Who will drive the market?

Executive Summary􀅜

      Liquidity contraction, inflation concerns and inventory adjustment will affect A-shares
in 4Q09.
􀅜 Fundraising will potentially reach Rmb400-600bn from 4Q09 to 2010.
􀅜 Demand will recover moderately but inflation could rise fast from 4Q09.
􀅜 Post-financial bubble correction, China’s economy will see a sharp recovery following a
period of moderate growth.
􀅜 Property construction will be the economy’s growth driver in 2H09 and 2010.
􀅜 SSE to trade in 2,500-3,000 points range in 4Q09.
􀅜 Our 4Q09 stock picks
Domestic/defensive: Black Cat Carbon Black (002068.SZ), SAIC Motor (600104.SS), Pinggao
Electric (600312.SS), Homey Aquatic (600467.SS) and Xiaman Airport (600897.SS).
Construction-related: Gemdale Group (600383.SS), Xinan Chemical (600596.SS), Sunward
Intelligent Machinery (002097.SZ), Jidong Cement (000401.SZ) and Xishan Coal & Electricity
(000983.SZ).

Table of Contents
Sector summary & valuation
Auto sector: Passenger car sales brisk; tight supply ensures profitability 33
Chemicals sector: Sub-sectors are beneficiaries of property boom 36
Petrochemicals sector: Refining margin to rebound; sector in good shape 39
Alternative energy sector: Wind power, polysilicon oversupply to be addressed 42
Alternative fuel vehicle sector: Government policy favors more fuel-efficient models 43
Coal sector: Coking coal supply to remain tight 44
Steel sector: Demand coming from real estate investment 46
Cement sector: We are cautiously optimistic 48
Property sector: Market to continue improving in 4Q09 49
Power sector: Demand to rebound on economic recovery 52
Power equipment sector: General & UHV projects promising in 4Q09 54
Airport sector: Clear skies ahead 55
Airline sector: Int’l market recovery pivotal for 4Q09 weak season 57
Shipping sector: Ocean shipping flattish, coastal coal freight up 59
Port sector: Demand recovering, holiday season another boost 61
Railway sector: 4Q09 demand outlook strong 63
Food & beverage sector: Look for strong pricing power & attractive valuations 64
Retail sector: Demand recovering; holiday season another boost 66
Technology sector: Export-oriented electronics firms most attractive 68

Cash calls and cash supply
Portfolio weightings 70
Economic conditions
Uncertain foreign demand & government policy are key concerns 71