Global Equity Strategy China: A Currency Conundrum

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1 STRATEGY NOTE China Equity Strategy Equity Strategy China: A Currency Conundrum Key Takeaway In a surprise move China allowed its exchange rate to drop by around 2% today. Although the change came on the back of weak July export data released a few days ago, we are not trying to relate the two events. In our view, the cut is more likely an attempt to reflect capital account outflows and the fact that the balance of payments data has turned modestly negative. The change has unsettled investors, especially after a series of weak macro data points and the efforts to stabilize the stock market. It is important to distinguish between the signal and the noise. Overall Chinese monetary policy has been tight. Real interest rates have been high and the appreciation of the currency in both real effective terms and on a trade weighted basis has also tightened monetary conditions. Exports have been weak but this is no different from a lot of other Asian and developed economies since global trade has been depressed. China s terms-oftrade (exports-to-import prices) have been sharply positive and this has led to a booming trade surplus helped by collapsing commodity prices. Equally, the current account surplus has been running above 2% of GDP. On this basis the currency does not need to weaken. We believe there have been three reasons for the change in the direction of the currency. Firstly, FX reserves have not been growing and the recent appreciation of the exchange rate did not reflect the underlying balance of payments position that well. Secondly, the authorities appeared to want to signal a much more relaxed attitude to currency changes in line with the recent widening of the RMB band and also reforms to the bond and interbank markets. Thirdly, the REER (Real Effective Exchange Rate) had probably overshot their own targets. Ironically, almost ten years ago the Chinese currency was unpegged from the dollar in a surprise move that actually signaled the start of China s financial industry big bang. There has been an understandable nervousness over China macro data recently and the recent stock market fiasco has increased investor s paranoia about the ability of the authorities to manage the economy. The simple fact is that FX reserves are not growing anymore and are actually falling (see charts RHS). This is more due to capital outflows rather than weak exports (see the errors and omissions chart). The PBOC has artificially supported the FX regime probably to demonstrate FX stability ahead of the SDR decision (this decision has been recently postponed). Hence, there has been no need to prop up the exchange rate against falling FX reserves. Similar to other Emerging markets, China s monetary system absorbed a lot of the cheap US dollars that flooded during the US QE. Chinese companies borrowed significantly in US$ over the past five years and, with a stronger dollar, higher US rate expectations have meant that capital is now leaving the economy. Hence, FX reserves have dropped on an annualized basis. (cont'd overleaf) China Real Effective Exchange Rate Broad China Balance of Payments Net Errors and Omissions 60,000 40,000 20,000 0 (20,000) (40,000) (60,000) (80,000) (100,000) (120,000) (140,000) (160,000) China M2 % y-y Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 China Foreign Exchange Reserve Change % y-y (10.0) (20.0) Source: CEIC, Jefferies China Job Openings to Job Seekers Ratio (x) Source: Wind, Jefferies China Trade Balance 80,000 60,000 40,000 20,000 0 (20,000) (40,000) Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Source: CEIC, Jefferies Sean Darby * Chief Equity Strategist sdarby@jefferies.com Christie Ju, CFA * Equity Analyst cju@jefferies.com Venant Chiang * Equity Analyst venant.chiang@jefferies.com Parvani Zheng * Equity Analyst pzheng@jefferies.com Kenneth Chan * Quantitative Strategist kenneth.chan@jefferies.com * Jefferies Hong Kong Limited EQUITY STRATEGY GLOBAL Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see analyst certifications, important disclosure information, and information regarding the status of non-us analysts on pages 8 to 12 of this report.

