MONTHLY GLOBAL MARKET

UPDATE AUG 2010

PRESENTED BY IFAST FINANCIAL (HK) LTD

PAGE
2 INDICES
3 MARKET INFORMATION
5 MARKET AND SECTOR REVIEWS
21 BONDS

p19. Russia
p6. Europe
p12. South Korea
p5. USA
p14. China p7. Japan
p20. Technology
p13. India p15. Taiwan
p16. Hong Kong
p9. Malaysia
p11. Thailand
p8. Singapore
p18. Brazil
p10. Indonesia

p17. Australia
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2
INDICES

MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

Index US Market & Est PE (x) Index Stoxx 600 & Est PE (x)
1600 20
400 20
1500 18
350 16
1400 16
1300 300 14
12 12
1200
250 10
1100
8
1000 200 8
900 4
6
800 150 4

Nov-07

Nov-08

Nov-09
Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10
Sep-07

Mar-08
May-08

Sep-08

Mar-09
May-09

Sep-09

Mar-10
May-10
700 0
Nov-07

Nov-08

Nov-09
Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10
Sep-07

Mar-08
May-08

Sep-08

Mar-09
May-09

Sep-09

Mar-10
May-10

S&P 500 (LHS) Est PE (RHS) Stoxx 600 (LHS) Est PE (RHS)

SOURCE: BLOOMBERG & IFAST COMPILATIONS SOURCE: BLOOMBERG & IFAST COMPILATIONS

Index Nikkei 225 & Est PE (x) Index Nasdaq (Technology Heavy) & Est PE (x)
2400 30
18000 50
45 2200 25
16000 40 2000
20
14000 35
1800
30 15
12000 25 1600
20 10
1400
10000 15
1200 5
8000 10
5 1000 0
Nov-07

Nov-08

Nov-09
Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10
Sep-07

Mar-08
May-08

Sep-08

Mar-09
May-09

Sep-09

Mar-10
May-10
6000 0
Nov-07

Nov-08

Nov-09
Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10
Sep-07

Mar-08
May-08

Sep-08

May-09

Sep-09

Mar-10
May-10

Nasdaq100 (LHS) Est PE (RHS)

NKY Index (LHS) Est. PE (RHS)

SOURCE: BLOOMBERG & IFAST COMPILATIONS SOURCE: BLOOMBERG & IFAST COMPILATIONS

Index FTSE STI & Est PE (x) Index Hang Seng Mainland Enterprise Index & Est PE (x)
30 22000 30
3800
20000
25
3400 18000
3000 20 20
16000
2600 14000 15
2200 12000
10 10
1800 10000
1400 5
8000
1000 0 6000 0
Nov-07

Nov-08

Nov-09
Nov-07

Nov-08

Nov-09

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10
Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Sep-07

Mar-08
May-08

Sep-08

Mar-09
May-09

Sep-09

Mar-10
May-10
Sep-07

Mar-08
May-08

Sep-08

Mar-09
May-09

Sep-09

Mar-10
May-10

FTSE STI (LHS) Est PE (RHS) HSCEI (LHS) Est PE (RHS)

SOURCE: BLOOMBERG & IFAST COMPILATIONS SOURCE: BLOOMBERG & IFAST COMPILATIONS

Index SENSEX & Est PE (x) Index MSCI Asia ex-Japan & Est PE (x)
22500 28
700 35
20000 24
600
20
17500 500 25
16
15000 400
12
300 15
12500
8
200
10000 4
100 5
Nov-07

Nov-08

Nov-09
Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10
Sep-07

Mar-08
May-08

Sep-08

Mar-09
May-09

Sep-09

Mar-10
May-10

7500 0
Nov-07

Nov-08

Nov-09
Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10
Sep-07

Mar-08
May-08

Sep-08

Mar-09
May-09

Sep-09

Mar-10
May-10

SENSEX (LHS) Est PE (RHS) MXASJ Index (LHS) Est PE (RHS)

SOURCE: BLOOMBERG & IFAST COMPILATIONS SOURCE: BLOOMBERG & IFAST COMPILATIONS
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3
MARKET INFORMATION

MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

MARKET INFORMATION (AS AT 29 JUL 2010)

INDEX AS AT CHANGE SINCE 2010 2009 5 YEAR
29 JUL 2010 30 JUN 2010 (%) RETURN YTD (%) RETURN (%) BOND YIELD (%)
USA (S&P 500) 1101.53 6.9% -1.2% 23.5% 1.66
Europe (Stoxx 600) 256.26 5.3% 0.9% 28.0% 1.71
Japan (Nikkei 225) 9696.02 3.3% -8.1% 19.0% 0.36
Emerging Markets (MSCI EM) 993.84 8.3% 0.4% 74.5% 4.9
Asia ex Japan (MSCI Asia ex Japan) 488.07 5.7% 0.6% 68.3% 3.0
Singapore (STI) 2981.16 5.1% 2.9% 64.5% 0.61
Hong Kong (HSI) 21093.82 4.8% -3.6% 52.0% 1.35
Taiwan (Taiwan Weighted) 7798.99 6.4% -4.8% 78.3% 0.94
South Korea (KOSPI) 1770.88 4.3% 5.2% 49.7% 4.38
China (HS Mainland 100) 6728.3 4.0% -3.7% 61.3% 2.64
Malaysia (KLCI) 1358.41 3.4% 6.7% 45.2% 3.41
Thailand (SET Index) 854.59 7.2% 16.3% 63.2% 2.97
India (SENSEX) 17992 1.6% 3.0% 81.0% 7.56
Indonesia (JCI) 3096.816 6.3% 22.2% 87.0% 7.53
Russia (RTSI$) 1503.68 12.3% 4.1% 128.6% 6.72
Brazil (IBOV) 66953.8281 9.9% -2.4% 82.7% 12.49
Australia (S&P/ASX 200) 4524.1 5.2% -7.1% 30.8% 4.84
Technology (NASDAQ) 1860.3 7.0% 0.0% 53.5% -

EARNINGS EARNINGS
P/E YR 2010 P/E YR 2011 P/E YR 2012
GROWTH 2010 (%) GROWTH 2011 (%)
USA (S&P 500) 13.5 11.5 10.1 35.0 17.6
Europe (DJ Stoxx 600) 11.6 9.8 8.7 33.4 18.7
Japan (Nikkei 225)* 18.0 16.0 12.4 90.2 12.9
Emerging Markets (MSCI EM) 12.2 10.5 9.4 37.0 16.8
Asia ex Japan (MSCI Asia ex Japan) 13.5 12.1 10.7 29.4 11.6
Singapore (STI) 14.7 13.0 12.2 20.0 13.1
Hong Kong (HSI) 12.6 10.7 9.3 21.5 17.5
Taiwan (Taiwan Weighted) 13.3 11.8 10.9 83.8 13.0
South Korea (KOSPI) 9.9 9.1 8.3 63.3 9.3
China (HS Mainland 100) 13.4 11.6 10.1 22.3 16.4
Malaysia (KLCI) 15.5 13.7 12.5 27.7 12.8
Thailand (SET Index) 12.1 10.4 9.5 14.3 16.1
India (SENSEX) 18.4 15.3 12.8 14.7 20.3
Indonesia (JCI) 15.4 12.8 11.1 103.9 19.8
Russia (RTSI$) 7.8 6.6 5.7 69.1 18.0
Brazil (IBOV) 12.9 10.0 8.6 27.4 29.0
Australia (S&P/ASX 200) 11.1 10.4 - 14.5 6.6
NASDAQ 100 (Technology Heavy) 15.3 13.3 11.7 27.3 14.9
SOURCE: IFAST COMPILATIONS, BLOOMBERG ESTIMATES
ALL EARNINGS GROWTH FIGURES WERE UPDATED AS AT END JUN 10
RETURNS ARE IN THE RESPECTIVE LOCAL CURRENCY TERMS AND MSCI INDEX RETURNS ARE IN USD TERMS
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MARKET INFORMATION

MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©
EARNINGS YIELD
5 YEAR
EARNINGS YIELD 2010 (%) EXCESS YIELD (%)
BOND YIELD (%)
USA (S&P 500) 8.7% 1.7% 7.0%
Europe (DJ Stoxx 600) 10.2% 1.7% 8.5%
Japan (Nikkei 225)* 6.3% 0.4% 5.9%
Emerging Markets (MSCI EM)** 8.1% 4.9% 3.2%
Asia ex Japan (MSCI Asia ex Japan) 7.4% 3.0% 4.4%
Singapore (STI) 7.7% 0.6% 7.1%
Hong Kong (HSI) 9.3% 1.3% 8.0%
Taiwan (Taiwan Weighted) 8.5% 0.9% 7.6%
South Korea (KOSPI) 11.0% 4.4% 6.7%
China (HS Mainland 100)+ 8.7% 2.6% 6.0%
Malaysia (KLCI) 7.3% 3.4% 3.9%
Thailand (SET Index) 9.6% 3.0% 6.7%
India (SENSEX)* 6.5% 7.6% -1.0%
Indonesia (JCI) 7.8% 7.5% 0.3%
Russia (RTSI$) 15.1% 6.7% 8.4%
Brazil (IBOV) 10.0% 12.5% -2.5%
Australia (S&P/ASX 200) 9.6% 4.8% 4.8%

MARKET STAR RATINGS OUR 3 YEAR VIEW

Asia ex-Japan 4.0 Very Attractive
Emerging Markets 4.5 Very Attractive
US 4.0 Very Attractive
Europe 4.0 Very Attractive
Japan 3.0 Attractive
MARKET STAR RATINGS OUR 3 YEAR VIEW
Singapore 4.0 Very Attractive
China 4.5 Very Attractive
Hong Kong 4.5 Very Attractive
Technology 4.0 Very Attractive
South Korea 4.5 Very Attractive
Indonesia 3.5 Attractive
India 3.5 Attractive
Thailand 3.5 Attractive
Malaysia 3.5 Attractive
Taiwan 4.0 Very Attractive
Brazil 3.5 Attractive
Russia 4.0 Very Attractive
Australia 3.5 Attractive
SOURCE: IFAST FINANCIAL COMPILATIONS, BLOOMBERG ESTIMATES. EARNINGS YIELD IS THE RECIPROCAL OF THE PRICE-EARNINGS RATIO. IT IS BASICALLY
THE AMOUNT OF EARNINGS YOU PURCHASE FOR EVERY DOLLAR WORTH OF THE STOCK (I.E. IF A MARKET HAS AN ESTIMATED PE OF 12X, THE EARNINGS YIELD IS 8.3%)
*JAPAN AND INDIA PE FORECASTS ARE BASED ON FISCAL YEAR ENDED MARCH 2009, 2010 AND 2011 RESPECTIVELY
AND ALL RETURNS ARE IN THEIR RESPECTIVE LOCAL CURRENCY TERMS.
+THE HANG SENG MAINLAND 100 INDEX (HSML100) COMPRISES BOTH H-SHARE COMPANIES AND RED-CHIP STOCKS AS WELL AS SHARES OF OTHER HONG
KONG –LISTED MAINLAND COMPANIES .
HSML100 INDEX DERIVES A MAJORITY OF THEIR SALES REVENUE FROM MAINLAND CHINA.
THIS SUMMARY IS NOT TO BE CONSTRUED AS AN OFFER OR SOLICITATION FOR THE SUBSCRIPTION, PURCHASE OR SALE OF ANY FUND. NO INVESTMENT DECISION
SHOULD BE TAKEN WITHOUT FIRST VIEWING A FUND'S PROSPECTUS. ANY ADVICE HEREIN IS MADE ON A GENERAL BASIS AND DOES NOT TAKE INTO ACCOUNT THE
SPECIFIC INVESTMENT OBJECTIVES OF THE SPECIFIC PERSON OR GROUP OF PERSONS. PAST PERFORMANCE AND ANY FORECAST IS NOT NECESSARILY INDICATIVE OF
THE FUTURE OR LIKELY PERFORMANCE OF THE FUND. THE VALUE OF UNITS AND THE INCOME FROM THEM MAY FALL AS WELL AS RISE. OPINIONS EXPRESSED HEREIN
ARE SUBJECT TO CHANGE WITHOUT NOTICE. PLEASE READ OUR DISCLAIMER
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SECTOR REVIEW

MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

REGIONAL MARKETS UPDATE

US MARKET (4.0 STARS – VERY ATTRACTIVE)

• ISM Manufacturing index fell to 56.2 in Jun 10 from 59.7 in May 10
• ISM Non-Manufacturing composite index fell to 53.8 in Jun 10 from 55.4 in May 10
• Factory orders fell 1.4% m-o-m in May 10 after a revised 1% increase in Apr 10
• Nonfarm payrolls fell 125,000 in Jun 10, after a revised gain of 433,000 in May 10
• Unemployment rate fell to 9.5% in Jun 10 from 9.7% in May 10
• Advance Retail Sales fell 0.5% m-o-m in Jun 10 after a revised 1.1% m-o-m decrease in May 10
• Business inventories rose 0.1% m-o-m in May 10 after a 0.4% increase in Apr 10
• Producer Price Index fell 0.5% m-o-m in Jun 10 after a 0.3% decline in May 10
• Existing home sales fell 5.1% m-o-m in Jun 10, after a 2.2% decline in May 10
• Consumer confidence fell to 50.4 in Jul 10 from 52.9 in Jun 10
• Index of Leading Indicators fell 0.2% m-o-m in Jun 10, after a revised 0.5% increase in May 10

MARKET OUTLOOK
Unemployment continues to drag on the economy, as nonfarm payrolls declined by 125,000 in June 2010. Payroll data was skewed by a decline in
temporary census workers, but private payrolls gained just 83,000 in June, less than the 110,000 forecasted. Nevertheless, private sector additions
have been positive for every month in 2010 resulting in net hiring of 593,000, in stark contrast to 2009 where private employers collectively slashed
4.6 million jobs.
As anticipated, June existing home sales plunged in the absence of the homebuyer tax credit. Government policies continue to mask the true
nature of demand in the US housing market, and with volatility in existing home sales expected to continue over the next few months, housing
sales data may be less useful for analysis. On the supply side, inventory levels remain elevated, suggesting that homebuilders may have to scale
down activity for a substantially long period to allow existing home stock to deplete.
In contrast to the dim outlook painted by economic indicators, corporate profits indicate that things are indeed picking up. Since 2Q 2010
reporting season began, quarterly estimated earnings for S&P 500 companies have been revised upwards by 5% (year-on-year growth in quarterly
earnings is almost 50%), a reflection of the better-than-expected earnings posted. Technology bellwethers like IBM and Microsoft have reported
stronger-than-expected earnings, but maintained conservative outlooks given the uncertainty associated with European debt problems.
The conservative stance by most corporations has possibly had some impact on slowing the overall job-creation process, but with
corporations sitting on huge amounts of cash (US$1.8 trillion for nonfinancial companies as at end March 2010, according to the Federal Reserve),
the low interest rate environment may soon force companies to deploy this cash into more profitable business investments, kick-starting job
creation in a big way.
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SECTOR REVIEW

MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

REGIONAL MARKETS UPDATE

EUROPE (4.0 STARS – VERY ATTRACTIVE)

GERMANY
• Industrial production gained 2.6% m-o-m in May 10, after a revised 1.2% gain in Apr 10
• Factory orders fell 0.5% m-o-m in May 10, after a revised 3.2% gain in Apr 10
• ZEW economic sentiment survey decline to 21.2 in Jul 10, down from 28.7 in Jun 10
• German IFO Business Climate index rose to 106.2 in Jul 10, up from 101.8 in Jun 10
• Preliminary estimates for PMI manufacturing rose to 61.2 in Jul 10, up from actual 58.4 in Jun 10 while preliminary estimates for PMI
services rose to 57.3 in Jul 10, up from actual 54.8 in Jun 10

