MARKET EXPRESS China / Hong Kong

HSI did not follow the decline in US OTC futures but followed the China market to surgebefore noon. HK market followed the China market to rebound sharply. The PBOC continued touse the REPO to inject RMB65bn into the market. This helped to ease the worry on liquiditytightening and triggered the expectation on further loosening in liquidity. China finance stocks thusrebounded, helping HK market to turn strong from the seesawing situation earlier yesterday. WhenA-share market started to reverse its earlier losses and kept rebounding, HSI also rebounded andwidened its gains. Finally, HSI gained 204 points or 0.89% to close at 23,178. HSCEI gained 107points or 1.03% to close at 10,534. As the market momentum continued to improve, marketturnover increased to HK$56.7bn. The advance to decline ratio increased to 1.81 to 1, implying thatthe short-term market outlook is good.

    If the upper bound support of the long-term downtrend can be hold, HSI will see the YTDpeak at 23,944 after the settlement of debt ceiling. Though the market is preparing for thedefault in Government Treasury, we believe that the chance of the default will be very low.

    Particularly, most of the investors do not choose to sell their stocks at the current level. Instead,they use the options contract to hedge against the risk. The downside potential at the currentsituation is not high. However, if the debt ceiling can be resolved before 17Oct, we will see a strongrebound in HSI heading towards the peak of 23,944 in Feb. Since the unrest will become moreobvious as the deadline approaches, we will see higher volatility in the market.