2 The strength of the RMB has been in contrast to weaker balance of payments data and the authorities have probably been late in trying to adjust the exchange rate to reflect the deteriorating capital account. This was probably due to the discussions over RMB becoming part of the SDR. It is interesting to note that the acceleration in outflows occurred from mid-2014 as the dollar strengthened. It is worthwhile to point out that the outflows had begun well before the new leadership took effect. It is not simply a reflection of capital flight caused by the corruption clampdown. China s export numbers have been weak but the rest of the emerging markets have experienced the same problem. If China really wanted to stimulate exports it could easily introduce export subsidies. This is a much more effective way of boosting selective industries and has been used in the past. The fact is that trade has been weak for everyone. A weaker yuan won t boost global demand The bottom line is that we believe investors will orientate portfolios towards more rate cuts rather than currency weakness. Real rates are way too high, in our view. The big deterioration has come from the capital accounts. This has been driven by approved outflows for investment overseas and capital flight/us$ carry trade repatriation. M2 has finally begun to revive suggesting that the lag effects of monetary stimulus are beginning to work through. As long as employment conditions don t deteriorate sharply (see RHS chart) then there should be no need for dramatic stimulus. The services sector is doing well in China. In Exhibit 8, we highlight USD-denominated debts for some of the companies we cover. In Exhibit 9, we screen out China and Hong Kong companies with large outstanding amount of USD-denominated debts. page 2 of 12 Sean Darby, Chief Equity Strategist, , sdarby@jefferies.com

3 The REER has been so high Exhibit 1: China Real Effective Exchange Rate Broad The trade account (exports minus imports) has been positive Exhibit 2: China Trade Balance (USD mn) 80,000 60,000 40,000 20,000 0 (20,000) (40,000) Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Source: CEIC, Jefferies at a time of capital flight Exhibit 3: China Balance of Payments Net Errors and Omissions (USD mn) 60,000 40,000 20,000 0 (20,000) (40,000) (60,000) (80,000) (100,000) (120,000) (140,000) (160,000) page 3 of 12 Sean Darby, Chief Equity Strategist, , sdarby@jefferies.com

4 FX reserves have consequently fallen Exhibit 4: China Foreign Exchange Reserve Change % y-y (10.0) (20.0) M2 numbers have begun to climb Exhibit 5: China M2 % y-y Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 A close watch should be kept on employment conditions Exhibit 6: China Job Openings to Job Seekers Ratio (x) Source: Wind, Jefferies page 4 of 12 Sean Darby, Chief Equity Strategist, , sdarby@jefferies.com

5 Market expectations are for a modest depreciation Exhibit 7: Difference btw Offshore and Onshore 12M Forward Chinese Currency (USD) (0.05) (0.10) Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Note: Difference is calculated as 12M fwd CNH rate - 12M fwd CNY rate page 5 of 12 Sean Darby, Chief Equity Strategist, , sdarby@jefferies.com

