Asia Morning Analytic: 220210: Macro Concerns v Recovery, a balancing approach

Morning readers,

Last Friday seeing the Fed hiking discount rate by 0.25% suprised and jittered the market as a measure for Fed to signal the beginning of tightening cycle, sending Asia down on further profit taking. However, our weekly thematic theme on this issue believes such a tightening should be viewed as a benefit to the US financial system, as oppose a signal of tightening, which, as per Bernanke on US' Friday session, claimed that Fed rates will remain not be hiked for a 'prolong period'.

Continual market jittery over PIIGS and Dubai World's credit problems are also easing, causing much less attention on the market. The EU guarantee on Greece worries looks credible for the moment being, whilst Dubai World has also laid down timelines to propose to creditors in March over the restructuring of its $22 billion debt that shall be due in May. These developments provides the market some breathing air, whilst welcoming the upcoming reporting seasons in Asia, which may further provide support for the market in the near term. This is also bolstered by continual strength in US, with a improving job market shown my a lowering continuing jobless claims to 4563K and initial jobless claims,down to 442K for end of Jan, a suprising retail sales jump beating expectation, finishing on +0.5% mom (+0.6% ex Autos mom), and an increase in import price index, + 1.4% mom and + 11.5% yoy, an increase in IP, +0.9% mom, an increase in PPI +1.4% mom (+4.6% yoy), that all beaten consensus forecast, and a CPI that came below expectation +0.2% mom and +2.6%yoy, that points to inflation being a low threat at the moment which is welcoming for the markets. This may also allow us to anticipate our call, under GFA thematic: A shifting engine, to look for a continue recovery in manufacturing and capex in US that points to an intact global recovery.

Having said that, however, GFA remains to be weary over macro concerns, as concrete measures have not been implemented, and merely been delayed as solutions are currently being worked out. Would remain to be cautious over developments in EU, and a lesser extent, the credit troubles in Dubai that may be the spark of a sovereign credit contagion. Moreover, EU's development are also revealing weakness in its unity as fiscal creavity are being shown to hold the bloc together - this may continue to jitter markets over the collapse of the euro, which would be our thematic for this coming week.

Leading to this point, looking at overnight lead from Friday, we believe the Friday session in Asia was an overreaction to Fed's movement. Profit taking activities would be on halt as the underlying mainstream news are tilting back towards the positive end, which were all shrugged off earlier due to the macro uncertainty. Bargain hunters on the sidelines may actively enter the morning session, pushing market back towards its last week highs, especially with China resuming trade today that will see a normalisation of volume. However, remain to see 20,800 as the main psychological cap for the bulls, but GFA poses a more positive tone to the near market actions, looking at a range of 20,000 to 21,000, given reporting seasons in China may further bolster market on the upside.

On this note, GFA remains to be bullish over our export and consumption plays, with the reasoning stated in our GFA thematic: The relative safe heaven. We anticipate consumption names, such as Golden Eagle (3308.HK), NWDS (825.HK) [TP: 16.00], Gome (493.HK)[TP:3.00], Haier (1169.HK) [TP: 4.50], Lianhua (980.HK) [TP:25.00] and Jinkelong (814.HK)[TP: 7.50] to remain outpacing the market, whilst export-related names with more US exposure such as Cosco Pacific (1199.HK)[TP: 12.80], CHMI (144.HK) [TP: 30.50], NDP (2689.HK)[TP:11.00], LMP (2314.HK) [TP:5.25] to be the main beneficiary over a strengthening US economy. Chinese banks remain to be on our radar as we believe NIM will improve as Chinese authorities begin its OFR hikes and that the recent 20% plunge due to RRR tightening has already priced in such capital issue. Would suggest accumulating Chinese banks should it dip further below. GFA top pick in the sector being ICBC (1398.HK) [TP: 6.00] with a pick up near 5.40.

As for HSI, would believe market should at least recover to 20,200 - 20,300 level after the sell off on Friday, especially with China resuming trading today. However, main cap on asian market remains to be issue on policy overhang, whilst a delayed effect on macro concern will post some investors on the sidelines. GFA remains short term bullish on the market, looking for a clean break on 20,800 to 21,000.

ongy out.