Nov 2009 , Investor Conference

Andrew Look 陸東 presented his market view in 73 slides in a 30-minutes session. Here are some of his points for sharing and interest...and hopefull they can be useful in your investment decision makings:

1. US and global mkt:

• US/UK recession to continue, jobless rate of 11-13% no big deal as they are norm in the past.
• lower cost of capital is just a short term pain-killer rather than the surgical removal of tumor...
• The SME in US are still laying off rather than hiring staff.
• US property tend to sync with GDP, and property price had risen a lot (which mean can fall a lot), and there’s no sign of bottoming of the US property market(in terms of foreclosure and defaults).
• Deflationary pressure is mouting in the US and might become visible in 2Q2010 and is contagious.
• US credit card loan should not become a key problem given 1)it size: around USD800b and is just 16% of the available credit limit vs mortage of 10.5 trillion USD and 2) . 2) mortgage are non-recourse but credit card debts are personal and recourse.

2. Hang Seng Index

• 走勢will be 先低後高.
• Index of 21161 on 11 Sep09 represent a 84.5% forward PE expansion, 08 EPS growth of 15.7% and 09 earning revision of -10% against the Aug08 figures.
• Market PE now is 1 STD above 36yr average of 14.8X. Not too expensive but risk-reward is poor.
• He is now on 50% cash and claim 2010E HS index fair value is 26500 based on 10-yr US treasurey yield 3.9%, EPS growth of 17.9% and HK$ risk premium of 130bps.
• Risk appetite now surpass Oct-07 level.
• The 2010E EPS growth is heavily biased towards financials (e.g. Chinese bank) which in turn depends very much on Chinese liquidity.

3. The HK stock and property market

• HK (and also china) is under-leveraged (loan-deposite ratio of HK is 60%).
• China CPI remain negative=>no need for macro tightening.
• China market cap is now 75% of nominal GDP and is well below the 127% figure in 2007peak.
• With a forward PE of 15X and EPS growth of 10%, China equity are far from expensive.
• Chinese banks will not see NPL problem until at least 2H 2010=>hence share price will remain resilent.
• HK Property:can’t see driver for rapid drop: HK absorbed 24,521 unit per annum during recession years of 98-03, but delivery of residential units in 2009E is 15000. Besides, developers tend to have 5yrs of landbank reserve but is now reduced to an average of 3.1yr.
• Mainland buyers of HK property account only for 4.46% of property sales. However, 15%, 33%, 44% and 58% of the total buyers are foreigner+corporate for residential unit of cost <5mil,>20mil respectively

Generally speaking, Mr. Look is bullish in Asia (except Korea and Aussie for loan-deposit reason) and bearish in US/Europe. (I think majority are holding this viewpoint)..