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HONG KONGSTOCKMARKET

OUTLOOK2007

By Peter W L LAI

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First 10 biggest world stock market capitalization and PE

Market Cap PEYTD

chanage

As of 13 Nov 2006 US$bn x %

United States 17,047 21.19 8.53

Japan 4,684 35.86 -5.37

United Kingdom 3,640 17.69 19.2

France 2,361 14.59 26.87

Hong Kong 1,763 13.91 52.82

Germany 1,634 13.94 27.07

Canada 1,432 16.17 12.34

Switzerland 1,153 18.11 44.58

Italy 1,017 13.99 25.2

Spain 908 13.72 35.67

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First 10 biggest world stock market capitalization and growth

As of 30 Dec 2006 US$bn %

Market Cap

2006 performance

United States 17,417 10.9

Japan 4,873 (1.6)

United Kingdom 3,798 24.4

France 2,506 34.7

Hong Kong 2,132 84.8

Germany 1,755 36.5

Canada 1,472 15.4

Switzerland 1,199 50.4

Italy 1,070 31.7

Spain 950 41.8

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Asian individual stock market capitalization and PE

Market Cap PEYTD

chanage

As of 13 Nov 2006 US$bn x %

Japan 4,684.1 35.86 -5.37

Hong Kong 1,762.7 13.91 52.82

South Korea 792.9 12.25 14.1

India 766.2 24.61 40.3

China 669.8 29.74 111.34

Taiwan 592.9 19.52 15.01

Singapore 328.5 13.41 33.7

Malaysia 215.5 17.16 20.43

Thailand 144.2 9.91 20.25

Indonesia 124.7 25.85 54.4

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First 10 biggest Asian stock market capitalization and growth

As of 30 Dec US$bn %

Market Cap 2006 performance

Japan 4,873 (1.6)

Hong Kong 2,132 84.8

China 950 199.8

India 816 49.5

South Korea 815 17.3

Taiwan 650 26.1

Singapore 364 48.1

Malaysia 235 31.4

Thailand 138 14.9

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Economy Outlook I

• INTERNAL:• Minimum intervention/maximum support from HKSAR

• Remain world’s most free city (for 15 years from 1991)

• Positive and Encouraging economic figures• --improving job market, income, birth rate…….

• Abundant inflow of fund• --more IPOs…..

• Positive impact from strong economic growth of China

ECONOMY WILL CONTINUE TO BOOM

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Economy Outlook II• REGIONAL• China• Economic Policy Reform

• – money supply/RMB re-valuation

• Stock reforms

• Potential tax reforms

• Industrial reform – oil sector/telecom sector

• Policies to Hong Kong

• -more open and supportive

• S E Asian countries• -political stability

• -economic development (competitors?)

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Economy Outlook III• GLOBAL:

• US Economy• -- interest rate drop (?)

• -- sustain healthy growth

• Oil price• – drop (?)

• Political stability • – US Vs Terrorists

• Relations among big countries• -- US, Russia, China, Euro, Middle East

(Iraq/Israel/Iran…….)

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Risks

• Liquidity Flows• Outflow of fund• Large scale profit-taking

• Epidemic Diseases

• Natural Forces• Tsunami/Earthquake/Typhoon

• Terrorists Attacks

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CONCLUSION• 1) INTERNAL

• GOOD

• 2) REGIONAL

• STABLE

• 3) GLOBAL

• UNCERTAIN

• UNDER NORMAL CIRCUMSTANCES

POSITIVE OUTLOOK IN HONG KONG ECONOMY

• Stock market forecast:

• --liquidity driven

• --news oriented

• --sentimentally driven

CHOPPY

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RECOMMENDATIONS

• Property• Cheung Kong (1)• Sun Hung Kai (16)• New World (17)

• Telecommunications• China Tel (728)

• Conglomerates• Hutchison (13)

• Bank• China Construction Bank (939)• Bank of Communications (3328)

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Hotels-Jinjiang (2006)-Regal (78)

China Retailers-Mengniu Dairy (2319)

Olympic Concept-Li Ning (2331)-Win Hanverky (3322)

Pharmaceutical-Guangzhou Phar (874)-Tong Ren Tang (8069)

Automobile-Denway (203)