.5
0.9
4.4
2.0
5.8
-344.1
-67.4
% Chg
0.8
0.6
0.5
0.3
1.3
-19.7
-6.8
Close
16991.9
4454.8
1964.8
6563.7
1840.8
23315.0
15891.0
1543.1
1968.4
9095.1
Chg
-17.8
-20.8
-3.1
35.7
3.1
250.5
182.3
-27.2
-7.8
-11.1
% Chg
-0.1
-0.5
-0.2
0.5
0.2
1.1
1.2
-1.7
-0.4
-0.1
2,953
3,388
382
192
168
World Indices
Dow Jones
Nasdaq
S&P500
FTSE
KLCI
Hang Seng
Nikkei
SET
KOSPI
TWSE
Morning Call
7 Oct 2014
Conviction Buy: iShares FTSE A50 China Index ETF
(2823 HK)
Our base case is for a soft economic landing in China and
we believe the A50 China Index, currently trading at 7.1x
PE and 1.2x PB (both around 10Y lows and more than one
standard deviation below their 10Y averages), is attractively
valued, particularly when put against regional and global
peers. In addition, we note that 46% of A50 Index
components, by index weight, currently trade at a discount
to their dual-listed H-shares, which further points to an
undervalued A50 China Index. From our research, we
believe the upcoming Shanghai-Hong Kong Stock Connect
will unleash significant pent-up demand for A50 shares
from foreign investors who do not qualify under existing
schemes and/or are bound by quota limits. We estimate
that the incremental northbound inflows through the
upcoming SH-HK Connect (RMB13b daily net quota and
RMB300b aggregate) can increase the A50's average daily
value traded by 12% - 29% and have a significant re-rating
impact. We see the iShare FTSE A50 China ETF as the
easiest and most liquid way for foreign investors to
establish a diversified A50 position and benefit from the SHHK Connect catalyst expected in late Oct 14. BUY 2823
HK.
Market Statistics (SG)
STI
No.
No.
No.
52-week range
of gainers
of losers
of unchanged
 U.S. stock market ended a choppy Monday trading session
lower as investors appeared to book profits after last week’s
rally; small-cap and tech stocks led trading declines.
 Hewlett-Packard announced plans on Monday to break itself
into two companies, one with a focus on personal computers
and printers, and the other on software and enterprise
services.
Economic Statistics
S$/US$
Yen/US$
3-mth S$ SIBOR
3-mth US$ SIBOR
Crude futures (US$)
News Headlines
1.3
108.8
0.4
0.2
90.4
Research Team
(65) 6531 9800
e-mail: [email protected]
0.0
0.0
0.0
0.0
0.1
 The shake-up of the US$17t credit default swap market
increases the cost of insuring junior bank bonds and
sovereign debt because new contracts offer investors
greater protection.
 BOJ is likely to maintain its massive monetary stimulus on
Tuesday and offer a bleaker view on factory output,
following signs that its economy was hit harder than
expected by a sales tax increase six months ago.
 Samsung Electronics on Tuesday said operating profit likely
fell 59.7% in the 3Q14 period to 4.1t won (US$3.8b) as
earnings from its market-leading smartphone division likely
continued to shrink.
 Hong Kong financial industry shrugs off pro-democracy
protests; HSI posts its biggest daily gain since 3-Sep while
some banks reopen branches.
- Petronas
said on Monday it could delay its planned US$11b
Sources: MasNet, Bloomberg, Business Times, Straits Times and other media
LNG plant on Canada's Pacific Coast by up to 15 years unless it
can reach a favorable tax deal by month's end.
Please refer to important disclosures at the back of this document.
MCI (P) 006/06/2014
- Australian dollar slide would dent Singapore firms' profits;
OCBC Investment Research
Market Pulse
7 Oct 2014
Conviction Buy: iShares FTSE A50 China
Index ETF (2823 HK)
SH-HK Connect (RMB13b daily net quota and
RMB300b aggregate) can increase the A50's
average daily value traded by 12% - 29%
and have a significant re-rating impact.
 OCBC base case: China softlanding
 A50 China Index attractively
valued
 SH-HK Stock Connect key catalyst
for re-rating
Buy iShares FTSE A50 China Index ETF
(2823 HK)
We see the iShare FTSE A50 China ETF as
the easiest and most liquid way for foreign
investors to establish a diversified A50
position and benefit from the SH-HK Connect
catalyst expected in late Oct 14. BUY 2823
HK. (Eli Lee)
A50 China Index attractively valued
given soft landing base case scenario
Our base case is for a soft economic landing
in China, and OCBC economist Tommy Xie is
forecasting real GDP growth to gradually slow
from 7.7% p.a. in 2012-2013 to 7.3% in
2014 and 7.1% in 2015. Given this benign
baseline, we believe the A50 China Index,
currently trading at 7.1x PE and 1.2x PB
(both around 10Y lows and more than one
standard deviation below their 10Y
averages), is attractively valued, particularly
when put against regional and global peers.
