With improving liquidity and policy environment in 3Q CCBIS is positive on Hong Kong and Mainland’s equity markets

(Hong Kong, 6 July 2010) – CCB International Securities Limited (“CCBIS”) today released a report on 2010 3Q market outlook, in which it projects liquidity flow and policy environment will improve in 3Q amid global economic slowdown and RMB appreciation, and it remains positive on the performance of Mainland China and Hong Kong’s equity markets in 2H 2010. Favorable ratings have been given to China banking and insurance, consumer discretionary, China property, internet sectors. Two major sections – “China Economics” and “Investment Strategy” are included in the report which was written by CCBIS Managing Director and Co-head of Research Dr. Peter So, Economist Dr. Banny Lam and Senior Analyst Dr. Eliza Liu. According to the report, the lifting of RMB peg against USD will be consistent with several cross-border trading and investment policies which enhances the liquidity and usage of RMB. Dr. Peter So said, “We expect HKMA and PBOC will speed up the amendment of rules in 3Q to accompany the currency reform and expansion of RMB trade settlement program. Significant amount of RMB investment products in Hong Kong will be launched to absorb increasing RMB liquidity, thus serving as the major driver to support the equity market.” On the other hand, CCBIS also predicts that the spillover impact of deteriorating Europe sovereign debt crisis starting in early May has created new hurdles to global economic recovery. “We believe that the European debt crisis is set to slow the pace of the global economic recovery, but will not affect the growth of developing countries in a substantial scale. The US Federal Reserve will remain on hold the interest rate hike for the remainder of 2010 and 2011 and low interest rate environment is expected to continue to fuel the growth of emerging markets in 2H,” said Dr. Banny Lam. Given weakening growth momentum of China’s economy and increasing concerns about external economy uncertainties, CCBIS believes that the government will likely maintain a stable policy environment in 3Q. It predicts domestic FAI growth will likely slow down to 22% YoY in 3Q and property investment YoY growth will fall to 15%. It also expects that retails sales will remain strong at 18% YoY nominal growth in 3Q but exports will decelerate at 15% YoY in 3Q. CPI is expected to reach the peak at 3.5% YoY in July and will start to decline in late 3Q. On the investment side, CCBIS remains positive on the performance of Mainland China and Hong Kong’s equity markets in 2H, and expects investors to shift attention to local policy changes in China from international concerns. CCBIS has provided analysis and ratings on the following sectors in the report: China banking and insurance (overweight), consumer discretionary (overweight), consumer staples (neutral), China property (overweight), Hong Kong property (neutral), metals and mining (neutral), internet and online gaming (overweight), telecommunication (underweight), infrastructure (underweight). “In the coming quarter, we anticipate market interests to concentrate on the following development: The realization that the US and European economic growth will be weaker than expectation; more signs that China will gradually ease credits; release of robust corporate results for 1H10; new policies on RMB internationalization and development of RMB products. All of the above should change the investment behavior of the market, and attract funds back to Asia, particularly Hong Kong and China markets,” concluded Dr. Peter So.