Morning Notes China/Hong Kong

What’s inside:

Tencent (700 HK - O-PF). A good talk.

Sa Sa International (178 HK – U-PF). A beautiful growth story.

Tencent (700 HK - O-PF). A good talk.

We had a NDR with Tencent and the company believes that its gaming business willcontinue to be very robust and they are very optimistic on mobile gaming which willbecome a significant growth driver next year. Wexin has established a large base andinternational expansion is going well. The next step is to focus on monetization.

eCommerce is a big investment especially logistics, but it is cautious on spending.

Margin pressure will mainly come from marketing. Share has had a strong rally. Webelieve there is still long-term upside, but we recommend adding on any pullback. Weraise TP to HK$465 adding US$17.5bn Weixin valuation.

Sa Sa International (178 HK – U-PF). A beautiful growth story.

Sa Sa is well positioned to capture booming mainland-Chinese demand. Key growthdrivers include robust appetite for personal-care products, a growing beauty-specialistchannel, pricing and timing advantages in Hong Kong, its strong footprint and aprivate-label portfolio. E-commerce can be a threat to Sa Sa’s traditional bricks-andmortarretail business, especially in China where, unlike in Hong Kong, it enjoys noprice advantages. We reiterate our Underperform rating.

News headlines

Shanghai Free Trade Zone to Boost China’s Competitiveness

China’s plan for a free trade zone in Shanghai is “very positive” and will help improvethe country’s competitiveness, World Bank President Jim Yong Kim said. - BloombergAsian Stocks Cap Biggest 2-Week Gain Since January 2012 on China

Asian stocks rose this week, sending the benchmark index to its biggest two-weekclimb since January 2012, after Tokyo was chosen to host the 2020 Olympics and asdata showed China’s economy is picking up. The rally reversed course yesterday aheadof a Federal Reserve meeting next week. - Bloomberg

Rupee Leads Advance in Asian Currencies as Fed Taper Bets Ease

Asian currencies had their best week in two months, led by India’s rupee, after U.S.

jobs data tempered speculation the Federal Reserve will cut stimulus that’s buoyedemerging markets. - Bloomberg

Glencore Agrees to Study $3 Billion Congo Iron Ore Mine

Glencore Xstrata Plc, the global commodity trader and metals producer run bybillionaire Ivan Glasenberg, agreed to proceed with a study into an iron ore mine in theRepublic of Congo that may cost as much as $3 billion. - BloombergChina welcomes US-Russia deal on Syria weapons

China’s foreign minister on Sunday welcomed the deal between the United States andRussia to eliminate Syria’s chemical weapons, which headed off the prospect of USstrikes against Bashar al-Assad’s regime. - SCMP

Ex-central bank official wary of interest-rate deregulation

Wu Xiaoling, former vice-governor of China's central bank, said Shanghai's free-tradezone should not spearhead liberalisation of the interest rates paid on yuan bankdeposits to avoid providing opportunities for speculators to exploit the difference withinterest rates outside the zone. - SCMP