Stimulus package eases pain, can't stop the rain
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TABLE TO CONTENTS

Market strategy
Stimulus package eases pain, can’t stop the rain 1
Our top picks
Summary of top picks 13
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 16
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 20
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 30
Auto sector: 2009 looking tough 32
Fertilizer sector: Upcoming spring to bring new life 36
Petrochemicals & natural gas sector: Refiners may turn around on new pricing system 40
Pharmaceuticals sector: Strong rally in 4Q08; bio-agent a bright spot 42
Machinery sector: A few bright spots amid macro weakness 43
Alternative energy sector: In dire need of policy support 45
Coal sector: Coal sector unable to trough in 2009 due to oversupply 47
Steel sector: No recovery in sight 48
Cement sector: Fragile balance likely in 2009 49
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 55
Airline sector: Government policies offer lifeline to airline industry 57
China shipping sector: Bracing for hard times 59
Port sector: Cargo throughput growth falling 61
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 66
Stock market
Cash calls and cash supply 69
Portfolio weightings 70
China economy
Entering winter 71
Appendices
Summary of US economic indicators 75
Summary of China economic indicators 76
Market valuation 77
Sector performance 79
Stock performance – China 81
Stock screens – China value stocks 82
Stock screen – China growth stocks 83
Stock screens – China short stocks 84
Stock screens – A, B & H-share price discount 85
Changes to earnings estimates 87
Changes to investment ratings 90
KGI universe valuation table (China) 91