Hong Kong Stock Research. What Drives Hong Kong Stock Price Out Performance. www.lvxresearch.com

1copyright C 2015. www.lvxresearch.com
What Drives Company Stock Price Out Performance? What Fundamental Stock Investment Strategies Have Been
Working Consistently? What Ranked Metrics Have Historically Signalled Stock Prices Will Outperform?
Our Paid Monthly Research Service on the Australian (ASX) and Hong Kong Markets (HSE) Answers all these Questions
in a Digestible way : www.lvxresearch.com
We also Provide Bespoke Research Services for Brokerage Firms and Institutional Investors on Countries and Industry
Segments.
April 2015 Edge Hong Kong Report is Enclosed. Learn More on our Website: www.lvxresearch.com
Analysis above and throughout the document do not include transaction costs or dividends. Returns are not actual they are based on mathematical calculations of the historical performance of applying different ranked investment strategies/metrics for stock selection. Each strategy
has the top five ranked shares re-weighted monthly or quarterly depending on the strategy. There are no guarantees that the strategies shown in this document will generate similar performance to what they have generated in the past. We just provide the facts for strategies that are
working historically over the medium term. Our analysis does not include transaction costs which could be substantial or the effect of dividends or taxes. Please note with how our analysis is conducted using the current indices, longer term performance statistics can be skewed by
survivorship bias and may enter the benchmark because of high share price momentum for example. We have not adjusted historically for that factor so shorter term factors are more accurate. We provide historical market and financial information for institutional, professional
investors and advisors. We do not provide general advice or specific advice. Past performance is no guarantee of future performance. This publication is general in nature and does not take your personal situation into consideration. You should seek financial advice specific to your
situation before making any financial decision. Please see our disclaimer on the main website www.lvxresearch.com for more information. AFSL 338118.
LVXResearch.com

LVX Research - Edge Hong Kong - April 2015 Report
12/06/2015 2copyright C 2015. www.lvxresearch.com

Edge Australia – Executive Summary – Our Methodology
copyright C 2015. www.lvxresearch.com
We analyse a raft of different stock strategies to determine what has worked consistently over time to outperform the market. Here we only present what has worked after sifting , so
investors can focus in on the strategies that resonate with their investment style or generate ideas for further research. All of our analysis is historical and factual without opinion and
should be viewed as such.
We look at strategies for market positioning, industry tilts and at the top five companies ranked within the particular multiple or metric, and focus on the most liquid stocks in the
market. In the analysis we re weight the positions with the highest or lowest multiple/metric every quarter or month depending on the strategy.
The strategies we look at can be broken into the following buckets:
Fundamental Medium Term Strategies: adjusted quarterly looking the highest and lowest multiples and ranking the companies accordingly for the top five companies and then
seeing how they performed over the following quarter re weighting consistently each quarter to determine a return over one and two years.
Valuation Multiples: Enterprise Value(“EV”)( Equity Value +Net Debt)/EBITDA, EV/EBIT, EV/Free Unlevered Cash Flow, EV/Sales, EV/Invested Capital, PE Ratio, PE Est. CY, PE EST CY+1,
Price to Book, Dividend Yield
Operating Performance: EBIT Margin, Return on Assets, Return on Invested Capital, 5 Yr Growth in Operating Profit, 5 Yr Growth in Net Profit, Largest EPS Upgrades % over Q CY/CY+1
Balance Sheet Strength: Net Debt/EBIT
Market Performance: Volatility 360D, Momentum (1Q,2Q,4Q,20Q and monthly), Momentum volatility adjusted
We also analyse dispersions of the performance between the lowest and highest multiples for long/short investors.
Market Anomalies/Flow Based Strategies: adjusting monthly we analyse seasonal factors looking at which industries, stocks and when the market has historically outperformed
during different months of the year and historical patterns intra month which are consistent.
Dividend Stripping: Investing short term for dividends has historically been lucrative particularly for specific industries and companies. We analyse and present only the most lucrative
and consistent over recent history.
Market Specific Anomalies: e.g. Our Australian Bank strategy which relies on the fact that they dominate the index creating anomalies around their medium term performance.
Relative industry Trends: From a macro perspective we have developed a relative trend following methodology to focus on what industries are trending form a relative perspective
Characteristics of Top Performers: We analyse the top 20 performing shares every six months and see which characteristics they shared six months previously over a medium term
time horizon i.e. where they ranked in certain multiples and metrics; thus determining what has been the most influential metrics for historical performance.

