- Equity market near the bottom "Policy headwinds that had caused turbulence in the market are finally settling, along with downward trending economic growth. Policy overhangs and a growth slowdown are key downside risks in 2H."
- Signs of market stabilization "Macro indicators in general are supportive for the market. The margin squeeze has probably reversed softening commodity prices, currency appreciation, and still elevated CPI inflation. Liquidity stretch is likely near its end. Economic slowdown is a risk, but often lagging the market. We expect growth to bottom in 4Q this year or 1Q next year."
- Market trend "The Shanghai A-share market has tested the 2200-2500 range recently as expected. The market may remained mixed in the near term before a liquidity rally is formed. We expect the Shanghai A-share index to touch the range of 2800-3100 before year-end, likely outperforming the H-share market in the second half of the year."
- Sectoral preference "The market will likely remain selective. In general, we overweight consumer, insurance, transportation, healthcare, autos, techs, and electrical machinery & equipment, while we underweight property, banks, and materials."
- Multi-Strategy: Support for China market "1) HSCEI has remained flat since mid-
May 2010, 2) Liquidity should ease, 3) Rates curve suggests little hikes, 4) HSCEI IVOL term structure shows the market is expected to be less volatile going forward, and 5) the USD rally appears to be over."
Citigroup China Equity Strategy 20100726
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