Sector Idea : Short Hong Kong Developers

1. Sector Idea: Short Hong Kong Developers ‘The recent rise, bordering on euphoria, in Hong Kong developer stocks is setting up a very promising opportunity to take profits or to short. The seductive twin arguments of falling US interest rates and more friendly government policies have seen developers like Sun Hung Kai Properties and Henderson Land approach their former price highs - long before we have had market clearing and let all the air out of the near 30 year-old asset bubble The market has yet to recognise that Hong Kong developers are in the midst of a very painful and very lengthy transition. They are still seen purely as cyclical animals as opposed to beasts whose fundamental nature must change Their business has to change from having high margins and low volumes in land-scarce Hong Kong to having lower margins and high volumes in land-plentiful China. This is at least a 5-10 year process during which overpriced landbanks in Hong Kong have to be run down before the benefits of expansion from China drive the full recovery. This is a structural issue that the market has ignored and hence mispriced.’ Sell -28.9% -34.7% 8 March Hong Kong Developers

2. Macro Idea: Asian Currencies Broad Dollar Index • ‘The recent weakness of Asian currencies, with everything in thrall to the strong US dollar, strikes us as a misconception about what lies ahead over the rest of 2001’ • ‘Don't assume strong US dollar is permanent’ • ‘US imbalances unlikely to be ignored forever’ • ‘Only 20-30% US dollar fall can rebalance trade’ • ‘China could surprise: more flexibility, appreciation’ Dollar Weakness Ahead 19 April Asian Currencies