Morning News &Views -Asia:A Summary of Select Global Markets Research

Hong Kong - operational leverage kicking in. We are bullish on China / HK jewellery retailers, for eight reasons. ForHong Kong, we expect 1) improving PRC tourist arrivals to boost sales volumes; in Jan-Feb 2017, y-y growth ofjewellery and valuable gift retail sales has recovered to -1.2%, from -24.2% in Jan-Feb 2016, as y-y growth of PRCtourists has turned positive to 1.1%, from -18% in Jan-Feb 2016; 2) higher operational leverage to kick in over FY17-18, thanks to the continuous rental reductions at street-front stores, ranging from 20% to 40%. China - a gradualchange in preference towards gem-set products. For China, 3) we see huge potential for the jewellery market, asper-capita spending was only USD32 in 2016, 79% lower than the average for developed economies.