<P><STRONG><FONT face=黑体 size=6>Merrill Lynch 美林：A股市场将形成V型走势 </FONT></STRONG></P>
<P><STRONG><FONT face=黑体 size=6> 02.02    １８页    英文   rar</FONT></STRONG></P>
<P><FONT size=3>Expect 20-30% correction in 1Q-2Q07 on possible 4Q06 earnings disappointment or government intervention Consensus estimates at 12%QoQ or 619%YoY for 4Q06 earnings seem overly optimistic. Besides, if A-share market doesn’t correct during results season and continue to rally strongly, it</FONT></P>
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<P><FONT size=4>A share market rose by 130% during 2006 and by 140% since the beginning of 2006 - the strongest rally ever since the A-shares were introduced in the early 1990s, and much stronger than H-shares or MSCI China (Chart 3). In our view, the rally has been driven by earnings improvement.<BR>􀂄 Earnings averaged for all A-share companies bottomed out in 4Q05, and staged a remarkable rebound in the following quarters through 3Q06 (Chart 4);<BR>􀂄 True, earnings were strong even in 2003-2004, and A-share market rally back then was short-lived. This however can be explained by the following two factors:<BR>     Earnings growth started to trend downwards in 4Q03 after a brief acceleration, which is of course negative for the A-share market;<BR>     A-share market sentiment was hurt by the overhang of non-tradable share issue and financial difficulties of securities companies back then, both of which have now been resolved</FONT></P>