[I-bank focus]Citi maintains HSI target at 32,000

    Citi Research maintained its HSI target of a record-high of 32,000 (versus previous high of 31,638 in 2007), based on a historical mean
valuation of 12.5x 2015 P/E.
  Given the current environment, the research house believes its target is conservative as the market has risen to 17x-29x P/E in the previous four bull markets. It prefers H share financials, Tencent (00700) and HKEx (00388) , and gaming over HK pure plays.
  Citi said, in the past 20 years, correlations have been strong between market turnover and the performance of the HSI. In 1997, 2000 and 2007, HSI achieved record-highs supported by liquidity inflows.
  It is of the view that the pickup in turnover starting from April is the start of another round of bull markets. Previously, liquidity spikes lasted for 1-1.5 years.
  It also expects the recent Mutual Recognition of Funds between SFC and CSRC will encourage more Mainland retail investors to increase their allocation to the Hong Kong market given (1) attractive valuations at HSI, 11x 2015 P/E (versus 13x at MSCI EM and 20x P/E at SHCOMP); (2) significant A/H premium (36%); (3) mainland deposits scale is 15x bigger than HK; and (4) rising demand of China households' global asset allocation.