2014.9.8-2014.9.14

AIFMC Macro & Market Weekly (QFII)

September 15, 2014

Macro Review and Outlook

• China CPI in August rose by 2.0% year-over-year, a 4-monthly low, as PPI dropped in its 30th consecutive month

by 1.2%. CPI in August fell short than the seasonal pattern, lower than the market expectation. PPI in August had larger

falls both year-over-year and from last month, similar to the Purchase Price Index in August, which shows a weak short-

term perspective for the business operations of industrial corporations.

• M2 in August grew by 12.8% year-over-year, with newly added RMB deposits of 108 billion yuan. The total

societal financing amount in August was 957.4 billion yuan, among which the newly added RMB loans were 702.5

billion yuan. Loan issuance in August was comparatively stable after the fluctuation in July and was a small drop year-

over-year. Due to a large base from the same period last year, there is a significant drop in total societal financing amount.

The slowdown in M2 growth in August may be due to the drop in corporate deposits, as off balance sheet financing

shrunk.

2

Source: AIFMC

M2 Growth Fell Inflation Rate in August Lower Than Expectation

M2 Year-

Over-Year M2 Monthly

Change CPI-PPI

CPI Year-

Over-Year

PPI Year-

Over-Year

Macro Review and Outlook

• Industrial added value growth dropped below expectation in August. The industrial added value in August grew by

6.9% year-over-year, lower than the 9% in July. Combined with inflation rate and PMI, it reflects a weak overall market

demand.

• Investment growth continued to fall in August. The property investment growth in August dropped by 2.3% to 13.3%.

Many sub categories dropped in the second consecutive month, after a small rebound in June.

• No clear sign of improvement in consumption shows a weakening in catering revenues. The nominal growth in

social retail consumption dropped by 0.3% to 11.9% in August, while the real grow rose by 0.1% to 10.6%. The revenues

in catering companies narrowed in growth for the third consecutive month.

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Source: AIFMC

Investment Growth Slightly Slowed in August Industrial Added Value Growth Slowed in August

Property Investment Growth

(Year-Over-Year)

Property Investment Source

(Year-Over-Year)

Industrial Added Value

(Year-Over-Year) HSBC PMI Total Societal Financing

(Year-Over-Year)

Observation of Liquidity

• After 4 weeks of small net investment, the PBOC has net withdrew 5 billion yuan from the market.

• Interbank interest rate kept stable. Last week, the one-month SHIBOR stayed unchanged at 4.0%, while the 7-day

SHIBOR stayed at 3.2%. In terms of the exchange, the 7-day repo average rate rose by 19 basis point to 3.40%.

• Treasury yields slightly bounced back. Last week, all treasury yields slightly rose. The 3-month treasury yield rose by

7 basis points to 3.58%; the one-year treasury yield rose by 4 basis points to 3.82%; and the 10-year treasury yield

dropped by 1 basis point to 4.28%.

4

Source: AIFMC

Treasury Yields Slightly Bounced Back Interbank Interest Rates Kept Stable

3-Month

Rate

One-Year

Rate

10-Year

Rate

Weekly Review of Bond Market

• Corporate bond yields slightly rose. Last week, corporate bond yields slightly rose; high-rate corporate

bonds’ average yield increased by 6 basis points. The credit spread between high-rate corporate bonds and

treasury bonds rose by 2 basis points, while the credit spread between low-rate and high-rate corporate

bonds rose by 2 basis points.

• Quasi-municipal bond yield fluctuated at a small scale. Quasi-municipal bond yields continuously

dropped from March to July, but stabilized in August and slightly rose this week. Last week, the high-rate

quasi-municipal bond yield rose by 2 basis points, and the low-rate bond yield rose by 2 basis points. The

credit spread between quasi-municipal bonds and treasury bonds stayed the same as the previous week.

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Quasi-municipal Bonds Yields Fluctuated At a Small Scale One-year Corporate Bond Yield Slightly Rose

Corporate Bond

AAA

Corporate

Bond B

Credit Spreads (Corporate

Bond AAA-Treasury Bond) Quasi-municipal

Bond AA

Quasi-

municipal

Bond A-

Credit Spreads (Quasi-

municipal Bond AA-

Treasury Bond)

Source: AIFMC

Weekly Review of A-shares

• Last week’s index rose by a small margin. Last week, the Shanghai Composite Index closed at 2331.95,

a rise of 0.23 %, as most industries rose. In terms of specific industries, only non-bank finance, food &

beverages and banking were in negative, while defense & ministry, textile & apparel and mechanics had

the biggest rallies. In terms of styles, growth stocks had the better performances, as finance stocks had

relatively small gains.

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Price Changes in a Week

Price Changes in a Week - Industries

CS

Co

mp

ute

rs

CS

Elec

tric

ity

&U

tilit

ies

CS

Def

ense

&

Min

istr

y

CS

Elec

tro

nic

s

CS

Pet

role

um

&

Pet

roch

emic

al

CS

Tele

com

CS

Agr

icu

ltu

re,

Fore

stry

& F

ish

ing

CS

Cat

erin

g &

Tou

rism

CS

Co

mm

erce

&

Ret

ail

CS

Ph

arm

aceu

tica

ls

CS

Ferr

ou

s M

etal

CS

No

n-b

ank

Fin

ance

CS

Elec

tric

Eq

uip

men

t

CS

Mec

han

ics

CS

Ligh

t M

anu

fact

uri

ng

CS

Au

tom

ob

ile

CS

Text

ile

&A

pp

arel

CS

Ho

use

ho

ld

Ap

plia

nce

s

CS

Co

al

CS

Stee

l

CS

Foo

d

&B

ever

ages

CS

Tran

spo

rtat

ion

CS

Co

nst

ruct

ion

CS

Bas

ic C

hem

istr

y

CS

Ban

kin

g

CS

Bu

ildin

g M

ater

ials

CS

Rea

l Est

ate

CSI

30

0

SME

Ind

ex

GEM

Ind

ex

Fin

ance

(st

yle)

Cyc

le (

styl

e)

Co

nsu

mp

tio

n

(sty

le)

Gro

wth

(st

yle)

CS

Med

ia

Stab

le (

styl

e)

Source: AIFMC

CS

Foo

d &

B

ever

ages

PE Of Traditional Cyclic Industries Held At The Bottom

• In terms of industry valuation, banking, construction, petroleum & petrochemical and coal are currently at

the bottom, while defense & ministry, computers and media are at relatively high levels. In terms of

historical records, banking, real estate, insurance, petroleum, coal, and construction & building materials

are currently at the bottom, while defense & ministry, computers and media are at historical high.

Compared to the valuation of the entire A-share market, banking, construction and electricity & utilities

are currently at discount. Defense & ministry, media and computers are in premium.

7

Industry PEs (dynamic)

Max. since 2011 Min. since 2011 -Latest

Source: AIFMC

For more information, please contact: James Shang, Vice President, International Business Department shanjc@xyfunds.com.cn, +86-21-20398713, +86-186-2139-1100 Beiming Zhang, QFII Sales Associate, International Business Department zhangbm@xyfunds.com.cn, +86-21-20398968, +86-136-1173-2255

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