Asia Pacific Equity Research | Singapore MARKET PULSE Key Idea Key Singapore Indices STI Catalist Finance Property Electronics Vol(m) Val(S$m) Close 3253.2 160.8 831.7 735.1 438.9 1400.6 925.9 Chg 24.5 0.9 4.4 2.0 5.8 -344.1 -67.4 % Chg 0.8 0.6 0.5 0.3 1.3 -19.7 -6.8 Close 16991.9 4454.8 1964.8 6563.7 1840.8 23315.0 15891.0 1543.1 1968.4 9095.1 Chg -17.8 -20.8 -3.1 35.7 3.1 250.5 182.3 -27.2 -7.8 -11.1 % Chg -0.1 -0.5 -0.2 0.5 0.2 1.1 1.2 -1.7 -0.4 -0.1 2,953 3,388 382 192 168 World Indices Dow Jones Nasdaq S&P500 FTSE KLCI Hang Seng Nikkei SET KOSPI TWSE Morning Call 7 Oct 2014 Conviction Buy: iShares FTSE A50 China Index ETF (2823 HK) Our base case is for a soft economic landing in China and we believe the A50 China Index, currently trading at 7.1x PE and 1.2x PB (both around 10Y lows and more than one standard deviation below their 10Y averages), is attractively valued, particularly when put against regional and global peers. In addition, we note that 46% of A50 Index components, by index weight, currently trade at a discount to their dual-listed H-shares, which further points to an undervalued A50 China Index. From our research, we believe the upcoming Shanghai-Hong Kong Stock Connect will unleash significant pent-up demand for A50 shares from foreign investors who do not qualify under existing schemes and/or are bound by quota limits. We estimate that the incremental northbound inflows through the upcoming SH-HK Connect (RMB13b daily net quota and RMB300b aggregate) can increase the A50's average daily value traded by 12% - 29% and have a significant re-rating impact. We see the iShare FTSE A50 China ETF as the easiest and most liquid way for foreign investors to establish a diversified A50 position and benefit from the SHHK Connect catalyst expected in late Oct 14. BUY 2823 HK. Market Statistics (SG) STI No. No. No. 52-week range of gainers of losers of unchanged  U.S. stock market ended a choppy Monday trading session lower as investors appeared to book profits after last week’s rally; small-cap and tech stocks led trading declines.  Hewlett-Packard announced plans on Monday to break itself into two companies, one with a focus on personal computers and printers, and the other on software and enterprise services. Economic Statistics S$/US$ Yen/US$ 3-mth S$ SIBOR 3-mth US$ SIBOR Crude futures (US$) News Headlines 1.3 108.8 0.4 0.2 90.4 Research Team (65) 6531 9800 e-mail: [email protected] 0.0 0.0 0.0 0.0 0.1  The shake-up of the US$17t credit default swap market increases the cost of insuring junior bank bonds and sovereign debt because new contracts offer investors greater protection.  BOJ is likely to maintain its massive monetary stimulus on Tuesday and offer a bleaker view on factory output, following signs that its economy was hit harder than expected by a sales tax increase six months ago.  Samsung Electronics on Tuesday said operating profit likely fell 59.7% in the 3Q14 period to 4.1t won (US$3.8b) as earnings from its market-leading smartphone division likely continued to shrink.  Hong Kong financial industry shrugs off pro-democracy protests; HSI posts its biggest daily gain since 3-Sep while some banks reopen branches. - Petronas said on Monday it could delay its planned US$11b Sources: MasNet, Bloomberg, Business Times, Straits Times and other media LNG plant on Canada's Pacific Coast by up to 15 years unless it can reach a favorable tax deal by month's end. Please refer to important disclosures at the back of this document. MCI (P) 006/06/2014 - Australian dollar slide would dent Singapore firms' profits; OCBC Investment Research Market Pulse 7 Oct 2014 Conviction Buy: iShares FTSE A50 China Index ETF (2823 HK) SH-HK Connect (RMB13b daily net quota and RMB300b aggregate) can increase the A50's average daily value traded by 12% - 29% and have a significant re-rating impact.  