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雷达卡
5 January 2009
China Macro Strategy
China: Themes and
Strategy for 2009
Navigating a year of deceleration, deflation, and consolidation
Jun Ma, Ph.D
Chief Economist
(852) 2203 8308
jun.ma@db.com
Wenjie Lu
Research Analyst
(852) 2203 6187
wenjie.lu@db.com
Deutsche Bank AG/Hong Kong
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may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
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We expect the current economic deceleration in China to be worse than that
during the Asian Financial Crisis. We forecast GDP growth to decline from 9%
in 2008 to 7% in 2009 and 6.6% in 2010.
Our quarterly GDP growth outlook is a double-dip scenario. Following the first
dip to around 6% in Q4 2008, growth may tentatively recover in H1 2009 but
will likely slide again, until hitting the second trough in H1 2010.
We expect 2009 to witness the worst deflation in 10 years, with CPI inflation
falling below -1% in February and PPI inflation declining to -7% in Q3.
Our top-down analysis suggests downside risk of 15-20ppts to the current
consensus 2009 EPS growth estimate of 6% for the H-share index.
We believe the market will likely be range-bound in the next two quarters
(from 8x to 13x 09PE), but a substantial rally may happen in H2 2009 (6-9
months ahead of GDP trough). Given this outlook, we will stay defensive in
the near term (e.g., in H1 2009), and switch to a more aggressive asset
allocation when signs of an end to analyst downgrades emerge -- hopefully by
the middle of 2009.
For now, the key sectors we Underweight include banks, raw materials, dry
bulk shipping, consumer discretionary and property. We Overweight telecom,
oil refining, IPP, F&B, railway construction, healthcare, education and online
gaming.
The following investment themes support our sector allocation strategy:
1. Deflation: negative for property, commodities, and banking, but positive
for F&B, IPP, and oil refining.
2. Counter-cyclical services: healthcare, education, and online gaming
should demonstrate significant resilience to the economic slowdown.
3. Consolidation: survivors in steel, non-ferrous, and property sectors will
be important long-term beneficiaries of the ongoing industrial
consolidation.
4. Rural reform: electronics – ST beneficiary, rural consumption – LT
winner.
Table of Contents
Macroeconomic outlook ................................................................... 4
2009’s growth outlook is worse than 1998-99’s.......................................................................4
Quarterly GDP profile for 2009-10: a double-dip scenario.........................................................5
Investment growth to fall to single-digit levels in 2010.............................................................6
Exports to decline in 2009; worst performance in 32 years......................................................7
Retail sales growth may slow to 13% in 2009 from current 21% ............................................8
Deflation could likely become a reality......................................................................................9
Monetary policy ........................................................................................................................9
Fiscal policy............................................................................................................................10
Real estate policy....................................................................................................................11
RMB outlook ...........................................................................................................................12
Market strategy ............................................................................... 14
Economic slowdown will likely be sharper and longer than market expectations ..................14
Further 2009 EPS growth downside of 15-20ppts..................................................................14
Sectors that benefit from government investments are very small ........................................16
Market valuation......................................................................................................................16
Market outlook........................................................................................................................18
Underweight banks, raw materials, dry bulk shipping, consumer discretionary and property 18
We Overweight telecom, refining, power, F&B, railway construction, healthcare, education,
and on-line gaming..................................................................................................................20
Our top picks..........................................................................................................................21
Theme #1: Deflation ........................................................................ 24
2009: worst deflation in ten years...........................................................................................24
Sources of deflation ................................................................................................................24
Beneficiaries of deflation: F&B, IPP, and refining....................................................................26
Victims of deflation: property, commodities, and banks.........................................................28
Theme #2: Beneficiaries and losers in the cycle ........................... 29
Comparison with the 1997-2003 cycles..................................................................................29
Beneficiaries in the decline phase: telecom, healthcare, consumer staples, and utilities .......30
Losers in the decline phase: materials, financials, and discretionary ......................................30
Beneficiaries in the recovery phase: materials, financials, consumer discretionary................31
Losers in the recovery phase: F&B and low-magin industrials................................................32
Differences between the current cycle and the previous two ................................................32
Investment implications ..........................................................................................................33
Annex: sub-sector revenue and profit growth during recent cycles........................................34
Theme #3: Industrial consolidation................................................ 36
Case study 1: Korea’s steel industry .......................................................................................36
Case study 2: China’s coal industry ........................................................................................36
Lessons from case studies .....................................................................................................37
Property, steel, and non-ferrous provide the most benefit for consolidators..........................38
Theme #4: Social services and low-cost entertainment .............. 41
Healthcare..............................................................................................................................41
Education ...............................................................................................................................44
Online gaming.........................................................................................................................46
Theme # 5: Rural reform ................................................................. 48
Rural income growth will likely slow to 5% 2009 from 13% p.a. in past years ......................48
Rural electronics subsidy program to benefit producers ........................................................50
Long-term benefits from land reform......................................................................................52
Market implications.................................................................................................................53
Table of Contents (Cont'd)
Theme #6: Government-sponsored investments.......................... 55
Government sponsored investments are far from sufficient to offset the slowdown in
corporate investments ............................................................................................................55
Financing and execution .........................................................................................................56
Impact on raw material demand .............................................................................................58
Investment implications ..........................................................................................................59
Appendix A: DB China Universe..................................................... 62
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