Wednesday, 17 June 2009 (After Market Post)

Summary
Hang Seng Index 18,084.60 (Change: -80.90)
Range: 17,833.770 - 18,255.131
Turnover HKD74.482B.

Hang Seng Index
Another day in the red for the Hang Seng Index, making it the consecutive third day drop. Seeing lows as much -330 points in early morning trading, but maintaining its strong resistance point at 18,000, eventually to close the day above this mark again.

Its interesting to point out that since the rally in early March 2009, this has only been the second time that the Hang Seng Index dropped three days in a row. The first time dating back just under a month ago on May 19 when HSI dropped from 17,544 to 17,062 (-2.75%, 482 points) on May 22. The subsequent week after a slight uptick, HSI dropped further to 16,992 only to rally to 17,885 the next day on May 27 (5.25%, 893 points).

Total turnover dropping to only 74.5B HKD (Volume: 2,914,147,800), possibly suggesting a lack of incentives for investors to get in, or that prices still are not attractive enough to warrant buying.

The HSI has been very volatile these past couple of weeks. Unable to break through the 19,000 marks, but yet having strong resistance from falling below 18,000. Chinese A-shares closed up as investors started to digest the fact that new IPOs may be coming up after they were frozen for 9-months by the exchange. The first thought that comes to mind is the fact that funds may flow back up to A-shares, given historically IPOs have performed better in short-term. Putting it blatantly, it's not good for the HSI, at least in the near run.

China Construction Bank (0939.HK)
A strong favorite of mine. Last Monday when CCB closed at 5.10, their performance lagged relative to the HSCEI, HSI and even fellow Chinese banks like ICBC (1398.HK). Considering how CCB is correlated very closely to HSCEI and ICBC ~0.90. HSCEI and ICBC both rallied by over 50% over the past three months, while CCB only rose approximately 28%-29%. Mostly in part due to nervous investors awaiting Bank of America's unloading of their shares in early April. Though 1Q NIM also shrank down to ~2.58%, I expected this to be the lowest range and that 2Q would either hover around the same mark or higher. Interestingly, after meeting with an equity analyst last week, my thoughts were confirmed. NIM is expected to improve for 2Q with management's tighter control on costs CCB's earnings should turn out quite well. Of course, this is yet to show. So why the rally last week after the long month's wait? Well, according to the analyst, there was a meeting with some of the top hedge fund managers last Monday (the day before the rally) together with executives from the banks. Tuesday morning and the days following we saw the rally. One after another, banks have raised their target price and upgraded CCB to outperform, overweight, etc.

Luckily, I got in when it was still at the 4.90 price range, and kept holding on expecting the rally. I still have not cashed in, simply because I believe there is still potential for its price appreciation. Firstly, after three consecutive days of HSI decline, CCB has not only been able to hold its price, but has continued to rise (of course, the pre ex-dividend price jump led to yesterday's close at 5.71). Today, opening at 5.63, it closed up another ~2% to 5.69. Secondly, although CCB has performed quite well over the past week, note that imperically with positive "news", the stock price will continue to trade at a premium until earnings are released confirming the market news.