Edge Hong Kong April 2015 – Executive Summary – What Strategies Are Working Best?
12/06/2015 4
As you can see below growth strategies on average did a little better over both time periods compared to value strategies; which you can see visually comparing the blue bars
(growth) to the green bars (value) over the two time periods. Each of the fundamental/market strategies consist of five companies from the HK top 100 typically reweighted
quarterly/monthly ranked by the highest or lowest metric. e.g for EV/Invested Capital - every quarter the five stock portfolio consists of the companies with the lowest
EV/Invested Capital from the HK top 100 at that date, and the portfolio is held for a quarter then rebalanced again etc. for the last two years producing the return result;
excluding dividends and transaction costs.

Edge Hong Kong April 2015 – Executive Summary – What Growth Strategies Are Working Best?
12/06/2015 5
As you can see within growth strategies over the two time periods following the highest 6 mth momentum stocks was the most consistent and highest returning strategy each year
re weighting the portfolio monthly ( current portfolio at 31/3/2015: China Communications Construction (1800), China Railway Group ( 390), China Railway Construction (1186)
,Great Wall Motors (2333) and China Galaxy Securities (6881); followed by volatility adjusted momentum ( current portfolio as at 31/03/2015: China Communications
Construction (1800),China Railway Group ( 390), Great Wall Motor(2333), Ping An Insurance (2318), Fosun International (656)

Edge Hong Kong April 2015 - Executive Summary – What Value Strategies Are Working Best?
12/06/2015 6
Within value strategies over the two time periods following the lowest EV/Invested Capital ( current portfolio as at 31/3/2015: : Sino Land (83), Hang Lung Properties (101),New
World Development (17), Wharf Holdings (4),Sinopec Engineering (2386)) was the most consistent strategy

Edge Hong Kong April 2015 – Executive Summary- What Strategies Are Working Best?
12/06/2015 7
Shown below is the data behind the top performing strategies and the current portfolios for each strategy over the last two years and one year respectively.
Top Performing Strategies over the medium term - Last 2 Years - HK - Top Ranked Five Shares
31/03/2015
Monthly Strategies L12M L12-24M L24M Current Portfolio 31/03/2015 Investing Style
Seasonality 20.7% 44.4% 74.3% 700 1169 135 27 2319 Industry Rotation
Highest MomentumVol. Adj. 7.8% 19.2% 28.5% 1800 656 390 2318 1186 Growth
Highest Momentum 37.2% 14.6% 57.2% 3333 1800 390 656 6881 Growth
L12m ended
Quarterly Strategies 31/03/2015 L12-24M L24M Current Portfolio 31/03/2015 Investing Style
Lowest EV/L12MSales 42.4% 4.2% 48.4% 2386 992 358 291 386 Value
Highest 4Q Momentum -5.5% 55.8% 47.3% 390 1800 6881 1186 388 Growth
Lowest 4Q Momentum 15.3% 24.8% 43.8% 1680 880 1128 27 2282 Value
Highest 20Q Momentum -6.1% 50.2% 41.1% 27 2333 1114 700 1169 Growth
Highest 5yr Grwth Net Inc CAGR 6.6% 29.5% 38.0% 27 2007 3333 1928 960 Growth
Lowest Return on Assets 14.4% 19.8% 37.0% 2600 291 1898 1211 991 Value
Highest 8Q Momentum 3.3% 29.6% 33.9% 700 656 257 2333 390 Growth
Highest Volatility 360D -2.4% 35.5% 32.3% 1211 1066 6881 1680 2333 Growth
Lowest EV/Invested Capital 41.3% -8.3% 29.6% 83 101 17 4 2386 Value
Highest Dividend Yield L12M 12.7% 14.5% 29.0% 3333 880 1928 2007 386 Value
Hang Seng 12.4% -0.7% 11.7%

