Asia Afternoon Analytic: 010310: Asia up... Europe up... BUT Europe is messed up financially?

Evening everyone,

First and foremost I'd like to apologise for the lack of a thematic this week, we have been wrapped up here recently, and second of all the lack of coverage on friday and this morning.

Well Asia made broad based gains today as US GDP was revised upwards... another key point to note was Chicago PMI data was up 1.1 points. Interestingly the market responded positively despite a drop in Employment, Production and Orders. We do suspect the main cause of this would be due to the increase in backlog which potentially marks this negative february data as a one off event due to the recently harsh winter. So we can expect a resumption in positive data for March as the US weathers the effects of the snow storm and the backlog is turned into actual production which will in turn generate employment and orders. To support this, the ports sector in the HSI demonstrated strong performance, though we have no material reason at this point in time we do expect it to be based on bullish trade expectations.

What does suprise us at the moment is how Asia remained up for most of the day as bearish sentiment began to appear in Europe. Even more unexpected was the strong increase in European Bourses across the region. This was despite major risk aversion on the currency spectrum predominatly with a flight from the British Pound as a low interest rate outlook, political and balance sheet concerns have begun to materialize. UK Banks also began a rout, led by the poorer results of HSBC which we expect to carry over to Hong Kong and potentially lead a global banking sector rout today as the greater cost of bad debt and provisions are not expected to be mutually exclusive to HSBC alone. We do suspect rising bad debt in China especially and feel HSBC may have made additional provisions for this given China's rapid monetary expansion in the past year.

Bringing back the focus to Asia GFA targets HKD4.2 for GDI, we also expect Huadian's results to be positive and carry over to the rest of the power sector tomorrow during which period we may encourage a sell on all power stocks for the time being. Be on the look out for opportunities in banking as the contagion from the HSBC results spread giving decent opportunities. We can expect copper stocks to continue their rally due to the massive earthquake that recently affected Chile one of the world's largest copper producers to be hit.