Background: China State Council announced 10 major economic measures and will spend Rmb4 trillion by the end of 2010, to help boost economy and cursion macro-slowdown.
How we interpreted this 4 trillion package:
1. It is not as reported by many media including FT as "rise or incremental" fiscal stimulus package, it is more likely a summary of total investment coming from government in the next 2 years. Therefore, our economist estimation, the incremental increase in the coming two year is about 5600 billion, which contribute 1.8% on 2009 GDP growth. 2. What will be the component of this package?
Focusing on four key areas: people’s livelihood (low-income housing, healthcare, education), infrastructure (rural infrastructure, railway, highway, airport), environment protection (ecological development, water treatment), and post-disaster reconstruction. It can also help absorb overcapacity in raw material sectors. But the boost of low income house might give negative impact on property developer.
3. Economic data is really bad:
Accelerated economic downturn forced the Chinese government to change its policy stance. According to media reports, China’s electricity generation volume and fiscal revenue may decline YoY in October, the first time since 1998 and 1996, respectively. The October PMI index is the lowest since 2005. All these indicate accelerated economic deterioration and prove our view that the Chinese economy faces much greater challenges now than in 1998. We therefore lower our GDP growth forecast to 8% for 4Q08 and 9.3% for FY08.
4. What is the near future of economic policy,
I don't know to translate these 4 chinese word by Primere Wen "扩大投资出手要快，出拳要重，措施要准，工作要实" , a summary in english is we need decision action in the fast possible way. Further more, the “moderately loose” monetary policy is a new policy stance and also confirmed our expectation that monetary policy responses should be quicker and more aggressive than before. We reiterate our view that China may cut interests rate by another 216bp and the RRR by 350~550bp by the end of 2007, with the size of each IR cut larger than 27bp.
So expecting more interest cut by 54 bp very soon!
5. My personal recommendation:
Expect this rebound not to last too long under fragile market sentiment, and suggest to consider clear up some positions on those cyclical sectors gradually which rallied the most. (cement, steel and etc)
Banking will suffer further with asymmetric interest cut, I keep negative on this sector too. | 
发表于 2008-11-11 15:03
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