Top Performing Strategies over the medium term - Last 1 Year - HK- Top Ranked Five Shares
31/03/2015
Monthly Strategies L12M L12-24M L24M Current Portfolio 31/03/2015 Investing Style
Seasonality 20.7% 44.4% 74.3% 700 1169 135 27 2319 Industry Rotation
Highest Momentum Vol. Adj. 7.8% 19.2% 28.5% 1800 656 390 2318 1186 Growth
Highest Momentum 37.2% 14.6% 57.2% 3333 1800 390 656 6881 Growth
L12m ended
Quarterly Strategies 31/03/2015 L12-24M L24M Current Portfolio 31/03/2015 Investing Style
Lowest EV/L12MSales 42.4% 4.2% 48.4% 2386 992 358 291 386 Value
Lowest 20Q Momentum 41.4% -10.0% 27.2% 1898 2600 494 1211 291 Value
Lowest EV/Invested Capital 41.3% -8.3% 29.6% 83 101 17 4 2386 Value
Lowest EV/L12MEBITDA 38.7% -7.8% 27.9% 2386 883 762 388 728 Value
Lowest EV/L12MEBIT 30.6% -9.0% 18.9% 2386 388 880 883 688 Value
Lowest 5yr Grwth Sales CAGR 28.9% -0.9% 27.7% 6 1114 2628 2600 489 Value
Lowest PE Est Current CY 27.3% -3.5% 22.9% 813 2007 998 939 3988 Value
Lowest PE Ratio 27.2% -8.2% 16.8% 6 20 3333 823 4 Value
Lowest PE Est. Next CY 22.1% 3.3% 26.1% 813 2007 998 939 3988 Value
Lowest Volatility 360D 18.4% -10.5% 5.9% 2 11 3 66 19 Value
Hang Seng 12.4% -0.7% 11.7%

Edge Hong Kong April 2015 – Executive Summary- What Strategies Are Working Best? Top 14

12/06/2015 11
Below are the recent stock charts by strategy for the companies that are in the top strategies.

Edge Hong Kong April 2015 – Executive Summary What Strategies Are Working Best?

12/06/2015 15
Below are the key valuation multiples as at 31/03/2015 for all the companies that currently appear this month in the top strategies over two years

Below are the key valuation multiples as at 31/03/2015 for all the companies that currently appear this month in the top strategies over two years

1) ) Price Momentum and Contrarian strategies were the best performing strategies over the last two years. Buying the five companies with the best six month share price
performance and re weighting each month would have generated +57.2% over the last two years compared to the Hang Seng performance of +11.7 % ignoring dividends and
transaction costs for both. Adjusting for volatility the top 5 shares adjusted monthly generated a return over two years of +28.5%. Buying the top five momentum stocks ( ie
those with the largest price increases) over the last four quarters and five years respectively would have generated +47.3% and +41.1% over two years . Buying the bottom
five momentum stocks ( ie those with the largest price decreases) in the Hong Kong top 100 over the last four quarters would have generated +43.8% over two years .
Following these methodologies the top five stocks this month would be
-Highest 6 Month Momentum re weighted monthly: China Communications Construction (1800), China Railway Group ( 390), China Railway Construction (1186) ,Great Wall
Motors (2333) and China Galaxy Securities (6881).
-Highest 6 Month Momentum volatility adjusted re weighted monthly: China Communications Construction (1800),China Railway Group ( 390), Great Wall Motor(2333), Ping
An Insurance (2318), Fosun International (656)
-Highest 4Q Momentum Q adj: China Railway Group (390), China Communications Construction (1800), China Galaxy Securities (6881), China Railway Construction (1186),
Hong Kong Exchanges & Clearing (388).
-Highest 20Q Momentum Mthly adj: Galaxy Entertainment (27), Great Wall Motor Company (2333), Brilliance China (1114), TenCent Holdings (700), Haier Electronics (1169)
-Lowest 4Q Momentum Q adj: Macau Legend Development(1680), SJM Holdings (880), (1128), Galaxy Entertainment (27), MGM China (2282).
2) Contrarian Strategies - Investing in cyclicals and turn around/recovery potential has been lucrative over the past two years . The five companies in the Hong Kong Top 100
with the lowest EV/Sales, and Return on Assets has generated respectively +48.4%, and +37.0% .
Following this methodology the top five stocks this quarter would be : Lowest Enterprise Value to Sales: Sinopec Engineering(2386), Jiangxi Copper (358), Lenovo Group
(992), China Resources Enterprise (291), China Petroleum & Chemical (386).Lowest Return on Assets: Aluminium Corp of China (2600), China Resources Enterprise (291),
China Coal Energy (1898), BYD Co(1211), Datang International Power (991).
3) Investing behind the five companies with the highest five year growth in net income has generated +38.0% over the last two years. The five top stocks this quarter
following this methodology would be : Galaxy Entertainment(27), Country Garden(2007),Evergrande Real Estate (3333),Sands China (1928),Longfor Properties (960)

