Thread by @Trinhnomics

Good morning🌞- US CPI slowed to 1.8%YoY from 1.9%, eyes on retail sales. Don’t get excited, next wk too early to cut & as JPO to save wood for the winter. China TSF was in line w/ exps but new loan below, so needs more support. But 📈 CPI caused by 🐷 & 🍇 makes it complicated.

For those tempted by the lower valuation of HSI (index is mostly property, banks, & some tech (Tencent is 10% of index) & some consumer. Obvs the higher HIBOR not helping. Let's look at some valuation metrics (as price falls, the question is whether P correctly projects earnings)

Markets estimate earnings to deteriorate into 2020 & return on asset to also decline. If u just look at HSI vs itself (comparison of a PE of one index to another not meaningful as composition of sectors differ), then current PE is 10.7 & min is 7.4 & max is 21 & std 2.9.
Chart 👇🏻

If u look at that normal distribution, can see that HSI is more normally distributed than say SHCOMP but less so than SPX, meaning skewed towards low valuation - sorry forgot average is 12.5 & median 12. Current PE 10.7 below mean & median so if believe in mean reversion then...

Pt is:

a) Obvs you buy low & sell high to profit so the question is WHEN & HOW MUCH of ur portfolio (if u deploy all ur capital then won't have much to buy when it drops a lot & if u're 100% cash, won't get upside) so the devil is in the details; SPX👇🏻

SHCOMP 👇🏻So now you see the 3 indices in a normal distribution & how they diff in distribution (e.g., mean reversion works best for SPX & next is HSI & less for SHCOMP);

Back to HSI, if u buy close to min PE, ur chance of it rising if u hold it long enough is high 🤗