FRANCE
• Industrial production gain 1.7% m-o-m in May 10, after a revised 0.5% decline in Apr 10
• Business confidence indicator rose to 98 in Jul 10, up from a revised 96 in Jun 10
• Preliminary estimates for PMI manufacturing fell to 53.7 in Jul 10, down from actual 54.8 in Jun 10 while preliminary estimates for
PMI services rose to 61.3 in Jul 10, up from actual 60.8 in Jun 10

UNITED KINGDOM
• Industrial production rose 0.7% m-o-m in May 10, after a 0.7% decline in Apr 10
• Nationwide consumer confidence fell slightly to 63 in Jun 10, down from a revised 66 in May 10
• PMI manufacturing decline slightly to 57.5 in Jun 10, down from actual 58 in May 10 while PMI services decline slightly to 54.4 in Jun
10, down from actual 55.4 in May 10
• Rightmove House Prices index decline 0.6% m-o-m in Jul 10, after a 0.3% gain in Jun 10
• UK GDP advance estimates grew by 1.1% q-o-q in 2Q10, after an actual 0.3% q-o-q growth in 1Q10

MARKET OUTLOOK
UK was the first major European economy to announce advance estimates for 2Q 2010 GDP growth. The economy grew 1.1% quarter-on-quarter
in 2Q 2010, surprising on the upside of analysts’ expectation of a milder 0.6% growth. On a year-on-year basis, the economy grew by 1.6% in 2Q
2010. This is the fastest pace of growth in four years. With inflation above target and stronger-than-expected growth, Bank of England will have to
carefully weigh their options when next deciding on the benchmark interest rate. However, with doubt over the sustainability of current rate of
growth, analysts are not expecting any rate hikes to take place until early 2011.
All three major European economies continue to see their manufacturing and services sector expand as the PMI indices for respective
sectors and countries remain above the 50.0 points mark which indicates growth. Germany saw the biggest increase in both manufacturing and
services sector as the PMI manufacturing index rose to 61.2 in July and PMI services index rose to 57.3 in July.
On 23 July 2010, the Committee of European Banking Supervisors (CEBS) released the bank stress test results. The stress test is conducted
on a sample of 91 European banks which represents 65% of the European market in terms of total assets. Based on their adverse scenario
analysis, 7 banks would see their Tier 1 capital ratios fall below 6% (threshold of 6% is used as a benchmark solely for the purposes of this stress
test) and will need to raise a total capital of 3.5 billion euro. The stress tests scenario were leaked before the scheduled press release and analysts
are criticizing that the stress scenario used are overly optimistic, a poor reflection of current market rates. However the response from the market
since the official release of test results has been positive, suggesting that investors deem the findings as credible, at least for now.
The Stoxx 600 index has recorded a gain of 6.1% month-to-date as of 27 July 2010. On top of that, euro has appreciated against other major
currency since hitting a recent new low. For example, euro appreciated by 6.2% against USD month-to-date. While upward revision of consensus
earnings estimates has slowed, it is still expecting earnings to grow at 33.4% and 18.7% in 2010 and 2011 respectively. This translates to a
forward PE ratio of 11.7X and 9.9X for 2010 and 2011 respectively (in local currency terms). Europe remains attractively priced among developed
markets. We maintain Europe at 4 stars “Very Attractive.
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SECTOR REVIEW

MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

REGIONAL MARKETS UPDATE

JAPAN – 3.0 STARS (ATTRACTIVE)

• Bank of Japan (BOJ) held rate at 0.1%.
• Industrial production grew 20.4% y-o-y in May following a revised 20.2% increase y-o-y in Apr 10.
• Machine Orders rose 4.3% y-o-y in May 10, less than the market consensus of 10.8% y-o-y increase.
• Merchandise Trade Export rose 27.7% y-o-y in Jun 10 after rising 32.1% y-o-y in May 10. Merchandise Trade Import increased
26.1% y-o-y in Jun 10.
• Consumer confidence rose to 43.6 in Jun 10 as compared to 42.7 in May 10.

MARKET OUTLOOK
Confidence of Japan’s large manufacturers rebounded for a fifth straight quarter, thanks to robust demand from Asia. Tankan Large Manufacturers
Index in the second quarter of 2010 climbed to 1 from negative 14, the first positive reading since the second quarter of 2008. The improvement in
manufacturer’s sentiment also exceeds the market consensus of minus 4. A positive reading means optimists outnumber pessimists. Large
companies forecast rising sales will drive profits 21.6% higher in this fiscal year, up slightly from its previous forecast of 21.3% growth. The large
manufacturers planned to raise capital spending by an average of 4.4% for this financial year ending March 2011. It is the first gain in three years.
The business confidence indices for all the categories of companies improved in the quarter, the first time since 1994. We believe that the pace of
Japanese economy recovery is accelerating.
The Bank of Japan (BOJ) raised its forecast on the country’s real economic growth for 2010 financial year ending March 2011 amidst growing
concerns on the Europe debt woes. It hiked the growth projection to 2.6% from earlier estimate of 1.8%. However, the bank remains its stance on
deflationary risk and said the CPI to turn positive as early as 2011 financial year. Japanese government has officially announced the country has
entered into a deflationary state in November 2009. Core CPI which excludes food and energy prices dropped 1.6% year-on-year in June 2010, the
sharpest drop in history.
In the following weeks, Japanese listed companies will announce the first quarter earnings result. It is believed that the earnings of
manufacturing exporters could be hurt by the rapid appreciation of Japanese yen. Nikkei 225 Index plunged 15.4% while the yen surged 5.7% in
the second quarter of 2010. Japanese government warned that an abrupt drop in stock prices or an appreciation in the yen could hurt the
economy. Large manufacturers called for a government intervention in currency market as the yen surged to an unaffordable level. However, unlike
the intervention in 2004, global central banks have slashed rates to record-low level and injected liquidity into the financial system. Thus, any
potential intervention could be effective only in short-term.
Estimated PE for the Japan’s market is at 18.1X and 16.1X for 2010 and 2011 as at 27 July 2010. We expect that Japan would recover at a
slower pace than other regions and countries. Therefore, we still give Japanese market an attractive rating of 3 stars.
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SECTOR REVIEW

MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

SOUTH EAST ASIA

SINGAPORE – 4.0 STARS (VERY ATTRACTIVE)

• Purchasing Managers Index fell to 51.3 in Jun 10 from 52.2 in May 10
• Electronic Sector PMI fell to 50.5 in Jun 10 from 53.7 in May 10
• Non-oil Domestic Exports rose 28.7% y-o-y in Jun 10, after a revised 24.3% gain in May 10
• Jun 10 CPI rose 2.7% y-o-y, following the 3.2% increase in May 10
• Retail sales fell 0.9% in May 10, after a revised 2% m-o-m decline in Apr 10
• Industrial production fell 23.4% m-o-m in Jun 10, after a 5.2% increase in May 10
• Bank loans and advances rose 8% y-o-y in May 10, after a 17.3% y-o-y increase in Apr 10
• Advance GDP estimate for 2Q 10 at 26% q-o-q annualised from revised 45.9% in 1Q 10