Edge Hong Kong April 2015 - – Executive Summary – What Strategies Are Working Best?
5) Investing behind the companies with the volatility generated respectively +32.3%. Following this methodology the top five stocks this quarter would be : BYD Co (1211), Shandong Weigao
1066), China Galaxy Securities( 6881), Macau Legend ( 1680), Great Wall Motor (2333)
6) Hong Kong Top 100 Seasonality goes into the anomaly bucket . Industries in particular exhibit seasonal performance effects that are consistent from year to year for a variety of reasons.
Buying the five top performers in a month historically over the last ten years, adjusting the portfolio monthly generated +74.3% over the last two years and +20.7% over the last twelve
months. Following this methodology the top five stocks this month would be: Weichai Power (2338), Wheelock & Co (20), Enn Energy Holdings (2688), Tencent Holdings(700) and China
Unicom(762)
7) The overall seasonal patterns of when the market historically performs well and which industries do well in certain months has also been a consistent driver of excess returns. As has the
intra month timing effect for when to buy and sell historically or indeed increase of decrease exposures. All the back up figures for those who are interested are in our appendices.
8) Fundamental Characteristics of Top performers: We analyse the top 20 performers in the Hong Kong Top 100 each half and the operating and financial multiples at the time, six months
previously, to see which metrics the companies shared. Over a three year period the four metrics that were most present consistently (25%+ of the time the outperforming companies were
ranked in the top 20 of the relevant metric) The most important metrics historically are the highest volatility 360D (33.3%), highest 5 year growth in sales (33.3%), highest net debt/EBIT
(28.3%), highest return on assets (26.7%).
These strategies have worked well over the last 12 and 24 months to generate above average rates of return but there are no guarantees similar performance will be generate in the future.
We just provide the facts for strategies that are working historically over the medium term.

Edge Hong Kong April 2015 – Monthly Seasonal Re Weighting - Index
12/06/2015 19
What is the Strategy? Re weighting each month buy the stocks that have outperformed in the relevant month historically over the last ten trailing years. Industries in particular exhibit
seasonal performance effects that are consistent from year to year for a variety of reasons The reasons could be timing of earnings releases, major macro data, end of quarters or year end fund
manager adjustments, and holiday activity periods for example that all affect liquidity and money flows and manager industry tilts.
This is the best month for the Hang Seng index on average historically over the last ten years generating +4.3% making a positive gain 80% of the time. Over the last five years has generated
a positive return; +0.94% generating a positive return 60% of the time.

Edge Hong Kong April 2015 – Monthly Seasonal Reweighting - Companies
12/06/2015 20
Following this methodology the top five stocks this month would be: Weichai Power (2338) (+14.8%, 80% win ratio), Wheelock & Co (20) (+9.1%, 100% win ratio), Enn Energy Holdings
(2688) (+9.0%, 90% win ratio), Tencent Holdings (700) (4.8%, 60% win ratio) and China Unicom ( 762) (+8.4%, 100% win ratio). Following this approach for the last twelve months would
have delivered +20.7% compared to the Hang Seng Index return of 12.4%.

