【出版时间及名称】：2010年2月中国证券市场投资策略报告
【作者】：摩根大通
【文件格式】：pdf
【页数】：35
【目录或简介】：


Investment summary
Given that money supply growth (M2) tends to lead the industrial production growth
by two quarters in China, and that China has pumped so much money into the
economy, we have held that China’s economy runs an overheating risk. This is why
we downgraded China’s frothy property sector to UW in our model portfolio in
September, FY09 and keep warning about the investment risks of the fixed asset
investment sectors (downstream commodities, and trucks etc) in our previous three
issues of VFB.
The expected rally from late FY09 to early FY10, on the back of (1) the expected
sharp sequential improvement in liquidity from 4Q FY09 to 1Q FY10; (2) the rising
earnings momentum; and (3) the expectation of Rmb appreciation as of 2Q FY10,
quickly fizzled out, with MSCI China index only up 8.6% from 61.68 on December
21, FY09 to 66.99 on January 6, FY10. This is because (1) China kicked off its
tightening cycle much earlier than expected with its first RRR hike on January 12,
FY10; and (2) China’s banking authorities reportedly asked the banks to cut back on
the new lending in 1Q FY10 to avoid the normal front-loaded lending practice, thus
dashing the hope of a sharp sequential improvement in 1Q FY10 liquidity.
We read the first RRR hike on January 12, FY10 as a signal of the upcoming
tightening cycle, and turned more cautious on China market. In our strategy note
dated January 12, we downgraded banks from OW to Neutral in our model portfolio
and recommended clients to switch from interest rate and macro sensitive sectors to
defensive growth sectors.
Going forward, we believe MSCI China could see more downside in the coming
months, because of: (1) liquidity withdrawal concern. China’s M2 growth is expected
to slow down from 27.7% in FY09 to 17% in FY10. Historically, China’s money
supply growth tends to lead MSCI China’s performance. (2) multiple contraction
concern due to the rise in China equities’ risk premium arising from the uncertainties
over China’s exit strategy, and the inflationary outlook.
Indeed, we see heightening risks of tightening in China, with the timing of first RRR
hike being earlier-than-expected (kicking in January rather than 2Q10). In our view,
we could see more and harsher tightening measures to come from China in the
coming months, as China’s CPI is expected to keep rising till July/August, FY10,
before tapering off. These tightening measures may include more RRR hikes, interest
rate hikes, window guidance to regulate banks’ lending, and possible price caps on
commodities, such as coal, edible oil, and fuel, to control CPI.
Despite the correction over the past month, MSCI China has yet to fully price in the
current tightening cycle in China, as MSCI-China’s current trailing P/B valuation of
2.23x is still well above the trough trailing P/B ratio of 1.91x in FY04, when China
equities suffered a tightening triggered correction. This implies that China equities’
multiples may well contract in the coming months with the expected more tightening
measures to be released by the government in the coming months. This is especially
true of the macro sensitive sectors perceived to be the most vulnerable to the
tightening measures, such as property, cement, steel, aluminum, copper, construction,
trucks etc.
In addition, while MSCI China's earnings risk is still likely on the upside for FY10,
we hold that market may want to discount the risk of possible downward earnings