MARKET OUTLOOK
GDP growth in 2Q 2010 came in at 26% quarter-on-quarter annualised, stronger than the 23% growth forecasted. In addition, 1Q 2010 GDP
growth was revised upwards from 32.1% quarter-on-quarter (annualised) to 45.9%. In light of the strong 1H 2010 which saw the economy expand
by 18.1% year-on-year, the government raised its full-year growth forecast to between 13% and 15%, up from 7% to 9% previously.
Given that the bulk of the strong growth seen in 2Q 10 was due to the surge in biomedical and electronics manufacturing, Singapore’s growth
is still highly dependent on the sustainability of manufacturing sector growth. June’s industrial production came in weaker-than-expected with the
biomedical manufacturing sector index losing 51.9% month-on-month, dragging industrial production 23.4% lower in June. Given the sudden drop-
off in biomedical production, we are looking at 2Q 10’s GDP growth being revised lower, and it is highly likely that Singapore’s economy will
contract in the 2H 10. This should not be interpreted as a “double-dip” recession; rather, the drop-off in growth simply reflects the huge fluctuations
in the cyclical manufacturing sector.
On the back of positive earnings news flow, 2010, 2011 and 2012 earnings for STI companies have been revised upwards by 20.0%, 13.1%
and 6.1% respectively (as of 29 July 2010). The Singapore market now trades at an estimated 14.7X 2010 earnings, but just 13X based on 2011
estimated earnings. European debt problems appear largely contained at the moment, with little evidence of a contagion impact on the Singapore
economy. We maintain a 4 star “very attractive” rating on the Singapore equity market.
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SECTOR REVIEW

MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

SOUTH EAST ASIA

MALAYSIA – 3.5 STARS (ATTRACTIVE)

• Exports grew at a smaller pace of 21.9% y-o-y in May 10, mainly due to a pullback in demand for E&E (Electronic & Electrical)
exports. Imports growth soared to 34.2% y-o-y.
• IPI growth reported a 12.5% in May 10 with growth easing in manufacturing and electricity sectors. Mining sector registered a
marginal decrease of 0.2%.
• Leading index growth slowed to 3.1%, pointing to a slower economic growth in 2H 2010.
• CPI increased at a faster rate of 1.7% in Jun 10.
• BNM raised Overnight Policy Rate (OPR) by 25 basis points to 2.75% during its latest Monetary Policy Committee meeting on 8 Jul
2010 to normalise monetary conditions.

MARKET OUTLOOK
Malaysia exports grew at a slower pace of 21.9% year-on-year in May 2010 (Apr 10: 26.6%), mainly due to a pullback in demand for E&E products
exports, which only rose 12.8% (April 2010: 21.6%). Imports growth soared to 34.2% year-on-year in May 2010 (April 2010: 27.0%), boosted by
the growth of intermediate goods, which rose 35.1%. In tandem with global economic recovery, exports growth is expected to remain healthy,
supported by the strong demand in the global E&E sector. Imports growth could remain strong, driven by the firm consumer and business
confidence, as measured by MIER’s CSI (Consumer Sentiment Index) and BCI (Business Conditions Index) of 110.4 and 119.6 respectively in 2Q
2010.
The IPI growth reported a 12.5% year-on-year in May 2010 (April 2010: 10.7%), due to the increases in manufacturing and electricity sectors.
However, the mining sector posted a marginal decrease of 0.2%, caused by the decrease in crude oil sector.
Leading index grew at a slower pace of 3.1% in May 2010 (Apr 10: 4.2%), indicating that the economic growth in 2H 2010 could slow down,
but will remain supported by the improving domestic and external demand.
Consumer Price Index grew at a faster pace of 1.7% in June 2010 (May 2010: 1.6%). Inflation is expected to grow moderately as Malaysian
government has taken its first step to reduce its subsidy bill by increasing the prices of fuel and sugar. Inflation is expected to remain between 2%
to 3% in 2010. The subsidy rationalisation programme will be implemented gradually, and we expect the negative impact to the equity market to be
minimal.
Bank Negara Malaysia (BNM) raised the OPR (Overnight Policy Rate) by 25 basis points to 2.75% during its latest Monetary Policy
Committee meeting on 8 Jul 2010 to normalise monetary conditions. Interest rate hike might pause for the remaining of this year in view of the
cautious stance by the central bank towards the global economic recovery. Nonetheless, we opine that OPR could normalize back to around 3.25%
to 3.50% in 2011 as the economy recovers.
Backed by the strong economy rebound and better economic fundamentals, Malaysia market remains attractive with PE for 2010 and 2011 at
15.5X and 13.7X respectively as of 29 July 2010. Corporate earnings growth is expected to be 27.7% for 2010 and 12.8% for 2011. We maintain a
3.5 stars “Attractive” rating for Malaysia market.
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SECTOR REVIEW

MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

SOUTH EAST ASIA

INDONESIA – 3.5 STARS (ATTRACTIVE)

• Exports rose 36.0% y-o-y in May 10, after a revised 42.4% gain in Apr 10
• Consumer confidence rose to 111.4 in Jun 10, up from 109.9 in May 10
• Inflation rose to 5.1% y-o-y in Jun 10, up from 4.2% y-o-y in May 10
• Bank Indonesia kept reference interest rate unchanged at 6.5% on 5 Jul 10

MARKET OUTLOOK
Exports growth slowed in May, rising 36.0% year-on-year in May after a 42.4% year-on-year gain in April. However, imports growth slowed at an
even faster pace, rising only 31.6% year-on-year in May compared to a 67.5% year-on-year growth in April. As a result, trade balance spiked from
0.8 billion USD in April to 2.5 billion USD in May. The key contributors of exports growth was from oil products, rising 180.4% year-on-year in May,
up from a 160.6% year-on-year growth in April. Non-oil & gas exports grew 27.0% year-on-year in May, appearing mild in comparison.
We are expect GDP growth in 2Q 2010 to show robust growth as the economy benefits from both strong domestic consumption as well as
external trade driven by strong Asian demand. Consequently, consumer confidence index rose to 111.4 in June, up from 109.9 in May. Consumers
remain optimistic for the fifteen straight months as the economy continues its robust expansion. Both sentiments on present situation and future
expectations improved in June. They are particularly optimistic that family income will continue to improve as the sub indicator of family income for
present situation and future expectations remains above 120 points.
Inflation accelerated to 5.1% year-on-year in June after a 4.2% year-on-year increase in May, exceeding analysts’ expectation of a 4.5%
year-on-year increase. Core inflation, which excludes items with volatile price movement such as energy and food products, increased 4.0% year-
on-year in June after a 3.8% increase in May.
Despite the spike in inflation, Bank Indonesia kept reference rate unchanged for eleventh month at 6.5%, bucking the rate rising trend in Asia
region. The central bank is expecting inflationary pressure in the coming months but given the robust growth expected, they believe the economy
can afford to be patient for a longer period of time. Bank Indonesia will however monitor inflationary pressure closely and will adjust its monetary
policy as and when needed so as to keep inflation rate within the targeted range of 4.0% to 6.0%.
The JCI index gained 4.4% month-to-date as of 27 July 2010 as global equity markets recovers from April’s sharp correction. Consensus
estimated earnings growth for Indonesia equity market was 36.3% and 16.9% in 2010 and 2011 respectively. This translates to a forward PE ratio
of 14.1X and 12.1X for 2010 and 2011 respectively. Valuation based on 2011 earnings appears undemanding as we maintain Indonesia equity
market at an “Attractive” rating of 3.5 stars.
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MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

SOUTH EAST ASIA

THAILAND – 3.5 STARS (ATTRACTIVE)

• Customs exports rose 46.3% y-o-y in Jun 10, after a 42.1% gain in May 10
• Consumer confidence rose to 69.1 in Jun 10, up from 67.6 in May 10
• Consumer price index gained 3.3% y-o-y in Jun 10, after a 3.5% gain in May 10
• Manufacturing production gained 17.2% y-o-y in May 10, after a revised 21.8% gain in Apr 10
• Industrial capacity utilization rose to 67.3% in May 10, up from 62.9% in Apr 10
• Thailand central bank hike benchmark interest rate by 25 bps to 1.5% on 14 July 2010