OCBC base case: China softlanding  A50 China Index attractively valued  SH-HK Stock Connect key catalyst for re-rating Buy iShares FTSE A50 China Index ETF (2823 HK) We see the iShare FTSE A50 China ETF as the easiest and most liquid way for foreign investors to establish a diversified A50 position and benefit from the SH-HK Connect catalyst expected in late Oct 14. BUY 2823 HK. (Eli Lee) A50 China Index attractively valued given soft landing base case scenario Our base case is for a soft economic landing in China, and OCBC economist Tommy Xie is forecasting real GDP growth to gradually slow from 7.7% p.a. in 2012-2013 to 7.3% in 2014 and 7.1% in 2015. Given this benign baseline, we believe the A50 China Index, currently trading at 7.1x PE and 1.2x PB (both around 10Y lows and more than one standard deviation below their 10Y averages), is attractively valued, particularly when put against regional and global peers. In addition, we note that 46% of A50 Index components, by index weight, currently trade at a discount to their dual-listed H-shares, which further points to an undervalued A50 China Index. . Shanghai-Hong Kong Stock Connect to be key catalyst The upcoming Shanghai-Hong Kong Stock Connect ("SH-HK Connect") will allow, for the first time, institutional and retail foreign investors to purchase Shanghai A-shares through the Hong Kong Stock Exchange as long as they have an account with an eligible broker. This is a big step-up versus existing A-share investment schemes (QFII / RQFII) only accessible to institutional foreign investors subjected to a stringent set of financial and administrative criteria. Unleashing pent-up foreign demand can have re-rating impact on A50 shares We believe the SH-HK Connect will unleash significant pent-up demand for A50 shares from foreign investors who do not qualify under existing schemes and/or are bound by quota limits. We see clear evidence for this: the price of the iShares FTSE A50 China Index ETF (2823 HK) have persistently traded at a premium (up to 12%) above the underlying over the past two years; and the total AUM of A50 ETFs has grown a whopping 61% per annum over the last nine years, in line with the growth in the RQFII / QFII quotas. We estimate that the incremental northbound inflows through the upcoming 2 . . . . OCBC Investment Research Market Pulse 7 Oct 2014 Calendar of key events 06-Oct-14 07-Oct-14 08-Oct-14 09-Oct-14 10-Oct-14 SG 3QGDP 13-Oct-14 14-Oct-14 SPH REIT FY14 15-Oct-14 16-Oct-14 17-Oct-14 EOC FY14 M1 3Q14 CapitaMall Trust 3Q14 Qian Hu 3Q14 Keppel REIT 3Q14 Keppel T&T 3Q14 Sabana Shariah Compliant 3Q14 Keppel Infrastructure 3Q14 SPH FY14 First REIT 3Q14 SG Sep NODX SG Aug Retail Sales 20-Oct-14 21-Oct-14 Keppel Land 3Q14 27-Oct-14 23-Oct-14 24-Oct-14 Mapletree Industrial 2Q15 Cache 3Q14 SG Sep CPI Keppel Corp 3Q14 Rec Solar 3Q14 United Overseas Insurance 3Q14 EMAs FY14 Mapletree Commercial Trust 2Q15 Aztech 3Q14 SG Sep Industrial Production 30-Oct-14 31-Oct-14 CDL Hospitality Trust 3Q14 OCBC 3Q14 DBS 3Q14 OSIM 3Q14 UOB 3Q14 NOL 3QFY14 Results 28-Oct-14 22-Oct-14 29-Oct-14 MGCCT 2QFY15 Forterra 3Q14 SG Sep Bank Loans and Advances SG Sep Money Supply 03-Nov-14 04-Nov-14 05-Nov-14 06-Nov-14 07-Nov-14 Global Logistic Properties 3Q14 Noble 3Q14 SIA 2Q15 SIA 2Q15 SIAEC 2QFY15 Notes: Sourced from Bloomberg All US Tech results dates have been adjusted to Singapore dates. 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