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HK Exchanges and Clearing

HK Exchanges and Clearing was pretty much the ‘poster boy’ for the meteoric rise of the Chinese equity bubble. Now, with its equally ungracious collapse of more than 30% this past month, could they be worth a second look? Action on its stock went on a tear earlier this year as earnings were expected to grow significantly for this key beneficiary of the Shanghai-HK stock connect. Daily volumes on the HK Stock exchange have more than doubled from similar periods earlier this year, with HK Exchange and Clearing’s earnings expected to explode on the upside. HKEX will announce numbers next Wednesday. The stock at these levels, while not cheap, has come significantly off the lofty earlier valuations. Forward PER for HKEX stands at 28X, down from almost 40X PER (forward) earlier, before the Chinese stock markets plunged. With the prospect of increased activity as Chinese capital markets continue with their liberalisation drive - albeit at a more gradual pace after the recent meltdown there - HKEX may be worth looking at again, especially around the earnings release next week.

The SPX

The US SPX has once more managed to defend its 200 Day MA last night, bouncing off the 2072 level as stocks there reversed a five-day slide. With several key data due out over the next 48 hours, a fresh attack and break below this crucial support line could bring out stops that may initiate a ‘fast-move’ breakdown. With the focus around tonight’s FOMC announcement, together with tomorrow’s US Q2 GDP release, any pleasant surprises with regards to the recovering American economy may ironically bring forth a ‘risk-off’ momentum for the equity markets there, now in its seventh year of a bull run. Counter to this though, should the numbers offer a tepid assessment of the US domestic economic scene, we may see stocks test the strong upside resistance of 2120 and 2140 once more.
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