MARKET OUTLOOK
Thailand exports surpasses record value set before the global financial crisis, rising 46.3% year-on-year in June after growing 42.1% year-on-year
in May. Exports growth is significantly stronger than analysts’ expectation of a 34.5% year-on-year gain, the fastest growth in more than 18 years.
The problem in Europe has shown minimal impact on exports as the country continues to benefit from strong Asian demand.
Industrial production growth slowed in May, rising 17.2% year-on-year compared to a revised 21.8% year-on-year growth in April. Political
violence was highlighted as the key factor for the slowing growth as factories suspended work during the same period. The Thai government
believes that the slowdown will only be temporary and should rebound in June. Consumer confidence is also on the mend, rising to 69.1 in June,
up from 67.6 in May on the back of strong economy activity.
Following the Monetary Policy Committee (MPC) meeting scheduled on 14 July 2010, the Bank of Thailand (BoT) raised the benchmark
interest rate for the first time in almost two years. The benchmark interest rate is hike by 25 basis points to 1.5%. According to the MPC, the impact
of the domestic political situation has on the Thai economy in 2Q 2010 proved to be limited as Thailand recorded strong economic growth in 1H
2010. BoT also expects 2H 2010 to grow favorably as well.
Inflation rate retracted slightly to 3.3% year-on-year in June, down from 3.5% in May, modest compared to historical average. However, the
central bank believes that inflationary pressure will return next year, in line with robust economic expansion. It is likely that the MPC will continue
raising interest rate gradually over the next few scheduled meetings as present level of 1.5% remains accommodative and supportive of further
growth.
The SET Index gained 7.1% month-to-date as of 27 July 2010 (in local currency terms) after rising by 6.2% in June. Consensus estimated
earnings growth for Thailand equity market was 14.3% and 16.1% in 2010 and 2011 respectively. This translates to a forward PE ratio of 12.0X
and 10.4X for 2010 and 2011 respectively. Valuation based on 2011 earnings appears undemanding as we maintain Thailand equity market at an
“Attractive” rating of 3.5 stars.
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NORTH ASIA

SOUTH KOREA – 4.5 STARS (VERY ATTRACTIVE)

• Korean Won (KRW) depreciated against USD by 1.9% YTD as of 30 Jul 10.
• Bank of Korea (BOK) raised interest rate by 25 bps to 2.25%
• The Consumer Price Index (CPI) grew at 2.6% y-o-y in Jun 10 after a rise of 2.7% y-o-y in May 10
• Unemployment rate rose to 3.5% throughout Apr 10 to Jun 10.
• Exports grew strongly at 32.4% y-o-y while imports increased by 36.9% y-o-y in Jun 10.

MARKET OUTLOOK
South Korea’s central bank has unexpectedly raised its benchmark seven-day repo rate by 25 bps from a record low of 2% to 2.25% in 9 July
2010. It was the first rate hike since August 2008. The “sudden” rate hike surprises the market as they believe the rate hike will come only in
August or September. The BOK said that the main drive for possible rate hikes is the growing inflationary pressure. In the first half of 2010, the
consumer price rose 2.7% year-on-year, higher than the central bank’s target of 2.5%. It is expected that CPI may grow by around 3% in the
second half. Although the price level remained within the bank’s target band of 2% to 4% for the next three years, upward momentum are expected
to gain continuously owing to the increase in demand-pull pressure associated with improving economic activity. Thus, the BOK needs to take
action to maintain the price stability when the time is right.
On the other hand, South Korean economy expanded 1.5% in the second quarter of 2010, faster than the market estimate of 1.3% growth.
The better-than-anticipated GDP growth was underpinned by exports, investment and consumption. The first half GDP growth was at 7.6%, the
fastest pace in 10 years. The Bank of Korea (BoK) raised its forecast for the country’s GDP growth in 2010 again to 5.9% in June 2010 up from
April 2010 forecast of 5.2%. It hints that the monetary policy may shift from economic growth to price stability. The robust recovery and rising
inflationary risk increase the possibility of further rate hike.
On the corporate front, LG Electronics, the world’s second largest TV maker, announced a larger-than-expected slump of 90% in operating
profit. The company suffered a loss in its mobile phone business as it lags behind its main competitors like Apple and Samsung. On the contrary,
Samsung, the world’s biggest technology company based on revenues, reported record earnings for the second quarter in 2010. Hynix, the world’s
second-largest computer-memory chipmaker, posted a record operating profit in the same quarter.
According to the market consensus, as at 27 July 2010, the earnings growth in 2010 and 2011 is estimated to increase by 63.3% and 9.3%.
Estimated PE for the market is at 9.9X and 9.1X for 2010 and 2011. As the valuation became attractive compared with other countries, we maintain
South Korea market a very attractive rating of 4.5 stars.
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MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

SOUTH ASIA

INDIA - 3.5 STARS (ATTRACTIVE)

• The June Purchasing Managers’ Index fell to 57.3 from 59.0 in May 10
• Production at factories, utilities and mines increased 11.5% y-o-y in May 10, after increasing 17.6% y-o-y in Apr 10
• May exports up by 35.1% y-o-y to 16.1 Billion USD as compared to a 36.2% y-o-y rise in Apr 10 exports
• May Imports up by 48.5% y-o-y to 27.4 Billion USD as compared to 43.3% y-o-y rise in Apr 10 Imports
• WPI for the month of June was 10.6% and for the month of May was 10.2%
• The Reserve Bank of India cumulatively increased the Repo rate by 50 bps and Reverse Repo by 75 bps in July, in two separate rate
hikes

MARKET OUTLOOK
The Purchasing Managers’ Index for June fell to 57.3 from 59.0 in May, indicating a decrease in the industrial production in June.
Production at factories, utilities and mines for the month of May increased to 11.5% on a year on year basis, which is 4.7% lower than the
Bloomberg estimate of 16.2%. Although lower than the estimates, the production growth is still in double digits. Going further, we expect
moderation in production growth to happen as the base effect kicks in.
The WPI for the month of June is 10.6% and for the month of May was 10.2%. The WPI for May is lower than the Bloomberg estimate of
10.8%. The inflation has been in double digits since February.
The recent fuel price hike, fuel price de-regulation, along with an already high level of inflation has forced RBI to increase the key policy rates
twice in July. On 2nd July, the RBI increased the Repo and Reverse Repo rates by 25 bps to 5.5% and 4.0% respectively. The RBI again
increased the key policy rates on 27 July 2010 during the monetary policy review. Repo rate was increased by 25 bps to 5.75% and the Reverse
Repo rate was increased by 50 bps to 4.5%. RBI is trying hard to rein in inflation without sacrificing the growth of the economy or aggravating the
scarcity of liquidity in the system. Also, the RBI is taking a slow and steady approach to rate hikes. Going forward, the RBI will have mid-quarter
policy review meetings to take a stock of the situation. The next mid quarter policy meet is due on 16 September 2010.
However, the RBI has increased the projection for GDP growth for FY 2010-11 from 8% to 8.5%. The RBI has also increased the projection
for inflation for March 2011 from 5.5% to 6%.
April imports and exports growth is high primarily due to base effect. However, on a month-on-month basis, exports dropped by 4.7% and the
imports grew by 0.3%.
We maintain India market at 3.5 stars – “Attractive”. As of 27 July 2010, the estimated PE ratio for SENSEX was at 18.5X and 15.4X for fiscal
year 2010 (ending March 2011) and 2011 (ending March 2012). Estimated earnings growths for the market are 14.7% and 20.3% for the two
respective years.
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MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

GREATER CHINA

CHINA – 4.5 STARS (VERY ATTRACTIVE)

• CPI increased 2.9% y-o-y in Jun 10 as compared with 3.1% increase y-o-y in May 10
• Export increased 43.9% y-o-y in Jun 10 as compared with 48.5% increase y-o-y in May 10
• Imports increased 34.1% y-o-y in Jun 10 as compared with 48.3% increase y-o-y in May 10
• Retail sales grew by 18.3% y-o-y in Jun 10 as compared with 18.7% increase y-o-y in May 10
• Fixed Assets Investment grew y-o-y by 25.5% year-to-date as of end Jun 10
• Industrial production grew y-o-y by 13.7% in Jun 10 as compared with 16.5% increase y-o-y in May 10
• Purchasing Manager Index dropped to 52.1 point in Jun 10
• M1 and M2 grew 15.7% and 24.6% y-o-y in Jun10 respectively
• 603.4 Billion Yuan New Loans in Jun 10
• 2Q GDP expanded 10.3% y-o-y

