UBS 瑞银：中国A股去向何方＃1－A股流动性

－20070507 Where China shares going - A-shares Liquidity

7 May 2007 10页

􀂄 Signs of bubble surfacing
There are many signs that A-shares are going into a bubble. However, history
suggests that A-shares can stay overpriced for a sustainable period of time.
􀂄 Liquidity to the stock market
We believe looking only at the monetary aggregates is insufficient. The 2005 stock
market reform is a significant event. It changed perception on stock investment
radically and brought investors' confidence back. We think a better indicator of
liquidity going into equity market is the ratio of stock market turnover to money
supply.
􀂄 More liquidity into stocks
We have decomposed the turnover-to-M2 ratio by including market cap and GDP.
We then compare this ratio to past bubble peaks in Japan, Korea, Taiwan and HK.
We find further upside in China's turnover-to-M2 ratio before hitting a peak.