China Insights & Strategy
Views from the Bund
China
Equities Research Team
Frank GongAC
(852) 2800 7006
frank.fx.gong@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
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Relative index performance
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Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09
SH Comp MSCI China H share
Source: Datastream.
‘Views from the Bund’ is a monthly publication that gives clients a valueadded
view on China macro, strategy and industry insights.
• Key investment theme: We turn more positive on Chinese banks and
sharpen our focus on domestic consumer stocks. We have been holding
the cautious view since mid-December that while China’s domestic
fundamentals were moving in the right direction, we may need a
valuation cushion for MSCI China due to continued global uncertainties
and weakness. After a 15% correction, MSCI China valuation is at the
top end of what we believed to be a more attractive range (8-9x FY08E
P/E). Meanwhile, we think there are more signs of domestic demand
stability and initial recovery. Over-saved Chinese consumers have been
holding up especially well and responding in a surprisingly positive way
to the government stimulus so far. As a result, de-stocking seems to have
ended, in our view, and a mild re-stocking process appears to have
started given the low inventory levels. The production side of the
economy has also been responding to the massive investment stimulus,
with power production/utilization improving. Many domestic consumer
companies in particular are also seeing improving margins due to lower
material/production costs. The risks to this initial, yet still fragile
recovery, continue to be still-worsening external demand, policy
uncertainty and deflation expectations.
• What is changing: (1) We expect only two more 27bp interest rate cuts
this year, instead of four cuts expected earlier. (2) Significantly strong
loan growth in January, and we still expect strong growth in February.
(3) China’s stronger-than-expected car sales in January 2009.
• Information: NPC to focus more on long-term and structural issues than
short-term and stop-gap policies, which will be mostly taken up by local
governments.
• Non-consensus call: (1) Economic growth bottomed out in 4Q08.
(2) We see value in consumer discretionary.
• China model portfolio adjustment: We add more exposure to
consumption stocks and banks, reduce Overweight positions in property
and reduce the weighting in oil. We continue to be overweight on
construction-investment sectors such as cement.

Table of Contents
Macro-economic views ............................................................3
Market strategy.......................................................................20
Autos .......................................................................................41
Consumer................................................................................50
Energy .....................................................................................55
Financials: Banks...................................................................58
Financials: Insurance.............................................................69
Real estate ..............................................................................70
Technology: Hardware...........................................................74
Telecom...................................................................................80
Utilities ....................................................................................85