MARKET OUTLOOK
China’s GDP expanded 10.3% year-on-year in 2Q 2010, slower than a 11.9% year-on-year growth in the first quarter. Although the pace of growth
is slowing, it is still higher than the governments’ annual target of 8% in 2010. We are expecting slower growth in the second half of this year due to
the higher base in 2H 2009.
In 1H 2010, strong economic growth is driven by robust investment and domestic consumption. According to the Chinese government,
investment and retail sales increased 25% and 18.2% year-on-year in the 1H 2010. In addition, rebound in exports also gives strong support to the
economic growth. Exports grew 43.1% year-on-year and import grew even faster at 52.7% year-on-year in 1H10. Inflation remains moderate at
2.9% in June, lower than May inflation rate, mainly due to the drop in fresh fruit prices. However, inflation remains one of the key concerns of the
Chinese government.
Property market finally showed signs of cooling down. New property prices dropped 0.1% month-on-month in June. Second hand property
dropped 0.3% mom in the same month. Together with a lower than expected inflation, it is not likely to see a rate hike in the near term. But we are
still believed that the People’s Bank of China is likely to announce a rate hike in the 4Q 2010. Industrial production only rose 13.7% in June, Iower
than market estimation of 15.1% growth. A slower growth in industrial is led by the drop in PMI since May.
As of 27 July 2010, RMB appreciated about 0.8% against USD after the People’s Bank of China (PBoC) surprisingly decided to proceed with
further reform of the RMB exchange rate regime and to increase the RMB exchange rate flexibility. The 1 year non-deliverable forward (NDF)
shows that the market expects the RMB will appreciated about 1.5% against USD in the next 365 days.
Shanghai A: As of 28 July 2010, the estimated PE ratio is at 14.6X and 12.3X for 2010 and 2011. Estimated earnings growth is at 26.4% and
18.1% for 2010 and 2011.
Hang Seng Mainland Enterprise Index [HSCEI]: As of 28 July 2010, the estimated PE ratio is at 13.7X and 11.6X for 2010 and 2011.
Estimated earnings growth is at 25.9% and 18.3% for 2010 and 2011.
Hang Seng Mainland 100 Index [HSML100]: As of 28 July 2010, the estimated PE ratio is at 13.5X and 11.6X for 2010 and 2011. Estimated
earnings growth is at 22.3% and 16.4% for 2010 and 2011.
At its current valuations, we remain very positive on both A share and China equity listed in Hong Kong in medium of three years. We give
the China market 4.5 stars – very attractive, the highest rating among all countries, under the 3 year horizon.
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MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

GREATER CHINA

TAIWAN – 4.0 STARS (VERY ATTRACTIVE)

• CPI went up 1.2% y-o-y in Jun 10, compared to a 0.75% y-o-y increase in May 10
• Export orders rose 22.5% y-o-y in Jun 10, compared to a 34.0% y-o-y gain in May 10
• Exports grew 34.1% y-o-y in Jun 10, compared to a 57.9% y-o-y gain in May 10
• Imports grew 40.4% y-o-y in Jun 10, compared to a 71.4% y-o-y gain in May 10
• Unemployment rate (seasonally adjusted) went down slightly from 5.22% in May 10 to 5.2% in Jun 10
• Industrial production expanded 24.3% y-o-y in Jun 10, compared to a 31.0% y-o-y gain in May 10

MARKET OUTLOOK
Trade data has pointed to a strong export recovery of Taiwan, thanks to the robust Asia’s demand and the governments’ massive stimulus
package. Exports and imports jumped 49.2% and 64.3% respectively in the first half of 2010 compared to a year earlier. In particular, capital
equipment and consumer products imports have both hit record high in the first half of the year, suggesting a comeback of corporate and consumer
demand.
Despite the impressive 1H data, we think that the growth of trade data has peaked and will likely slow down in the second half of the year.
The newly signed cross-strait Economic Cooperation Framework Agreement (ECFA) will likely increase the bilateral trade between Taiwan and
China but the impact on trade will not materialise until 2011 when the tariff concession in the early harvest list starts. Therefore, investors should
not be surprised by a much slower growth in the months ahead.
On the corporate front, capital spending amongst Taiwan’s technology companies continue. Taiwan Semiconductor Manufacturing Co.
(TSMC), the world’s largest custom chipmaker announced a US$9.3 billion expansion plan on a new chip plant in expectation of higher demand for
the advanced technology. According to industry group SEMI, TSMC is expected to spend $4.8 billion in capital expenditure excluding the new plant
for this year. This huge spending will be equal to 15% of global chip-equipment revenue and is a vote of confidence for the industry outlook.
As of 28 July 2010, the consensus PE ratio stood at 13.3X and 11.8X for 2010 and 2011 respectively. The market expects the earnings to
grow 83.8% and 13.0% in 2010 and 2011. Noteworthily, the consensus earnings growths for 2010 – 2012 have well surprised our estimates made
in July 2009. We give Taiwan a “Very Attractive” rating of 4.0 stars, under the three-year horizon.
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MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

GREATER CHINA

HONG KONG – 4.5 STARS (VERY ATTRACTIVE)

• Purchasing Managers Index dropped to 52.6 in Jun 10, compared to 53.2 in May 09
• Retail sales by value increased 19.7% y-o-y in May 10, compared to a 15.6% increase in Apr 10
• CPI increased 2.8% y-o-y in Jun 10, compared to 2.5% increase y-o-y in May 10
• Unemployment rate stayed to 4.6% in Jun 10
• Exports increased 26.7% y-o-y in Jun 10, compared to 24.4% increase y-o-y in May 10
• Centa-City Leading Index, which tracks the secondary residential property market, rose 2.6% m-o-m to 81.18 point as of 23 July
10

MARKET OUTLOOK
Exports rose for a eighth straight month in June. It increased 26.7% year-on-year in June. Shipments to the US and Asia increased 29.4% and
27.4% year-on-year respectively. It signals that there is an increase in demand in the US. Unemployment rate stayed at 4.6% in June 2010 as
there are more graduates and school leavers joining the labor market. However, according to the Manpower Services (HK) Ltd, the result of its
survey indicates that there is a favorable hiring climate in the third quarter. Therefore, the rebound in unemployment rate is temporal. Retail sales
rose for a ninth straight month in May due to increase in visitors. Sales grew 19.7% year-on-year in May.
Property prices in Hong Kong surged as Centa-City Leading Index which tracks secondary residential property prices rose 2.6% month-on-
month as of 23 July 2010. On 28 July, a plot of land in the Peak district was auctioned by a privately owned developer for HKD 10.4 billion. The
price is within market estimation of between HKD 8 to 12 billion. It shows that luxury residential continues to be hot even when the government
announced new measures to tackle the drastic rise in property prices. We believe that we are near the peak of the property market.
As of 28 July 2010, the estimated PE for the Hong Kong market stands at 12.6X and 10.7X for 2010 and 2011. Based on our revised figures,
the estimated earnings growth for 2010 and 2011 is 21.5% and 17.5% respectively. We maintain Hong Kong market at a very attractive rating of
4.5 stars.
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MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

OCEANIA

AUSTRALIA – 3.5 STARS (ATTRACTIVE)

• Westpac Consumer Confidence Index was 113.1 in July 10, up from 101.9 in Jun 10
• Home loans went up 1.9% m-o-m in May 10, compared to a 1.8% decline in Apr 10
• Trade balance widened from A$ 134 million surplus in April 10 to A$ 1645 million surplus in May 10
• Unemployment rate dropped from 5.2% in May 10, to 5.1% in Jun 10
• Consumer inflation expectation dropped slightly to 3.3% in Jul 10, compared to 3.4% in Jun 10
• The benchmark cash rate stayed at 4.5%

