Investment Daily Note

EUR/USD rose as high as the 1.32 level, closing at 1.316, on reports that Greece is about to seal a deal with creditors, and on positive German and Euro-zone manufacturing data. External markets performed well; German and French stocks rose 2%+, with banking and oil plays outperformed. The DJIA jumped as much as 150 points, but pared its gains to close at 12,716, up 83 points. The NASDAQ closed at 2,848, up 34 points. The S&P 500 closed at 1,324, up 11 points. Hong Kong ADRs rose across the board; HSBC’s ADRs rose 2%+ to HK$66.33. Oil prices fell after the U.S. Energy Information Administration said that crude oil inventories increased by 4.18 million bbl last week, well above market expectations. New York crude closed at US$97.61/bbl, down by US$0.87/bbl. New York gold rose for a straight second day, closing at US$1,748.50/oz., up by US$8.10/oz.

Hong Kong stocks softened yesterday in volatile trade … The HSI closed at 20,333, down 57 points; the HSCEI closed at 11,253, down 45 points; market turnover declined to HK$61.6bn. Shipping stocks rallied across the board after China’s January manufacturing PMI beat forecasts; China Shipping Container Lines (2866.HK, HK$1.98), China COSCO (1919.HK, HK$4.68) and China Shipping Development (1138.HK, HK$5.74) surged 6.1%-15%. Local property stocks were mixed; Sino Land (83.HK, HK$12.46) dipped 3.6%, while Hang Lung Properties (101.HK, HK$26.90) rose ~1%.

Technically, the HSI and HSCEI consolidated further and will lack clear direction until they break out of the 20,100-20,600 and 11,100-11,500 ranges.

Defensive high-yield stocks still attractive amid low-interest rates and volatile markets; maintain Buy on Hutchison Telecom Hong Kong (215.HK, HK$3.26), targeting HK$3.50 … Hong Kong Financial Secretary John Tsang Chun-wah yesterday delivered his budget speech for 2012-13, saying that the government would issue up to HK$10bn of new iBonds (inflation-linked retail bonds). Inflation is widely expected to ease in 2012 but remains high, which could result in strong demand for iBonds compared with traditional fixed-income products.

We still see a number of defensive high-yield stocks as attractive though, especially given the low-interest-rate environment and volatile markets. For example, we highlighted Hui Xian REIT (87001.HK, RMB3.91) on Tuesday, which has risen 13% since our Buy call in December 2011. Hold, targeting RMB4.00.

In addition, we picked 11 defensive high-yield stocks in August 2011, which have since risen 10.4% on average, beating the HSI’s 4.3% rise. In particular, PetroChina (857.HK, HK$11.40), CCB (939.HK, HK$6.20) and City Telecom (1137.HK, HK$4.44) have surged 22.1%, 19.2% and 18.4%. Hutchison Telecom Hong Kong (215.HK, HK$3.26) has performed more modestly, up 8.3% since last August, though we see room for further upside in view of continuing strong demand for smart phones, its improving mobile-service quality and competitive edge. A possible 4G launch in 2012 could become a share-price catalyst.

The stock trades at ~14X FY12E P/E on consensus numbers, close to its long-term average, with an estimated dividend yield of 5%. Maintain Buy, targeting HK$3.50, with stop-losses at HK$2.99.

(Full report is available at: http://www.shkdirect.com )

Sun Hung Kai Financial