Hibernate for winter,reawaken in spring

研究机构：高盛高华证券 分析师： Helen ... 撰写日期：2010年12月02日

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    MXCN and A-shares have de-rated somewhat on inflation and tighteningrisks; investors expect ongoing policy changes. Our China Economics teamexpects policy to be effective in containing CPI, yet not compromise 11Efull year growth. Since it will take time for such effectiveness to be proven,we expect a more muted returns path for the next 2 quarters (-3%/+13% forMXCN, -6%/+13% for CSI300). Offshore could benefit from more valuationsensitivity and higher correlation to global markets; whereas A-shares aremore sensitive to money supply changes and fund positions are still high.
    We believe returns will pick up as CPI approaches peak。
    We see more parallels to China’s 2004 inflation cycle than the 2007-08 cycle,and expect equity returns path to resemble 2004 MXCN trends. We saw fourphases in the 2004 MXCN moves: 1) expectation of inflation arises (multiplede-rating); 2) announcement of policies (market bottoms); 3) waiting forpolicy impact (range trading); 4) inflation growth rate peaks then decelerates(earnings and valuation expansion). We feel we are currently around phase 2and that phase 3 will commence in 1Q11E. We expect inflation to be moreunder control by spring and see better returns by 2Q11E.
    The key limit to excessive downside is reasonable valuation。
    We see low 2011E earnings risk, hence market performance will be mainlydriven by valuations. If tightening is worse than expected, our bear case 11Eearnings (mid single digit yoy) and multiples (11x MXCN, 14x CSI300) wouldimply 12%/6% downside. Our base case remains 26%/35% upside (mid teensEPS yoy, 14x MXCN, 16x CSI300) by end-11E. In our view, the risk-rewardprofile for the next 6-12 months remains attractive.