MARKET OUTLOOK
The new Prime Minister Julia Gillard’s Minerals Resource Rent Tax (MRRT) proposal has been agreed by the Australian mining giants
including BHP Billiton and Rio Tinto. Compared to the earlier Resource Super Profits Tax (RSPT) proposed by former Prime Minister Kevin
Rudd, the new proposal includes a lower tax rate (from 40% to 30%), a higher cut-in rate and more depreciation allowances. The
resolution of the resources tax will likely ease investors’ fear over the impact on the resource sector which had supported the Australian
economy during the global crisis.
Following the revised tax proposal, the Prime Minister Gillard has also called for Federal Election on 21 August 2010. Poll data
suggests Gillard’s Labor Party with a lead of 10 points (55% vs 45%) over the conservative Liberal/National coalition. Although the election
season often makes investors worried over the political uncertainties, historical data has shown that business cycle plays a more dominant
role. We hence expect to see a rebound in the Australian equities as well as the Australian dollar, following the resolution of the resources
tax.
On the economic front, the recent data points to an easing inflation. The consumer prices went up 3.1% year-on-year in June, lower
than expected while the consumer inflation expectation dropped slightly to 3.3% in July, compared to 3.4% in June. This suggests that the
multiple rate-hikes by the central bank to curb inflation have started to effect. We believe the central bank may keep the benchmark
interest rate unchanged in the next policy meeting on the back of the European debt problems and signs of Chinese economic slowdown.
According to the consensus, Australian equities represented by S&P / ASX 200 Index, is trading at 12.7X and 11.1X for the estimated
2009 and 2010 PE ratios (Australia's fiscal year ends in June – FY2009 ends in June 2010). The market expects earnings to grow 14.5%
in 2010 (as at 28 July 2010). We maintain Australia at a “Attractive” rating of 3.5 stars, under the three-year horizon.
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EMERGING MARKETS

BRAZIL – 3.5 STARS (ATTRACTIVE)

• PMI Manufacturing advanced slightly to 52.7 in Jun 10, compared to 52.4 in May 10
• Industrial production surged 14.8% y-o-y in May 10, after a 17.2% y-o-y increase in Apr 10
• Export grew 18.2% y-o-y in Jun 10, compared to a 47.7% y-o-y gain in May 10
• Imports grew 50.2% y-o-y in Jun 10, compared to a 52.3% y-o-y gain in May 10
• Vehicle Sales dropped 12.5% y-o-y in Jun 10, after a 1.7% y-o-y gain in May 10
• Headline CPI decelerated to 4.8% y-o-y in Jun 10, compared to a 5.2% y-o-y in May 10
• Unemployment rate went down from 7.5% in May 10 to 7% in Jun 10
• The central bank raised the benchmark interest rate by 50bps to 10.75%, effective on 22 Jul 10

MARKET OUTLOOK
The central bank raised the benchmark interest rate by 50bps to 10.75% in July, while consensus estimated a 75bps hike. The lower-than-
expected rate hike suggests that the consumption-driven economy may run out of steam amid concerns over the global economic
slowdown.
Consumer data also suggests a slower domestic growth. Retail sales went up by 10.2% year-on-year in May, lower than expected.
The headline CPI further decelerated to 4.8% in June from 5.2% in May, the lowest since February this year. Apart from a deceleration of
domestic growth, Brazil may be vulnerable to the slowdown in Chinese economy – one of the largest markets for its exports of commodity
and agricultural products. In particular, the recent correction of iron ore prices and the flattish crude prices are likely to affect the earnings
outlook of Vale and Petrobra, two giants in the Bovespa Index. Overall, we expect the pace and the magnitude of rate hike to decrease
and the peak of this rate hike cycle will likely be lower than the prior cycle of 13.75%.
Regarding the valuation, as of 28 July 2010, the consensus PE ratio stood at 11.2X and 8.7X for 2010 and 2011 respectively. The
consensus estimated earnings growths for 2010 and 2011 are 30.1% and 28.3% respectively. We maintain Brazil at an “Attractive” rating
of 3.5 stars.
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EMERGING MARKETS

RUSSIA – 4.0 STARS (VERY ATTRACTIVE)

• PMI Manufacturing was 52.6 in Jun 10, up from 52.0 in May 10
• Industrial production rose 9.7% y-o-y in Jun 10, after a 12.6% y-o-y increase in May 10
• Exports grew 39.6% y-o-y in May 10, compared to a 59.2% y-o-y gain in Apr 10
• Imports surged 40.7% y-o-y in May 10, compared to a 30.3% y-o-y gain in Apr 10
• Retail sales gained 5.8% y-o-y in Jun 10, compared to a 5.1% increase in May 10
• Consumer Prices rose 5.8% y-o-y in Jun 10, compared to 6% in May 10
• Unemployment rate declined to 6.8% in Jun 10, compared to 7.3% in May 10

MARKET OUTLOOK
Russia’s worst drought in a decade has brought concerns on inflationary risk and economic recovery. High temperatures have destroyed
32% of land under cultivation. Prices of agricultural products may rise sharply and cause a spike in the food prices. Therefore, the easing
inflation may end earlier and this may cause the central bank to hike rate earlier than the consensus forecast. We however think the
drought has limited impact to the Russian economy because the agricultural sector merely accounts for 4.5% of its GDP.
The Finance Ministry has proposed to raise taxes in the years ahead for oil/gas companies and some metallurgical companies in
order to reduce budget deficit next year. In spite of this, domestic energy companies have warned of possible production cut and
investment delay amid uncertainties. At this stage, it is premature to conclude the impact on Russian equities and its economy as these
plans are just proposals and may be subjected to revision. Meanwhile, we expect to see debates between the energy companies and the
government.
Regarding the equity market, the dollar-measured RTS Index has jumped 20.8% (in USD terms, as of 27 July 2010) from the
previous bottom on 25 May 2010, thanks to a pickup in risk appetite and oil prices. It is important to point out that the RTS Index
substantially outperformed the oil in July and gained 10.6% (in USD terms, as of 27 July 2010) compared to 1.9% by Nymex crude oil (in
USD terms, as of 27 July 2010). This is in line with our view that the Russian equities could trend higher in the current price range.
As of 27 July 2010, the consensus PE ratio stood at 7.7X and 6.5X for 2010 and 2011 respectively. The estimated earnings growth
for 2010 and 2011 is 69.1% and 18.0% respectively. We maintain Russia at a “Very Attractive” rating of 4.0 stars.
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SECTOR

TECHNOLOGY (4.0 STARS – VERY ATTRACTIVE)

GLOBAL TECHNOLOGY
• North American Semiconductor Equipment Manufacturers book-to-bill ratio was 1.12 in May 10, down from 1.13 in Apr 10
• Global chip sales surged 50.4% y-o-y for Apr 10, compared to a 58.3% y-o-y increase in Mar 10
• US new orders for computer and electronic products rose 13.0% y-o-y in May 10, after jumping 17.5% in Apr 10
• US inventory for computer and electronic products declined 4.0% y-o-y in May 10, after contracting 5.5% in Apr 10

ASIAN TECHNOLOGY
• Semiconductor Equipment Association of Japan (SEAJ) book-to-bill ratio for Japanese fab-tool vendors went down from 1.07 in Apr
10 to 1.13 in May 10
• YTD (as of 28 June 2010, in USD), benchmark DRAM chip prices have dropped 14.8% while NAND chip prices have declined 6.0%

