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In their daily review of Asian newswires and economic releases, our Macau office highlighted an article from the South China Morning Post this morning, which discussed retail sales in Hong Kong. I’ve outlined a few key data points in the article below, but the summary is that retails sales were much better than expected in Hong Kong over the holiday season, which is very supportive of our decoupling thesis on Hong Kong and China.

Key highlights from the article include:
• Aeon stores with 33 Hong Kong outlets grew 9 % y-o-y in the week of December 24 – 30th.
• Sun Hung Kai Properties, Hong Kong’s largest private operator of shopping centers, said sales at its 20 shopping malls grew more than 10% y-o-y; and
• A record 420,000 shoppers visited apm, SKHP’s flagship shopping center in Kwun Tong for New Year countdown.

Based on these preliminary reports, which are more than anecdotal, both holiday sales and traffic were very strong in Hong Kong over the holidays. As we have been emphasizing over the last few months, both stock selection and country selection will be critical in 2009. While a rising tide, in terms of emerging market growth did indeed lift all boats from 2003 - 2007, in the coming 12-months differentiation will occur. And rightfully so as the economic prospects and country balance sheets are widely divergent in emerging markets, and the countries formerly known as BRICK.

We continue to be long FXI, which is the iShares FTSE/XINhua China 25 Index.

Daryl G. Jones
Managing Director

Andrew Barber
Director