Stimulus package eases pain, can’t stop the rain
􀅜 Deflation has come to China’s economy. Conservative outlook will weigh on spending.
Excess supply will not be offset by government stimulus efforts.
􀅜 Renminbi depreciation looking more likely. The trade dependency ratio has surged to
66% in China. Signals appeared in late 2008 but we think depreciation will formally
take place in 2Q09.
􀅜 Direct links between Taiwan and China will have little benefit to either side. Restrictions
will still hamper Chinese travellers. Direct links in shipping have already been established
informally.
􀅜 Positive on 1H09 and cautious on 2H09. We expect a policy-driven rally to continue to
1H09. Oil prices may rebound and new energy stocks will be the hot spot in 1Q09.
􀅜 We suggest increasing stock weighting from 40% to 50-60% in light of the
government’s aggressive policy support and we target 1,500-2,500 as the SSE’s shortto
mid-term range. We also warn investors that the double-D risk of deflation and
depreciation may lead the SSE down to 1,000-1,200 points in the long-term.

目录

Market strategy
Stimulus package eases pain, can’t stop the rain 1
Our top picks
Summary of top picks 1 3
SL Pharmaceutical (002038.SZ/002038 CH): Outlook bright on strong R&D capability 14
Tianma (002122.SZ/002122 CH): Wind power bearings the highlight of 2009 growth 1 6
Better Life (002251.SS/002251 CH): Fast-growing retail sector play 18
Baoshan Iron & Steel (600019.SS/600019 CH): Valuation attractive, long-term value play 2 0
China Southern Airlines (600029.SS/600029 CH): Benefiting from government policy 22
China Fiberglass (600176.SS/600176 CH): Rosy outlook on back of sector leadership 24
Guiguan Electric Power (600236.SS/600236 CH): Distress to end in 2009 on Yantan acquisition 26
Hualu Hengsheng (600426.SS/600426 CH): First sign of sectoral turnaround emerges 28
Sectors
Sector summary & valuation 3 0
Auto sector: 2009 looking tough 3 2
Fertilizer sector: Upcoming spring to bring new life 3 6
Petrochemicals & natural gas sector: Refiners may turn around on new pricing system 4 0
Pharmaceuticals sector: Strong rally in 4Q08; bio-agent a bright spot 4 2
Machinery sector: A few bright spots amid macro weakness 4 3
Alternative energy sector: In dire need of policy support 4 5
Coal sector: Coal sector unable to trough in 2009 due to oversupply 4 7
Steel sector: No recovery in sight 4 8
Cement sector: Fragile balance likely in 2009 4 9
Real estate sector: Picking up on back of stimulus measures 51
Power sector: Opportunities lie with restructuring 53
Airport sector: Growth mainly from domestic travel 5 5
Airline sector: Government policies offer lifeline to airline industry 5 7
China shipping sector: Bracing for hard times 5 9
Port sector: Cargo throughput growth falling 6 1
Railway sector: Declining freight, stronger pax flow, faster investment 62
Food & beverage sector: Steady demand & cost reduction are major themes 64
Retail sector: Tough times to come in 2009 6 6
Stock market
Cash calls and cash supply 6 9
Portfolio weightings 7 0
China economy
Entering winter 71
Appendices
Summary of US economic indicators 7 5
Summary of China economic indicators 7 6
Market valuation 7 7
Sector performance 79
Stock performance – China 81
Stock screens – China value stocks 8 2
Stock screen – China growth stocks 8 3
Stock screens – China short stocks 8 4
Stock screens – A, B & H-share price discount 8 5
Changes to earnings estimates 87
Changes to investment ratings 90
KGI universe valuation table (China) 9 1