Hang Seng Index closed up 17 points or 0.1% at 20,756 last Friday. Market turnover decreased to $63.4 billion. Heavily weighted HSBC (5) and China Mobile (941) retreated 0.2% and 1.1% respectively. Hutchison (13), the most active stock, surged 3.3% fuelled by the acquisition of Orange Austria. Export-oriented stocks rallied on signs of recovery for the U.S. economy. Li & Fung (494), Esprit (330), China Merchants (144) advanced 1.8%-2.6%. Tingyi (322), the worst performing blue chip company, slid 1.8%. HSCEI rose 0.2%. Pharmaceutical, shipping and non-ferrous metal stocks outperformed the HSCEI. Sinopharm (1099) jumped 11.7% as the Chinese government would increase the subsidy for medical insurance. China Cosco (1919) added 5.4% after the company announced hike in freight rates. Zijin Mining (2899), Jiangxi Copper (358) and Chalco (2600) climbed 1.0%-1.7%. Dongfeng Motor (489) and GAC (2238), the worst performing HSCEI stocks, tumbled 2.3%-3.2%. Chinese banks, insurers and property developers showed mixed performance.

Hang Seng Index may test 21,000 in near term given the rally in U.S. stock markets. However, a fall in U.S. unemployment rate to 3-year low may raise doubts about Fed’s low interest rate policy. We reiterate our view that short-term investors should take profit on cyclical stocks. We also recommend an underweight position on Chinese property developers given poor property sales for January.