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CLSA's Complete 2011 China Outlook

Tyler Durden's picture




 

After a few days ago we released the "definitive" factual presentation on China courtesy of HSBC, today we look at the future of the only country that matters (and which according to Goldman was the only saving grace for America, decoupling and what not, before the firm went full propaganda retard) with CLSA's complete (124 pages) and historically very authoritative 2011 outlook on China. While not a departure from conventional wisdom in any way, all those who wish to follow trends and be part of the lemming herd for as long as possible, are advised to read the report: it will certainly permit the collection of a few pennies before the rollercoaster shows up. And when that happens, everyone will naturally quickly and quietly pocket their profits and head for exits in a cool, calm and collected manner. Because, after all, what else can you do when "trading the tape" aka being a momentum trader, is all that works...

Choice selection:

In 2011, Beijing will be firmly on top of the liquidity bull unleashed in 2010, however it must be cautious in a year without stimulus. While excess liquidity will be a market negative as in 1H10, we are confident that the government can rein in rising prices, but do not expect inflation to peak until 2Q11. This could provide a buying opportunity as the market is likely to rally once tightening ends. The New Year marks the start of the country’s 12th Five-Year Plan and a transition to new leadership. Key policies - supported by   innovative tax reforms - centre on boosting income, energy efficiency, urbanisation and strategic industries. We forecast 25% upside for MSCI China and 20% upside for HSCEI next year, implying 13x and 12x 2012 PE.

The IMF estimates that global investors are still underweight emerging markets. A 1% reallocation of global portfolios could bring more capital in than at the 2007 peak. On top of this, China has had to fend off the impact of hot money from currency appreciation. These capital flows, coupled with unprecedented loan growth, have seeped into CPI inflation and the government is likely to impose further capital controls. We are at the beginning of a rate-hike cycle, but are unlikely to see a repeat of 2007-08 as Beijing has been proactive in tightening credit. The renminbi should appreciate about 5%, but not much more, given the lessons learned from yen appreciation and Japan’s lost decade.

The USA’s second round of quantitative easing has increased China’s concerns about its trillions of dollar reserves and its reliance on the greenback. The PBOC believes the credit crisis is due to the “Triffin dilemma” which states that the country providing an international reserve currency must be willing to run large deficits to supply the world with enough of its currency. This is why China has accelerated renminbi internationalisation to eventually make it a reserve currency. The mechanics require a large amount of renminbi circulating offshore that could overwhelm Hong Kong which is already battling asset-inflation problems. A logical next step would be to reintroduce the individual Qualified Domestic Institutional Investor (QDII) programme.

Our 2011 survey indicates that fund managers are bullish on China, especially A shares. They are most positive on consumer stocks, negative on property and split on the banks. The biggest fear is inflation. Next year, we could see a repeat of 2004, where markets rallied once tightening was done. We would remain tactically Underweight banks, consumer staples and property until inflation peaks. Without stimulus, we are cautious on steel, machinery and construction. We are Overweight the internet, consumer discretionary, gold, insurance, transport, industrial and energy sectors. Our 2010 top picks did well with Baidu up 166% YTD, Dongfang 89%, Air China 71%, Ctrip 23% and CRL -18%, while our China portfolio is up 19% YTD, outperforming the MSCI by 13%. Our 2011 top picks are Baidu, GCL-Poly, Sands China, Great Wall and Ping An.

Full report:

 

 

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Sat, 12/11/2010 - 13:18 | 798721 TexDenim
TexDenim's picture

Take a look at the Renminbi appreciation section. It's all about the currency, which other analyses fail to appreciate. This one is actually quite insightful.

Sat, 12/11/2010 - 13:18 | 798724 DavidC
DavidC's picture

2008 never happened, so it seems...

DavidC

Sat, 12/11/2010 - 13:27 | 798747 boricuadigm-shift
boricuadigm-shift's picture

Has anyone been able to order Max Keiser Silver bullions?  When I tried it tells me a I need a shipping method, but there isn't an option for this.  Anyone experiencing the same?

Sat, 12/11/2010 - 14:02 | 798804 Spalding_Smailes
Spalding_Smailes's picture

Thanks TD.

Sat, 12/11/2010 - 14:56 | 798879 TexDenim
TexDenim's picture

What possessed the editors to put a Euro-looking man riding a bull on the cover? How dumb. But the report itself was well worth the hour I gave it.

Sat, 12/11/2010 - 15:21 | 798903 Spalding_Smailes
Spalding_Smailes's picture

I've done graphic design/retouching/marketing in the past. The graphics, color, layout in most of the reports is brutal ....

It really takes away from the content but this report is packed with great info-

All my time is spent researching China/India. I plan on trading/investing most of my money over the next 10-15 years in these two markets.

Sat, 12/11/2010 - 20:30 | 799393 squexx
squexx's picture

Maybe the term "Bull Riding" might be a clue, genius. It calls to mind cowboys riding a bull. You'd prefer they'd put a Chinaman on it?!? But then, PC Nazi's like you would call that "ethnically insulting!"

Sat, 12/11/2010 - 19:48 | 799340 Zeilschip
Zeilschip's picture

Lol, I think it's Hu Jintao riding the bull.. too bad btw the pdf can't be downloaded from Scribd..

Sat, 12/11/2010 - 21:38 | 799474 TemporalFlashback
TemporalFlashback's picture

Who is going to be a champ today and post a link to the PDF?

Sat, 12/11/2010 - 21:58 | 799508 l0nEr
l0nEr's picture

http://bbs.futu.cn/t-1140
Got to register for an account though.

Mon, 12/13/2010 - 00:14 | 800959 TemporalFlashback
TemporalFlashback's picture

Thank you for the link.

Sun, 12/12/2010 - 13:35 | 800179 TheProphet
TheProphet's picture

Click on PRINT at the top of the Scribd window. When the dialog box to select a printer appears, select ADOBE PDF. Most computers will have this option. Then click the PRINT button. It will ask for a file storage location. Click DESKTOP and give the PDF a racy name.

If you do not have ADOBE PDF as an option, I can't help you.

Sun, 12/12/2010 - 23:54 | 800941 TemporalFlashback
TemporalFlashback's picture

Thank you.

Mon, 12/13/2010 - 00:02 | 800952 Wolf in the Wilds
Wolf in the Wilds's picture

Don't necessarily agree with Mr Wood and his team on all points:

 

http://viewfromthewilds.blogspot.com/2010/12/china-inflation-and-state-council.html

 

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