6 Exhibit 8: Portion of USD Debt in Total Debt for Chinese Companies in Consumer, Property, SmallCaps, Transportation and Utilities Sectors Sector Company Name Ticker USD Debt (in RMB mn)* % USD Debt in Total Debt Consumer Anta* 2020 HK 1, % Consumer Belle* 1880 HK 2, % Consumer Biostime* 1112 HK 2, % Consumer China Lilang* 1234 HK % Consumer CMD* 1117 HK % Consumer Golden Eagle* 3308 HK 5, % Consumer Gome* 493 HK 3, % Consumer Huishan* 6863 HK % Consumer Intime* 1833 HK 5, % Consumer Li Ning* 2331 HK % Consumer Mengniu* 2319 HK 8, % Consumer Parkson* 3368 HK 3, % Consumer Shengmu* 1432 HK % Consumer Springland* 1700 HK 2, % Consumer Suning* CH 2, % Consumer Tsingtao (A) * CH % Consumer Tsingtao (H) * 168 HK % Consumer Xtep* 1368 HK 1, % Property AGILE PROPERTY 3383 HK 12, % Property CHINA OVERSEAS 688 HK 27, % Property CHINA RES LAND 1109 HK 55, % Property CIFI HOLDINGS GR 884 HK 6, % Property COUNTRY GARDEN 2007 HK 40, % Property EVERGRANDE 3333 HK 31, % Property FRANSHION PPT 817 HK 17, % Property GREENTOWN CHINA 3900 HK 10, % Property KWG PROPERTY 1813 HK 10, % Property SHENZHEN INVEST 604 HK 11, % Property SHIMAO PROPERTY 813 HK 27, % Property SINO OCEAN LAND 3377 HK 15, % Property SUNAC 1918 HK 6, % Property VANKE PROPERTY 1036 HK % SmallCaps CP Pokphand 43 HK 3, % Transportation Air China 753 HK 83, % Transportation Beijing Capital International Airport 694 HK 2, % Transportation China Communications Construction Co 1800 HK 19, % Transportation China Eastern Airlines 670 HK 79, % Transportation China Railway Group 390 HK 4, % Transportation China Shipping Container Lines 2866 HK 21, % Transportation China Shipping Development 1138 HK 20, % Transportation China Southern Airlines 1055 HK 98, % Transportation COSCO 1919 HK 71, % Transportation Sinotrans 598 HK % Transportation Zoomlion 1157 HK 7, % Utilities Beijing Enterprises 392 HK 15, % Utilities CGN Power 1816 HK % Utilities China Gas 384 HK 13, % Utilities China High Speed Transmissions 658 HK % Utilities China Resources Gas 1193 HK 4, % Utilities Datang Corp. Renewable Power 1798 HK % Utilities Dongfang Electric 1072 HK % Utilities ENN Energy 2688 HK 11, % Utilities GCL-Poly Energy 3800 HK 11, % Utilities Goldwind 2208 HK % Utilities Hong Kong & China Gas 3 HK 6, % Utilities Huaneng Renewable 958 HK % Utilities Jinkosolar Holding JKS US 2, % Utilities Kunlun Energy 135 HK 3, % Utilities Longyuan Power Group 916 HK 4, % Utilities Shanghai Electric 2727 HK % Utilities Towngas 1083 HK % Utilities Trina Solar TSL US 2, % *Note: All debt data are from Jefferies. For companies marked with *, reported debts are the sum of USD and HKD denominated debts page 6 of 12 Sean Darby, Chief Equity Strategist, , sdarby@jefferies.com

7 Exhibit 9: Screen for Companies (country of domicile/risk= China/Hong Kong) with over US$ 500mn USD-denominated Outstanding Debts/Loans Ticker Company Name Industry Group Corporates (US$mn) Loans (US$mn) Combined (US$mn) 883 HK CNOOC LTD Energy 16, ,600 BABA US ALIBABA GROUP HOLDING-SP ADR Software & Services 8,000 8,000 16, HK CHINA OILFIELD SERVICES-H Energy 4,000 6,397 10, HK CITIC LTD Capital Goods 6, , HK TENCENT HOLDINGS LTD Software & Services 6, ,100 BIDU US BAIDU INC - SPON ADR Software & Services 4, , HK COUNTRY GARDEN HOLDINGS CO Real Estate 3, , HK SHIMAO PROPERTY HOLDINGS LTD Real Estate 2,500 1,239 3, HK CHINA UNICOM HONG KONG LTD Telecommunication Services 3, , HK CHINA PETROLEUM & CHEMICAL-H Energy 3, , HK CHINA RESOURCES LAND LTD Real Estate 2, , HK AGILE PROPERTY HOLDINGS LTD Real Estate 3, , HK SHUI ON LAND LTD Real Estate 3, , HK LENOVO GROUP LTD Technology Hardware & Equipmen 1,500 1,400 2, HK SWIRE PACIFIC LTD-A Real Estate 2, , HK CHINA OVERSEAS LAND & INVEST Real Estate 2, ,750 YAL AU YANCOAL AUSTRALIA LTD Energy 0 2,740 2, HK EVERGRANDE REAL ESTATE GROUP Real Estate 2, ,547 4 HK WHARF HOLDINGS LTD Real Estate 1, , HK SINO-OCEAN LAND