Weekly Report 4th,4,2011

Weekly Report4th, April, 2011 Domestic MarketBy the end of last week, Shanghai Composite Index closed at 2967.41 with a decline of 0.35% and the total turnover was 818.1 billion. Shenzhen Component Index closed at 12699.42 with a decline of 1.87% and the total turnover was 553.2 billion. Both of these two indexes went down with a large amount of capital outflow, indicating the short term momentum is not enough to break through previous pressure.Macro AnalysisShort-term policies face the possibility of entering the observation period, which is a favorable period of valuation repairing. There are four reasons. Firstly, the average housing price growth in first tier cities has slowed down. The enhanced guarantee houses, new housing in April and the control target of most key cities, these factors give a good reason for central government to stop to check the regulation effect. Secondly, the monthly CPI data made another high value, but mainly due to carryover effect. Meanwhile, the price of agricultural products ratio compared with previous month decline for three consecutive weeks, which partly ease the inflation. Thirdly, the central bank restore their tool to issue central bank bill to regulate the liquidity, which means that the market may be too frequent for central bank reserve ratio adjustment concerns will be reduced. Finally, quarterly meeting of the central bank issued a press revealing the current monetary and credit growth under the control of policy toward the established goals. More stringent control policies may need further observation.Strategy AnalysisOn the second quarter, the main line of market is expected to shock. On the contrary to pursue the growth with high uncertainty margin of safety, we prefer to search for the valuation of growth based on the certainty of transition opportunity. Except the underestimated financial and real estate, sectors based on inflation and economic growth is going to be the focus of investors. So, we think the investment opportunities might be in several industries, such like alternative energy and new energy sources (hydroelectric, wind power, etc.), energy transmission (high voltage and other electrical equipment), environment protection (rubbish recycle, rubbish burning, etc.), guarantee housing (construction machinery, construction material, etc.).SectorsFinance and real estate are the superstars last week. Perfect yearly reports of most banks and underestimated valuation of real estate stocks turn into the strong support for their stocks’ price. We think the momentum of valuation restoring hasn’t completed. Banks and real estat e firms are just at their beginning step of long term growth. In addition, energy resource relevant stocks and some corporations with the major of machinery are still in their bottom of evaluation of which P/E around 20. We think they are going to be concerned by investors more and more in the second quarter.Hotspots【Xiaochuan Zhou：China isn’t hurry to join SDR】The president of China Central Bank Xiaochuan Zhou indicates that we are glad to join SDR any sooner. There isn’t any “absolute condition” for RMB to join SDR. However, we still need more time that RMB could be accepted all around the world. (China Security Newspaper, 31st, March)【Short term external debt balance increases in last seven months】State Administration of Foreign Exchange releases the data on 31st ,March, which shows that our foreign debt balance and short term foreign debt balance are 548.9 billion and 375.7 billion respectively by the end of last year. The short term external debt is 68.44% of the total external debt. This number is increasing continually in last seven months. But, comparing with the state foreign exchange reserves, the occupancy of short term external debt is 13.19%, which the number is under the red line of international principle. (China Security Newspaper, 31st, March)【Ministry of Land and Resources declares a new document to control the total excavating quantity of tungsten-ore, antimony-ore and rare earth mineral】Based on the mineral resources planning and relevant requirements from “the temporary rule of specified minerals of which protective mining exploration and exploitation”(Ministry of Land and Resources issued “2009” No. 165), the comprehensive study of reserves, the existing prospecting and mining rights, as well as market demand, trends and other factors, the ministry decided to continue the total control and management on tungsten-ore, antimony-ore and rare earth mineral. (Shanghai Security Newspaper, 31st, March)【National Development and Reform Commission approves ten big wind power generation projects】National Development and Reform Commission announced they had approved 10 big wind power generation projects including Tong Liao Kai Lu Million-kilowatt grade wind power base and Shenzen Energy. An observer says the signal means the development of wind power in China is still within high speed. In near future, wind power market will increase fast. However, domestic wind power industry still faces two problems of which core technology missing and grid synchronization. (Hexun, 31st, March)【Yearly report of Funds】All the funds announced their 2010 yearly report till 31st, March. Based on the statistics by Tian Xiang, 60 fund management corporations and their 656 funds only make 5.08 billion RMB profit in 2010. Comparing with the number 900 billion in 2009, it’s a sharp decline. But, with considering the A stock market’s 14% decline, actually, those fund should be given a good review in 2010. (Shanghai Security Newspaper, 31st, March)【The domestic trade development planning will publish quite soon】As latest news, “The domestic trade development planning (2011-2015)” will be announced as a national planning in April. This planning aims to expend the consumers demand. By the end of 2015, the total consumable profit will be more than 30 trillion and twice as much as 2010. This means the compound growth will be more than 3 trillion a year and the market size will increase dramatically. (Hexun, 1st, April)【PMI in March is 53.4%】National Bureau of Statistics announces PMI in March rise up 1.2% to 53.4%. This is the first growth after three months’ decline. (Hexun, 1st, April)【The improper coal price is going to be punished strictly】National Development and Reform Commission requires that each coal production provinces should enhance to coordinate production, transportation and demand. They can’t split the market to restrain their coal being transported out of their own region. The transportation firm should complete the contract strictly with quantity, quality, price and being on time. Meanwhile, some tax relevant to the coal is deleted to reduce the burden of these firms. (Hexun, 2nd, April)Hong Kong MarketHang Seng Index closed at 23,801.90. This week has risen 643.23 points, or 2.78% refer to last Friday. The turnover returned back to 90 billion every day. China Enterprises Index closed at 13,451.48, going up 487.32 points, or weekly 3.67% in growth. Affiliated corporation index closed at 4332.83 points, going up 175.86 points, or weekly 4.08% in growth.Hotspots【Offshore interest rate goes down 27 Bp】The Central Bank announced that the offshore interest rate in Hong Kong will be cut down 27 Bp from 1st, April. Analysts and traders said this adjustment may help to constrain offshore RMB arbitrage activities. (Hexun, 1st, April)Strategy AnalysisThe big cap stocks just go into their path of growth. We think next round of growth is still around recent hotspots, such as China-found financial stocks and real estate firms.SectorsFinanceChina-found financial stocks benefited from their outstanding revenues continue their strong performance in the market. Ping An Insurance (02318, HK) rise 7.48% and China Pacific Insurance (02601, HK) rise 6.39%. Agriculture Bank (01288, HK) and Bank of Communication (03388, HK) make the growth of 5.71% and 2.91% respectively. Other bank stocks increase about 1% in average. Only Chongqing Rural Commercial Bank (03618, HK) drops 13.42%. Because the predictive value of its interest margin is reduced.Real EstateAll the domestic real estate stocks rise up. China Resources Land (01109, HK) gains a 12.20% up in the last week. Hengda Real Estate (03333, HK) gets a 10.10% up. Other real estate stocks make an average growth more than 5%.Food and BeverageTingyi (00322, HK) announced 2010 annual results, sales up 31%yoy to US$6.68 billion, net income up 24%yoy to US$477 million. There are several reasons to upgrade its assessment to outperform. Firstly, instant noodle and beverage sectors maintain high growth rate. Secondly,the company gross margin decreased by 6ppt to 28% in 2010, the historically lowest level. Thirdly, though the company witnesses an obvious decline in gross margin in 2010, the Company‘s cost control in terms of selling expenses and administrative expenses is very effective in 2010 and net margin is only down 0.4ppt in 2010.Zhang Yu4th, April, 2011。