Morning Notes China/Hong Kong

ChinaOpps - China ChinaOpps. Third time lucky.

China's 3Q economic data was in-line with expectation with 3Q GDP running at 7.8%rebounding from 2Q of 7.5%. The economic rebound was investment driven and our“Li Keqiang index” is showing a solid rebound mainly due to power consumption.

Premier Li will likely keep his promise of meeting the 7.5% GDP growth, but it will notbe easy given that monthly indicators of investment and industrial value-added areshowing signs of slowing momentum. The government cannot be complacent as lastyear’s 4Q base is high with 4Q12 GDP growth of 7.9%. We remain positive on themarket with about 7% upside to year-end, but the worry is in 1H14 as the governmenteases support and sets a lower GDP target of 7% for next year.

Sinology - China China Macro. Feeling Groovy.

China’s 3Q macro data offers little to worry about. As long as you are comfortable withthe idea that growth rates will continue to slow gradually. Fortunately, the Partyleadership seems comfy with that, and is more focused on longer-term structuralchange. GDP growth of 7.8% in 3Q and 7.7% YTD, compared to 7.7% last year,provides plenty of room for change.

Sector Outlook - China Dry bulk shipping. Floating along nicely.

Pacific Basin reported a strong set of 3Q operational data, and we anticipate CSD willalso post solid numbers when it reports Oct 30. Capesize spot rates have correctedfrom $42k/day to $29k and will likely consolidate further due to seasonal weakness in4Q/1Q, but with 4Q data likely to remain supportive of earnings the long-term dry bulkstory of decreasing overcapacity in 2014-15 remains in-tact and valuations arereasonable. We raise Pacific Basin earnings and roll forward our NAV. We maintainPacific Basin at O-PF and upgrade CSD to Buy from U-PF.

G-Resources Group Ltd (1051 HK - BUY). Another operating beat.

After the 3Q13 operating result, we raise our gold production and D&A assumptions,leading to an increase in Ebitda, but decrease in EPS forecast in FY14-15CL. GResourceshas reported two quarters of better than expected gold production, and theD&A in the annual report faster than we forecast. We revise our TP 6% lower toHK$0.28, which implies 22% upside. The company has a net cash equal to ~20% ofmarket cap, and valuations are attractive at 3.3x FY14CL EV/Ebitda; maintain BUY.