Hang Seng Index and H share index target. Our 2011 target for Hang Seng Index and for H share index are 27,000 and 16,500, respectively, representing about 17% and 29% upside from current index levels. We believe the upside potential for H shares is higher, as Hong Kong property shares are likely to be stagnant due to Hong Kong government continuous intervention on speculative property transactions. Our target is based on FY11F PER for HSI and for HSCEI of 14.8x and 14.5x (five-year average PER), on the back of 15.6% and 16.1% index FY11 consensus EPS growth estimates. In our view, for both of the index to trade at above one standard deviation over the historical average, i.e. PER of 17x or more, that would be a case of speculative hot money inflows and liquidity overshoot, rather than fundamental support.
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