Market strategy
Who will drive the market? 1
Our top picks
Summary of top picks
Jidong Cement (000401.SZ/000401 CH): Rapid capacity expansion; location advantage 11
Shanxi Xishan Coal & Electricity Power (000983.SZ/000983 CH): Strong growth potential on fast capacity expansion 1 3
Black Cat Carbon Black (002068.SZ/002068 CH): Carbon black leader benefiting from tyre demand 15
Sunward Intelligent Machinery (002097.SZ/002097 CH): Margin up on more products & cost control 17
SAIC Motor (600104.SS/600104 CH): JV brands & OBM in good shape 19
Pinggao Electric (600312.SS/600312 CH): Main beneficiary of ultra high-voltage boom 21
Gemdale (600383.SS/600383 CH): Revenues & profits growth in high gear 23
Homey Aquatic (600467.SS/600467 CH): Sea cucumber & jellyfish two bright spots 25
Xinan Chemical (600596.SS/600596 CH): Property market recovery a boon 27
Xiamen Airport (600897.SS/600897 CH): Beneficiary of increasing cross-strait travel 29
Sectors
Sector summary & valuation
Auto sector: Passenger car sales brisk; tight supply ensures profitability 3 3
Chemicals sector: Sub-sectors are beneficiaries of property boom 3 6
Petrochemicals sector: Refining margin to rebound; sector in good shape 3 9
Alternative energy sector: Wind power, polysilicon oversupply to be addressed 42
Alternative fuel vehicle sector: Government policy favors more fuel-efficient models 4 3
Coal sector: Coking coal supply to remain tight 44
Steel sector: Demand coming from real estate investment 4 6
Cement sector: We are cautiously optimistic 4 8
Property sector: Market to continue improving in 4Q09 4 9
Power sector: Demand to rebound on economic recovery 5 2
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 5 7
Shipping sector: Ocean shipping flattish, coastal coal freight up 5 9
Port sector: Demand recovering, holiday season another boost 6 1
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 6 6
Technology sector: Export-oriented electronics firms most attractive 6 8
Stock market
Cash calls and cash supply
Portfolio weightings 70
Economic conditions
Uncertain foreign demand & government policy are key concerns 7 1
Appendices
Summary of US economic indicators 7 6
Summary of China economic indicators 77
Market valuation 78
Sector performance 8 0
Stock performance – China 8 2
Stock screens – China value stocks 8 3
Stock screen – China growth stocks 84
Stock screens – China short stocks 85
Stock screens – A, B & H-share price discount 8 6
Changes to earnings estimates 8 9
Changes to investment ratings 9 1
KGI universe valuation table (China) 92