MARKET OUTLOOK
The US earnings season has started again with corporations reporting their 2Q results. Earnings of technology companies continue to beat
the expectation on average. Of 32 companies in the S&P 500 information technology index that have reported earnings, 24 of them (75%)
have beat the consensus, suggesting further re-ratings ahead.
On the corporate front, Intel reported the best-ever quarterly earnings along with 34% sales growth due to the increased technology
spending by the corporate customers. Its revenues went up by 34% and topped US$ 10.7 billion in the second quarter. Microsoft, on the other
hand reported record revenue due to strong sales of the Windows 7 operating system and Office products. Its earnings grew by 48%
compared to the same period a year ago. These results suggest a start of the technology replacement cycle and are likely to fuel a brighter
industry outlook.
Following the earnings surprises that we have seen so far, we expect the market to continue revising the estimates upwards. It is
worthwhile to point out that the 2010 consensus earnings for the technology sector represented by NASDAQ 100 Index have already
surpassed our earlier estimate made in February 2010. This suggests that the market starts to re-price the earnings and growth outlook of the
technology companies amid uncertainties over the global economic slowdown.
Despite the earnings upgrade, the valuation is still cheap compared to the historical average. According to the consensus estimates, the
NASDAQ 100 Index is trading at 15.5X and 13.5X for the 2010 and 2011 PE ratios. The earnings are expected to grow by 23.8% and 15.2%
in 2010 and 2011 respectively (as at 28 July 2010). We maintain the technology sector at a 4.0 star “Very Attractive” rating, under the three-
year horizon.
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SECTOR REVIEW

MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

BONDS
YEARS TO OFFER INDICATIVE YIELD (%) OFFER INDICATIVE YIELD (%)
SGS BONDS BENCHMARK
MATURITY AS AT 30 JUNE 2010 AS AT 29 JUL 2010
HKGB, Coupon 2.36%; Maturity 08/16/2010 2 year 1.00 0.466 0.78

HKGB, Coupon 2.88%, Maturity 06/17/2013 5 year 4.28 1.024 0.663

HKGB, Coupon 3.5%, Maturity 06/22//2015 7 year 6.51 1.546 1.286

HKGB, Coupon 3.56%, Maturity 06/25/2018 10 year 9.52 2.084 1.946

HKGB, Coupon 2.71%, Maturity 02/20/2023 15 year 14.19 2.351 2.313

OFFER YIELDS INCLUDE SALES CHARGE OF 0.1% AND COMMISSION CHARGE OF 0.3%
SOURCE: IFAST FINANCIAL

HONG KONG INTERBANK RATES (HIBOR)

OVERNIGHT 1-WEEK 1-MONTH 2-MONTH 3-MONTH 6-MONTH 12-MONTH
25-Feb-10 0.03 0.0494 0.0696 0.1 0.13 0.24 0.52
31-Mar-10 0.045 0.0497 0.0986 0.12 0.15 0.25 0.59
30-Apr-10 0.048 0.064 0.0811 0.13 0.25 0.4 0.57
28-May-10 0.05 0.079 0.1975 0.2286 0.2689 0.4393 0.79
30-Jun-10 0.095 0.215 0.524 0.549 0.57 0.699 1.05
31-Jul-10 0.05 0.07 0.261 0.31 0.36 0.49 0.84
SOURCE: HKMA

CPI VALUE ON CPI VALUE ON BENCHMARK INTEREST

COUNTRY / REGION PARAMETER
30 MAY 2010 (YOY) 30 JUN 2010 (YOY) RATES AS AT 28 JUL 2010

CPI (core) 0.90% 0.90%

US 0.25%
CPI (all items) 2.00% 1.10%
Europe CPI (core) 0.80% 0.90% 1.00%
Japan CPI (nationwide, all items) -0.90% -0.70% 0.10%
Indonesia CPI 4.16% 5.05% 6.50%
Malaysia CPI 1.60% 1.70% 2.75%*
South Korea CPI (all items) 2.30% 2.60% 2.25%*
Hong Kong CPI (composite) 2.50% 2.80% 0.50%
Thailand CPI 3.50% 3.30% 1.50%*
China CPI (consumer prices) 3.10% 2.90% 5.31%
Taiwan CPI 0.74% 1.18% 1.375%
India WPI 10.16% 10.55% 4.50%*
Singapore CPI 3.20% 2.70% N.A.
*BENCHMARK INTEREST RATE HAS BEEN CHANGED SINCE LAST MONTH
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SECTOR REVIEW

MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

BOND CHART OF THE MONTH

Asian dollar debt delivered a total return of 2.50% in the month

Asian Dollar Debt is Attractive of July as the yields fell about 40 bps. The difference between
14 Asian dollar debt and 5-year US Treasuries have widened in the
12 month of June but came down significantly to 306 basis points.
10 This is in line with historical average. However, given the better
8 debt profile of Asian economies, a lower spread could be
6 justified and thus, we believe this current spread still presents
4 attractive investment opportunities for the bond investors.
2
0
Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10
Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

New JACI Composite (JACN)

Non Investment Grade
Composite Spread to US 5 Year T Note
SOURCE: JP MORGAN & IFAST FINANCIAL COMPILATIONS

Yield (%) Historical Yields of HKG Bonds Historical Yields of US Treasuries

5.0
4.5 6.0
4.0 5.0
3.5
Yield (%)

4.0
3.0
2.5
3.0
2.0 2.0
1.5 1.0
1.0 0.0
0.5
Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10
Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10
0.0
Jun-08

Jun-09

Jun-10
Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10
Aug-07

Dec-07
Feb-08

Aug-08

Dec-08
Feb-09

Aug-09

Dec-09
Feb-10

2 Years Bond 10 Years Bond

2 Years Bond 10 Years Bond

SOURCE: BLOOMBERG & IFAST COMPILATIONS SOURCE: BLOOMBERG & IFAST COMPILATIONS

Yield (%) HKG Bond Yield Curve Corporate Bond Spreads Against US 10-Yr Treasury
3.0 12
2.5 10
2.0 8
(%)

6
1.5
4
1.0
2
0.5
0
Nov-05

Nov-06

Nov-07

Nov-08

Nov-09
Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

0.0
Mar-06

Mar-07

Mar-08

Mar-09

Mar-10
1 Year

2 Year

5 Year

10 Year

15 Year
1 Month

3 Month

6 Month

6/30/2010 7/31/2010 AA 10 YR Spread BB 10 YR Spread

SOURCE: BLOOMBERG & IFAST COMPILATIONS SOURCE: BLOOMBERG & IFAST COMPILATIONS
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SECTOR REVIEW

MONTHLY GLOBAL MARKET UPDATE AUG 2010. PRESENTED BY IFAST FINANCIAL (HK) LTD ©

KEY DEVELOPMENTS

Central banks of major economies like Japan and Eurozone kept their benchmark interest unchanged in July’s meeting. As countries in Eurozone embark on
austerity measures which mean reduced government spending, the monetary policy would have to be accommodating for economic growth. Meanwhile, in
Asia region where inflationary pressures are starting to build, central banks continue to tighten their monetary policies. In fact, India had an unscheduled
meeting on 2 July to raise interest rate in order to arrest the inflationary threat while South Korea’s decision to hike rate was also out of economists’
expectations.
In IMF’s latest report, global economic growth in 2010 has been upgraded to 4.6%. However, this came on the back of better than expected economic
growth in the first half of the year. IMF has warned that given Europe’s development, there is significant downside risk in the second half. Better economic
growth numbers in Asia economies and robust earnings from US and European companies have led to a 8.5% gain in global equity markets. Other risky bond
classes like emerging market debt and high yield bonds have also performed well with the return of risk aversion. On the other hand, US Treasuries as
represented by iBoxx USD Treasuries Total Return Index gained a flat 0.1% in June. Yields on 10 year and 2 year UST gained 11 bps (to 3.04%) and 3 bps
(to 0.63%) respectively. Current yields are the lowest in a year, reflecting investors spike in risk aversion. (All data refers to month-to-date data as at 27 Jul 10
in USD terms)
In Hong Kong, the CPI rose 2.8% year-on-year in June 2010 after a 2.5% gain in May 2010. It was the tenth consecutive monthly increase. Amongst the
CPI components, the year-on-year increases were mainly contributed by electricity, gas and water prices. On the other hand, HIBORs continued to drop in
June 2010. Expectations of RMB appreciation have spurred capital inflows into Hong Kong. Sufficient liquidity in banking system drives down the local
interbank rates.
The issues of rising deficits and an improving economic landscape should work to the favour of investment grade, emerging market and high yield
bonds. We believe the short term yields in Hong Kong government bond will continue to decline because of the aggregate balance expansion and ample
liquidity in the banking system.
.