In addition, we note that 46% of A50 Index
components, by index weight, currently trade
at a discount to their dual-listed H-shares,
which further points to an undervalued A50
China Index.
.
Shanghai-Hong Kong Stock Connect to
be key catalyst
The upcoming Shanghai-Hong Kong Stock
Connect ("SH-HK Connect") will allow, for the
first time, institutional and retail foreign
investors to purchase Shanghai A-shares
through the Hong Kong Stock Exchange as
long as they have an account with an eligible
broker. This is a big step-up versus existing
A-share investment schemes (QFII / RQFII)
only accessible to institutional foreign
investors subjected to a stringent set of
financial and administrative criteria.
Unleashing pent-up foreign demand can
have re-rating impact on A50 shares
We believe the SH-HK Connect will unleash
significant pent-up demand for A50 shares
from foreign investors who do not qualify
under existing schemes and/or are bound by
quota limits. We see clear evidence for this:
the price of the iShares FTSE A50 China
Index ETF (2823 HK) have persistently
traded at a premium (up to 12%) above the
underlying over the past two years; and the
total AUM of A50 ETFs has grown a whopping
61% per annum over the last nine years, in
line with the growth in the RQFII / QFII
quotas. We estimate that the incremental
northbound inflows through the upcoming
2
.
.
.
.
OCBC Investment Research
Market Pulse
7 Oct 2014
Calendar of key events
06-Oct-14
07-Oct-14
08-Oct-14
09-Oct-14
10-Oct-14
SG 3QGDP
13-Oct-14
14-Oct-14
SPH REIT FY14
15-Oct-14
16-Oct-14
17-Oct-14
EOC FY14
M1 3Q14
CapitaMall Trust 3Q14
Qian Hu 3Q14
Keppel REIT 3Q14
Keppel T&T 3Q14
Sabana Shariah Compliant
3Q14
Keppel Infrastructure 3Q14
SPH FY14
First REIT 3Q14
SG Sep NODX
SG Aug Retail Sales
20-Oct-14
21-Oct-14
Keppel Land 3Q14
27-Oct-14
23-Oct-14
24-Oct-14
Mapletree Industrial 2Q15
Cache 3Q14
SG Sep CPI
Keppel Corp 3Q14
Rec Solar 3Q14
United Overseas Insurance
3Q14
EMAs FY14
Mapletree Commercial Trust
2Q15
Aztech 3Q14
SG Sep Industrial
Production
30-Oct-14
31-Oct-14
CDL Hospitality Trust 3Q14
OCBC 3Q14
DBS 3Q14
OSIM 3Q14
UOB 3Q14
NOL 3QFY14 Results
28-Oct-14
22-Oct-14
29-Oct-14
MGCCT 2QFY15
Forterra 3Q14
SG Sep Bank Loans and
Advances
SG Sep Money Supply
03-Nov-14
04-Nov-14
05-Nov-14
06-Nov-14
07-Nov-14
Global Logistic Properties
3Q14
Noble 3Q14
SIA 2Q15
SIA 2Q15
SIAEC 2QFY15
Notes:
Sourced from Bloomberg
All US Tech results dates have been adjusted to Singapore dates.
US Initial jobless claims are released every Friday.
MBA mortgage applications are released every Wednesday.
3
Venture Corp 3QFY14
OCBC Investment Research
Market Pulse
7 Oct 2014
SHAREHOLDING DECLARATION:
For shareholding disclosure on individual companies, please refer to the latest reports of these companies.
DISCLAIMER FOR RESEARCH REPORT
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estimate contained in this report is subject to change without notice. We have not given any consideration to
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RATINGS AND RECOMMENDATIONS:
- OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and trading
oriented.
- OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment
horizon.
- As a guide, OIR’s BUY rating indicates a total return in excess of 10% based on the current price; a HOLD
rating indicates total returns within +10% and -5%; a SELL rating indicates total returns less than -5%.
Co.Reg.no.: 198301152E
Carmen Lee
Head of Research
For OCBC Investment Research Pte Ltd
Published by OCBC Investment Research Pte Ltd
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