China Shares End Mixed

BEIJING -- Hong Kong stocks ended mixed Tuesday, with the Hang Seng index falling 0.7% to 15,858 and the Shanghai Composite adding 0.5% to 1657.

A note from Morgan Stanley Tuesday homed in on the China media market, singling out Focus Media(FMCN - Cramer's Take - Stockpickr) as a top pick. Focus Media is a compelling little story stock -- it's attracted a slavish following among investors and journos alike as a play on Chinese advertising, which is growing like gangbusters. But the company plays in a quirky niche all its own.

Focus inelegantly calls itself an "out-of-home multiplatform lifestyle media company." What it really does is sell ads, then broadcast them over a vast network of proprietary, public flat-panel displays.

The company has installed over 50,000 LCD displays in office buildings, supermarkets, malls and airports throughout dozens of Chinese cities, all of which can be used to target ads at a theoretically pliable consumer (which would include that minority in China not obsessively sending text messages on their mobile phones).

Morgan Stanley's Richard Ji, who has an overweight rating on the stock, calls Focus Media a "quasi-monopolistic" ad leader in one of the fastest-growing ad markets worldwide.

Industry hands say that even as China's overall ad business surges, traditional television and print markets are fragmenting (just like in the West), which could allow competing media like outdoor and Internet advertising to gain share.

Morgan Stanley's report quotes marketer ZenithOptimedia, which estimates that in the 10 years through 2004, China's ad buying jumped 5.5 times, outstripping its nominal GDP growth of 2.9 times and far surpassing U.S. ad sales growth of 1.7 times in the same period.

The bank believes China's total ad sales, which reached $16 billion last year, could keep growing at a compound annual growth rate of 17% to 18% through 2008, aided by the proliferation of outdoor and online media and the 2008 Beijing Olympics.