Our HSI target for the year is 29,200, implying around 5% upside - the HSI does not look very attractive on risk-reward considerations. Our target for the HSCEI is 12,400, implying around 12% upside. Our HSI target implies consensus PE of 13.2/12.2x FY17F/18F, respectively (5-year average: 11.8x). Our HSCEI target implies FY17F/18F PE of 9.4/8.6x, respectively (5-year average: 7.9x).    Better take some profit in some sectors. We are seeing some signs that the market is losing steam, and some risks are growing: 1) China economy - M2 growth at historical low, other indicators are also at their recent lows. 2) Unclear US interest rate outlook - bond yields are exceptionally low. Is that a bubble or investors are worried about the growth outlook? 3) The ample liquidity in HK may end, and this could trigger a huge chain reaction. 4) Investors are too complacent - market volatility seems to be too low, and market participants are not paying enough attention to potential risks. Investors should take profit in auto makers and China consumer sectors like Geely (175.HK) and Tingyi (322.HK).    In general, we like the laggards. Some sectors we like include China banks (underperformed, margins and bad loans improving), oils (operating results improved, largely underowned), IT and software (re-rating still possible), China materials (commodities prices going up), and railway & construction (OBOR and strong CNY). We also like Swire Properties (1972.HK), Wharf (4.HK) and Lee and Man Paper (2314.HK).

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