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Table of Contents
Part I: MSCI-China to see-saw for 1-3M, before staging a
sustainable rally in late 3Q ......................................................3
(1) H-shares tend to seesaw or even decline in the inflation stabilization period
during the previous two tightening cycles ...................................................................3
(2) MSCI-China to seesaw in the coming inflation stabilization period .....................5
(3) Negative factors weighing on the market performance in the short term...............7
Part II: We maintain our medium-term (3-6M) positive stance
on MSCI China ........................................................................25
(1) China will successfully contain the inflationary pressure to engineer a soft
landing in the economy towards 3Q FY11 ................................................................26
(2) On a full-year basis, we still look for steady economic growth in FY11, the first
year of the ongoing 12th Five Year Plan (FYP) ........................................................29
(3) MSCI China’s valuations are at an undemanding level........................................32
(4) Consensus’ UW position in Chinese equities after their under-performance versus
EM peers since 2010 .................................................................................................33
(5) Rmb appreciation enhancing China stocks' attraction in the eyes of foreign
investors ....................................................................................................................33
Part III: J.P. Morgan’s sector views.......................................34
J.P. Morgan’s latest views on the China model portfolio ..........................................42
Part IV: China Model Portfolio (CMP) adjustments..............54
(1) Adjusting the positions in China’s property, machinery sectors, and banks ........57
(2) We cut our weighting in IT, telecom, utilities and take loss in solar energy .......58
(3) We continue to boost our OW weightings in consumer staple, expressway, gas,
and upstream energy sector stocks.............................................................................58
(4) We turn neutral on China’s insurance sector from bearish in our model portfolio
...................................................................................................................................6