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To: ms.smartest.person who wrote (1391)	6/11/2001 3:25:51 AM
From: ms.smartest.person	Read Replies (1) \| Respond to of 2248

Morgan Stanley Says HK Market May Have 19-20% Upside Jun 11, 2001 - 15:05:04 HKT Quamnet News Service Morgan Stanley Dean Witter said the Hong Kong market is currently about 19 percent undervalued, based on its price-to-book valuation model. In its weekly comment on Hong Kong Strategy issued today, Morgan Stanley strategists Ajay Kapur and Narendra Singh said they have found that price-to-book is the most useful metric to look at in Hong Kong, after a check of relative importance of various valuation measures in predicting future returns. The US house's macro model relates the price-to-book value of the market to GDP growth, inflation, return on equity (ROE) and interest rates. The fair value price-to-book value is most sensitive to interest rates, followed by GDP growth, ROE and finally inflation. So, given the recent decline in interest rates and revival in ROE, the model is signaling that the current level of price-to-book is too low relative to the state of the macro variables. Morgan Stanley also said, after looking at eight other valuation indicators including dividend yield, forward P/E and EV/EBITDA, that the Hong Kong market is probably undervalued at this point but not grossly so. "While the decline in interest rates remains the key factor in making the market cheap, watch for a turnaround in earnings revisions, which might come before the actual growth figures (GDP) are released. An upward revision in earnings could lead to a strong rally, of 19-20 percent upside, according to our macro model," said Morgan Stanley. -------------------------------------------------------------------------------- Copyright 2000 Quam(IA) Limited, All rights reserved quamnet.com