财经观察 2094 --- QE will push liquidity to China

Party is not over this year: QE will push liquidity to China

This morning, we have a debate on where will the mkt go in the following year. I have summarized as below:

1) QE will lead to asset bubble in Emerging markets. Just as in 90's, low growth in developed countries + easening monetary policy will lead liquidity flow into emerging markets which at least have some growth and better than developped countires. Equity mkt bubble, bond mkt bubble, property mkt bubble will finally lead to inflation. Govt will squeeze liquidity to control inflation in the end. But inflation will not be concern at least for this year given still low economy growth. So in all, party will not be over this year.

2) Currency and commodity price: Currency depreciation is the only to ease debt problems of each govt. We expect USD will depreciate in short-mid term due to ppl's concern on US's rating following UK got downgraded by rating agency. In long term, we expect it will go strong since EU and Japan's economy is still worse than US. We expect commodity price continue go strong in the following year given ppl's inflation expectation and QE.

3) De-leveraging will be over more quick than expected: US shadow banking system is recovering, and much faster than mkt expected. The contunuing of this process will generate further more liquidity, driving up asset prices, and resulting in more liquidity.

4) What to buy in 2H09: We are bullish on exports/consumptions/property now. We believe these sectors will have upside surprise. For exports, US Q3 GDP will likely be positive, and Japan Q3 GDP will be +3% and G4 will be +6%, truely V shape rebound. In consumptions, we already see good numbers: China retailing sales +15% in recent months, Dongxiang 4Q order + 21% YoY, Parkson +9% SSSG. More importantly, with financial independence of 80's and 90's, consumption upgrading will be more and more likely in China. Thus, our top picks for 2H09 is CMH (144.HK), Dongxiang (3818.HK), Li Ning (2331.HK), Parkson (bit expensive, suggest to accumulate on dips), Agile (3383.HK), Greentown (3900.HK), Sino Ocean (3377.HK), COLI (688.HK).

5) When the party is over: When inflation is back and govt begin to squeeze liquidity. Certainly, it will not be this year.