HOLDINGS Real Estate 1, ,400 SSW US SEASPAN CORP Transportation 0 2,369 2, HK BEIJING ENTERPRISES HLDGS Capital Goods 1, , HK KUNLUN ENERGY CO LTD Energy 2, ,000 MPEL US MELCO CROWN ENTERTAINME-ADR Consumer Services 2, ,000 CTRP US CTRIP.COM INTERNATIONAL-ADR Retailing 1, , HK SOHO CHINA LTD Real Estate 1, , CH AIR CHINA LTD-A Transportation 0 1,951 1, HK FRANSHION PROPERTIES Real Estate 1, , HK ENN ENERGY HOLDINGS LTD Utilities 1, , HK KWG PROPERTY HOLDING LTD Real Estate 1, , HK WHEELOCK & CO LTD Real Estate 1, , HK SHENZHEN INVESTMENT LTD Real Estate 0 1,547 1, CH METALLURGICAL CORP OF CHIN-A Capital Goods 1, , HK CHINA SHENHUA ENERGY CO-H Energy 1, , HK CHINA MERCHANTS HLDGS INTL Transportation 1, , HK CHINA SOUTHERN AIRLINES CO-H Transportation 0 1,346 1, HK KERRY PROPERTIES LTD Real Estate 1, , HK CHEUNG KONG INFRASTRUCTURE Utilities 1, , HK CHINA RESOURCES POWER HOLDIN Utilities , HK CITIC RESOURCES HOLDINGS LTD Capital Goods 0 1,240 1, CH HAINAN AIRLINES CO-B Transportation , HK GREENLAND HONG KONG HOLDINGS Real Estate 1, , HK JOY CITY PROPERTY LTD Real Estate , HK YUZHOU PROPERTIES CO Real Estate 1, , HK CHINA COMMUNICATIONS CONST-H Capital Goods 1, , HK FIRST PACIFIC CO Diversified Financials 1, , HK POLY PROPERTY GROUP CO LTD Real Estate , HK YANZHOU COAL MINING CO-H Energy 1, , HK CHINA COSCO HOLDINGS-H Transportation 1, , HK HANG LUNG PROPERTIES LTD Real Estate 1, , HK SWIRE PROPERTIES LTD Real Estate 1, ,000 3 HK HONG KONG & CHINA GAS Utilities HK CITIC TELECOM INTERNATIONAL Telecommunication Services HK CHINA GAS HOLDINGS LTD Utilities HK NEW WORLD CHINA LAND LTD Real Estate SINA US SINA CORP Software & Services HK FOSUN INTERNATIONAL LTD Capital Goods HK CHINA MERCHANTS LAND LTD Real Estate HK LIFESTYLE INTL HLDGS LTD Retailing HK CHINA AOYUAN PROPERTY GROUP Real Estate HK NEW WORLD DEVELOPMENT Real Estate HK CHINA RESOURCES GAS GROUP LT Utilities HK BEIJING ENTERPRISES WATER GR Utilities HK HENDERSON LAND DEVELOPMENT Real Estate HK CHINA MENGNIU DAIRY CO Food Beverage & Tobacco HK GLORIOUS PROPERTY HOLDINGS Real Estate HK CHINA OIL AND GAS GROUP LTD Utilities HK BRIGHTOIL PETROLEUM HOLDINGS Energy HK CHINA HUIYUAN JUICE GROUP Food Beverage & Tobacco HK TCC INTL HLDGS LTD Materials HK CHINA EASTERN AIRLINES CO-H Transportation HK CHINA SOUTH CITY HOLDINGS Real Estate HK CATHAY PACIFIC AIRWAYS Transportation CH BAOSHAN IRON & STEEL CO-A Materials HK CHINA RAILWAY GROUP LTD-H Capital Goods CH POWER CONSTRUCTION CORP OF-A Capital Goods CH SHANGHAI ELECTRIC POWER CO-A Utilities HK NWS HOLDINGS LTD Capital Goods HK SINO LAND CO Real Estate HK CHINA STATE CONSTRUCTION INT Capital Goods page 7 of 12 Note: Excluded Financials Sean Darby, Chief Equity Strategist, , sdarby@jefferies.com

8 Analyst Certification: I, Sean Darby, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I, Christie Ju, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I, Venant Chiang, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I, Parvani Zheng, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I, Kenneth Chan, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. Registration of non-us analysts: Sean Darby is employed by Jefferies Hong Kong Limited, a non-us affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. Registration of non-us analysts: Christie Ju, CFA is employed by Jefferies Hong Kong Limited, a non-us affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. Registration of non-us analysts: Venant Chiang is employed by Jefferies Hong Kong Limited, a non-us affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. Registration of non-us analysts: Parvani Zheng is employed by Jefferies Hong Kong Limited, a non-us affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. Registration of non-us analysts: Kenneth Chan is employed by Jefferies Hong Kong Limited, a non-us affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement. Company Specific Disclosures For Important Disclosure information on companies recommended in this report, please visit our website at Disclosures.action or call Explanation of Jefferies Ratings Buy - Describes securities that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period. Hold - Describes securities that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period. Underperform - Describes securities that we expect to provide a total return (price appreciation plus yield) of minus 10% or less within a 12-month period. The expected total return (price appreciation plus yield) for Buy rated securities with an average security price consistently below $10 is 20% or more within a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated securities with an average security price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperform rated securities with an average security price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% or less within a 12-month period. NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/ or Jefferies policies. CS - Coverage Suspended. Jefferies has suspended coverage of this company. NC - Not covered. Jefferies does not cover this company. Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securities regulations prohibit certain types of communications, including investment recommendations. Monitor - Describes securities whose company fundamentals and financials are being monitored, and for which no financial projections or opinions on the investment merits of the company are provided. page 8 of 12 Sean Darby, Chief Equity Strategist, , sdarby@jefferies.com

9 Valuation Methodology Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months. Jefferies Franchise Picks Jefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period. Stock selection is based on fundamental analysis and may take into account other factors such as analyst conviction, differentiated analysis, a favorable risk/reward ratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will include only Buy rated stocks and the number can vary depending on analyst recommendations for inclusion. Stocks will be added as new opportunities arise and removed when the reason for inclusion changes, the stock has met its desired return, if it is no longer rated Buy and/or if it triggers a stop loss. Stocks having 120 day volatility in the bottom quartile of S&P stocks will continue to have a 15% stop loss, and the remainder will have a 20% stop. Franchise Picks are not intended to represent a recommended portfolio of stocks and is not sector based, but we may note where we believe a Pick falls within an investment style such as growth or value. Risks which may impede the achievement of our Price Target This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of the financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, and income from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financial and political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates may adversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such as ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk. Other Companies Mentioned in This Report Agile Property Holdings