Edge Hong Kong April 2015 – Monthly Re Weighting Momentum
12/06/2015 21
What is the Strategy? For mid cap and small cap stocks in particular investing behind strong momentum trends has generated good returns particularly in the last few years in
industrials, retail concept/business roll outs, buy and build strategies and cyclical turnarounds, and prior to this resources and service providers were major momentum
beneficiaries. Using the HK top 100 as the universe, adjusting the portfolio monthly based on the best trends in the market. Pure six month share price momentum as a strategy
performs well over long periods of time. More recently momentum has performed extremely well with a concentrated portfolio . Following the momentum methodology the
top five stocks this month are China Communications Construction (1800), China Railway Group ( 390), China Railway Construction (1186) ,Great Wall Motors (2333) and China
Galaxy Securities (6881). Following this approach for the last twelve months would have delivered +37.2% compared to the Hang Seng return of +12.4%.

Edge Hong Kong April 2015 – Monthly Re Weighting Momentum Volatility Adjusted
12/06/2015 22
In the HK top 100 adjusting the portfolio for volatility i.e. trying to find smooth upward trends generates good returns over the medium term ( we use 2 year daily volatility to rank
the highest momentum for a given unit of volatility). Following the volatility adjusted momentum methodology the top five stocks this month would be China Communications
Construction (1800),China Railway Group ( 390), Great Wall Motor(2333), Ping An Insurance (2318), Fosun International (656) . Following this approach for the last twelve months
would have delivered +7.8% compared to the Hang Seng return of +12.4%.

Edge Hong Kong April 2015 – Quarterly Re Weighting Momentum
12/06/2015 23
What is the Strategy? As a part of our quarterly fundamental analysis we assessed different measures of quarterly price momentum and contrarian strategies re weighting the
portfolio quarterly; which all generated strong returns. Following the highest 4Q Momentum the portfolio this quarter would be China Railway Group (390), China Communications
Construction (1800), China Galaxy Securities (6881), China Railway Construction (1186), Hong Kong Exchanges & Clearing (388). Following this approach for the last twelve months
would have delivered +3.3% compared to the Hang Seng return of 12.4%.

Edge Hong Kong April 2015 – Quarterly Reweighting Momentum
12/06/2015 24
Following the highest 20Q Momentum the portfolio this quarter would be : Highest 20Q Momentum Mthly adj: Galaxy Entertainment (27), Great Wall Motor Company (2333),
Brilliance China (1114), TenCent Holdings (700), Haier Electronics (1169). Following this approach for the last twelve months would have delivered -6.1% compared to the Hnag Seng
return of +12.4%.

Edge Hong Kong April 2015 – Quarterly Re Weighting Momentum
12/06/2015 25
Lowest 4Q Momentum Q adj: Macau Legend Development(1680), SJM Holdings (880), (1128), Galaxy Entertainment (27), MGM China (2282). Following this approach for the last
twelve months would have delivered +15.3% compared to the Hand Seng return of +12.4%.

Edge Hong Kong April 2015 – Fundamental Drivers – Quarterly Re Weighting
12/06/2015 26
What is the Strategy? We look at the fundamental multiples in the market at the end of each quarter and rank the companies with the highest and lowest metric and look at the
return results at the end of the next quarter continuing the process. Over the last year in the market, what has performed from a fundamental valuation perspective are
cyclical/contrarian strategies and hence companies with high multiples of EBITDA, EBIT and PE have outperformed when compared to low trailing and forward multiples. Non
mining companies that are turnaround candidates or expecting cyclical lows performed very well, with low price to book ratios , low return on assets, low EBIT margins, low
multiples of invested capital, low price to sales ratios driving extremely positive performance.
The other successful strategy was following quarterly earnings increases which produced good successive quarter gains; many of the companies being the cyclicals mentioned
previously.
Please note all of our analysis represents at the time data. When the relevant decision point was taken we use the data was present in the market at that date e.g. decision point 30
June 2013 would be based on L12M data to 31 December 2012 as the 30 June numbers would not have been released then; so they are a true reflection of a decision at a point in
time.

