The Hong Kong stock market has seen a broad recovery since the beginning of 2009. Constant capital flows from North America, Europe and Middle East have pushed the local banking system's HK dollar balance to exceed historical high in the first half of 2009. "A Hong Kong dollar asset upswing resulting from historically loose liquidity measures and depreciation of the US dollar in mid- to long-term now looks possible," said Mr. Wen, "The recent return of IPO and M&A market in Hong Kong also signifies the improving market confidence."
"We see many attractive investment opportunities in Hong Kong," said Mr. Wen. "H shares are relatively cheap comparing with A shares. Shanghai Composite Index has surged approximately 20% while Hang Seng China Enterprises Index has risen only about 10% since the end of May 2009. The valuation spread becomes more prominent as the Hang Seng A-H Premium Index has increased from 120 to a recent high of close to 150. In addition, we also think that many small to mid cap companies have been irrationally sold off in 2008 and thus far has yet to be fully recovered. Some healthy companies have their market capitalization down to below cash value. We see more undervalued investment opportunities in small to mid cap than in large cap currently."
Mr. Wen pointed out that, "We consider every financial crisis a wealth redistribution process. Since China's economy is the easiest to be segregated from the rest of the world and China has a relatively stronger financial status due to easier access to bank credit, China is moving ahead as one of the premier global economic powers. With the recovery of China's economy and the internationalization of RMB, Hong Kong, as an important gateway for overseas funds to enter China, will benefit. We believe Hong Kong stocks will have support as the global and local economic situation continues to improve and capital keeps flowing into Hong Kong."