Edge Hong Kong April 2015 – Fundamental Drivers – Quarterly – Re Weighting

Edge Hong Kong April 2015 – Fundamental Drivers - Quarterly Re Weighting

12/06/2015 31
Following this methodology the top five stocks with the Lowest Enterprise Value to Sales: Sinopec Engineering(2386), Jiangxi Copper (358), Lenovo Group (992), China Resources
Enterprise (291), China Petroleum & Chemical (386). This methodology has generated +42.4% in the last twelve months.
Investing behind the five companies with the highest five year growth in net income has generated +6.6% over the last twelve months. The five top stocks this quarter following this
methodology would be : Galaxy Entertainment(27), Country Garden(2007),Evergrande Real Estate (3333),Sands China (1928),Longfor Properties (960)

Edge Hong Kong April 2015 – Fundamental Drivers - Quarterly Re Weighting
Investing behind the companies with the Lowest Return on Assets generated +14.4% in the last twelve months Following this methodology the top five stocks this quarter would be :
Aluminium Corp of China (2600), China Resources Enterprise (291), China Coal Energy (1898), BYD Co(1211), Datang International Power (991).
Investing behind the companies with the highest volatility generated -2.4% in the last twelve months. Following this methodology the top five stocks this quarter would be : BYD Co
(1211), Shandong Weigao ( 1066), China Galaxy Securities( 6881), Macau Legend ( 1680), Great Wall Motor (2333)

Investing behind the companies with the EV/Invested Capital generated +41.3% in the last twelve months Following this methodology the top five stocks this quarter would be : Sino
Land (83), Hang Lung Properties (101),New World Development (17), Wharf Holdings (4),Sinopec Engineering (2386).
Investing behind the companies with the highest divided yield generated +7.4% in the last twelve months. Following this methodology the top five stocks this quarter would be :
Evergrande Real Estate(3333), SJM Holdings (880), Sands China(1928), Country Garden (2007)

Top 10 Fundamental/Market Strategies over the medium term - Last 2 Years HK
31/03/2015
Quarterly Strategies LQ L12M L12-24M L24M Current Portfolio 31/03/2015 Investing Style
Lowest EV/L12MSales 11.4% 42.4% 4.2% 48.4% 2386 992 358 291 386 Value
Highest 4Q Momentum 2.8% -5.5% 55.8% 47.3% 390 1800 6881 1186 388 Growth
Lowest 4Q Momentum 0.2% 15.3% 24.8% 43.8% 1680 880 1128 27 2282 Value
Highest 20Q Momentum 3.8% -6.1% 50.2% 41.1% 27 2333 1114 700 1169 Growth
Highest 5yr Grwth Net Inc CAGR 0.8% 6.6% 29.5% 38.0% 27 2007 3333 1928 960 Value
Lowest Return on Assets 3.1% 14.4% 19.8% 37.0% 2600 291 1898 1211 991 Growth
Highest 8Q Momentum 23.3% 3.3% 29.6% 33.9% 700 656 257 2333 390 Growth
Highest Volatility 360D 9.6% -2.4% 35.5% 32.3% 1211 1066 6881 1680 2333 Value
Lowest EV/Invested Capital 8.2% 41.3% -8.3% 29.6% 83 101 17 4 2386 Value
Highest Dividend Yield L12M 7.4% 12.7% 14.5% 29.0% 3333 880 1928 2007 386 Growth

Edge Hong Kong April 2015 – Fundamental Drivers – Quarterly Reweighting

Edge Hong Kong April 2015 –Fundamental Characteristics of Top 20 Performing HK top 100 Companies
12/06/2015 40
What is the Strategy? We analyse the top 20 performers each trailing six months measured monthly in the HK top 100 over the previous trailing three years and determine what ranking within operating and
fundamental metrics they shared six months previously. We then calculate the percentage of the time the top performing 20 companies in the period were also ranked in the top 20 of that metric. The highest
number shows what financial and operating multiples are most important in driving subsequent performance over the last three years over a broad portfolio.
The most important metrics historically are the highest volatility 360D (33.3%), highest 5 year growth in sales (33.3%), highest net debt/EBIT (28.3%), highest return on assets (26.7%).

Edge Hong Kong April 2015 –Fundamental Characteristics of Top 20 Performing HK top 100 Companies
12/06/2015 41
What is the Strategy? We analyse the top 20 performers each trailing six months measured monthly in the HK top 100 over the previous trailing three years and determine what ranking within operating and
fundamental metrics they shared six months previously. We then calculate the percentage of the time the top performing 20 companies in the period were also ranked in the top 20 of that metric. The highest
number shows what financial and operating multiples are most important in driving subsequent performance over the last three years over a broad portfolio. This analysis shows the metrics which have the
least impact on favourable performance.
The least important metrics historically for performance are the lowest volatility 360D (9.2%), lowest EV/Free Cash flow (14.2%), and EPS Estimated next year (14.2%).

Edge Hong Kong April 2015 – Intra Month Timing Effect - Index
12/06/2015 42
What is the Strategy? Stock performance in Hong Kong depending on the month is tilted [Strategy for subscribers only]

Edge Hong Kong April 2015 – Intra Month Timing Effect - Index
12/06/2015 43
In Hong Kong, [strategy for subscribers only]

Edge Hong Kong April 2015 – Intra Month Timing Effect - Companies
12/06/2015 44
The top five performing stocks from the HK top 100 on average over ten years: [Strategy for subscribers only]

Edge Hong Kong April 2015 – Market Review and Health Check
Long dated treasury bonds in the US act as a safe haven attracting capital when markets get nervous or when economic conditions are expected to turn down over the medium term. Looking at
simple trends of the 20 year bond price divided by the broad market index historically has given an early warning of a correction, comparing it to its moving average. This was the case in 2008,
in 2011, 2012. Medium term increases in volatility have in the past signalled more difficult markets ahead, particularly as the moving average starts to accelerate upwards.

Job growth in the US has been a focus of central banks and a gauge of the health of the economy. Watching trends in its deterioration particularly through moving average increases has
been a good indicator for more difficult markets and a trend reversal in the US historically. Industrial production and leading economic indicators when they breach their moving averages
have historically shown difficult markets ahead. The fed credit officer survey for small business as to whether banks are tightening credit is also a good indicator of the health of the
economy because if banks aren't lending to the biggest job creatorsin the economy (small business) historically has been a predictor of a correction in the markets

Watching the trend in earnings and the components of growth , have historically driven market performance and whilst there is a lag, focusing on the most economically sensitive areas has
historically been accurate. US earnings growth has out performed the rest of the world substantially since 2008, whereas Latin America and Russia have underperformed as has Hong Kong.
Asia has performed well from an earnings perspective but not from a market perspective

The US has been the strongest performer against the MSCI all Country World index since the end of 2008

This chart shows the percentage of companies in the S&P 500 that are showing positive sales growth and those showing positive earnings growth for 2014. These charts line up
against the performance during 2007 going into 2008. The internals of the market look worse 2008 in terms of the percentage of companies showing positive growth.
The right hand chart shows the percentage of consumer goods companies in the S&P 500( the consumer makes up 70% of GDP) that are showing positive sales growth and those
showing positive earnings growth for 2014. These charts line up against 2007 going into 2008. The internals of the market are deteriorating in terms of companies showing positive
growth.

Edge Hong Kong April 2015 – Appendices
Analysis throughout the document does not include transaction costs or dividends. Returns are not actual they are based on mathematical calculations of the historical performance
of applying different ranked investment strategies/metrics for stock selection. Each strategy has the top five ranked shares re-weighted monthly or quarterly depending on the
strategy. There are no guarantees that the strategies shown in this document will generate similar performance to what they have generated in the past. We just provide the facts
for strategies that are working historically over the medium term. Our analysis does not include transaction costs which could be substantial or the effect of dividends or taxes.
Please note with how our analysis is conducted using the current indices, longer term performance statistics can be skewed by survivorship bias and may enter the benchmark
because of high share price momentum for example. We have not adjusted historically for that factor so shorter term factors are more accurate. We provide historical market and
financial information for institutional, professional investors and advisors. We do not provide general advice or specific advice. Past performance is no guarantee of future
performance. This publication is general in nature and does not take your personal situation into consideration. You should seek financial advice specific to your situation before
making any financial decision. Please see our disclaimer on the main website www.lvxresearch.com for more information. AFSL 338118.

Hong Kong Stock Research. What Drives Hong Kong Stock Price Out Performance. www.lvxresearch.com

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