Ltd. (3383 HK: HK$4.57, UNDERPERFORM) Air China-A ( CH: CNY11.50, UNDERPERFORM) Air China-H (753 HK: $7.42, BUY) Anta Sports (2020 HK: HK$21.05, HOLD) Baoshan Iron & Steel Co., Ltd. - A ( CH: CNY7.75, BUY) Beijing Capital International Airport Co Ltd. H Shares (694 HK: HK$8.34, UNDERPERFORM) Beijing Enterprises (392 HK: HK$54.90, BUY) Beijing Enterprises Water Group Ltd. (371 HK: HK$5.82, BUY) Belle International (1880 HK: HK$7.84, UNDERPERFORM) Biostime International Holdings (1112 HK: HK$15.04, BUY) C.P. Pokphand Co. Ltd (43 HK: HK$1.06, HOLD) Cathay Pac Air (293 HK: HK$18.30, HOLD) CGN Power Co., Ltd. (1816 HK: HK$3.61, BUY) Changsha Zoomlion Heavy Industry (1157 HK: HK$4.35, UNDERPERFORM) China Communications Construction (1800 HK: HK$10.84, HOLD) China Cosco Holdings - H (1919 HK: HK$4.94, UNDERPERFORM) China Datang Corp Renewable Power (1798 HK: HK$1.11, BUY) China Eastern Air-H (670 HK: HK$5.46, BUY) China Gas Holdings (384 HK: HK$13.68, BUY) China High Speed Transmissions (658 HK: HK$6.42, BUY) China Huishan Dairy (6863 HK: HK$2.40, BUY) China Lilang (1234 HK: CNY8.10, HOLD) China Longyuan Power Group (916 HK: HK$8.62, BUY) China Mengniu Dairy Co. Ltd. (2319 HK: HK$33.20, HOLD) China Merchants Hldgs Intl. (144 HK: HK$29.50, BUY) China Modern Dairy Holdings Ltd. (1117 HK: HK$2.46, BUY) China Oilfield Services - H (2883 HK: HK$10.18, UNDERPERFORM) China Overseas Land & Investment (688 HK: HK$25.25, BUY) China Petroleum & Chemical - H (386 HK: HK$5.78, HOLD) China Railway Group Ltd (390 HK: HK$7.82, BUY) China Resources Gas Group (1193 HK: HK$23.60, BUY) China Resources Land Ltd. (1109 HK: HK$21.50, BUY) China Resources Power Holdings (836 HK: HK$20.70, BUY) China Shengmu Organic Milk Limited (1432 HK: HK$1.66, BUY) China Shenhua Energy (1088 HK: HK$15.40, UNDERPERFORM) China Shipping Container - H (2866 HK: HK$3.11, UNDERPERFORM) China Shipping Development - H (1138 HK: HK$5.49, BUY) China Southern Air-H (1055 HK: HK$6.76, BUY) China Unicom (Hong Kong) Ltd. (762 HK: HK$11.12, HOLD) CIFI Holdings Co. Ltd. (884 HK: HK$1.59, BUY) page 9 of 12 Sean Darby, Chief Equity Strategist, , sdarby@jefferies.com

10 CITIC Ltd. (267 HK: HK$14.16, BUY) CNOOC Ltd. (883 HK: HK$9.93, HOLD) Country Garden Holdings Co. (2007 HK: HK$3.04, HOLD) Dongfang Electric Corp (1072 HK: HK$11.06, UNDERPERFORM) ENN Energy Holdings (2688 HK: HK$49.65, BUY) Evergrande Real Estate Group (3333 HK: HK$5.12, HOLD) Fosun International (656 HK: HK$15.38, BUY) Franshion Properties (817 HK: HK$2.50, BUY) GCL-Poly Energy Holdings Limited (3800 HK: HK$1.63, BUY) Golden Eagle Retail Group Ltd. (3308 HK: HK$9.33, HOLD) Gome Electrical Appliances (493 HK: HK$1.41, BUY) Greentown China Holdings (3900 HK: HK$7.93, BUY) Hang Lung Properties Limited (101 HK: HK$20.55, BUY) Henderson Land (12 HK: HK$49.90, BUY) Hong Kong & China Gas (3 HK: HK$15.84, HOLD) Huaneng Renewable Corp (958 HK: HK$3.10, BUY) Intime Department Store (Group) Co. Ltd. (1833 HK: HK$8.10, HOLD) Kerry Properties Limited (683 HK: HK$26.40, HOLD) Kunlun Energy (135 HK: HK$7.05, BUY) KWG Property Holdings (1813 HK: HK$5.73, BUY) Lenovo Group Ltd (992 HK: HK$8.63, HOLD) Lifestyle International Holdings Ltd. (1212 HK: HK$13.08, HOLD) Li Ning Co Ltd (2331 HK: HK$3.80, UNDERPERFORM) New World Development (17 HK: HK$9.11, HOLD) Parkson Retail Group Ltd. (3368 HK: HK$1.25, UNDERPERFORM) Poly Property (119 HK: HK$2.88, HOLD) Shanghai Electric Group (2727 HK: HK$5.10, UNDERPERFORM) Shenzhen Investment Ltd. (604 HK: HK$3.17, BUY) Shimao Property Holdings Ltd. (813 HK: HK$13.70, HOLD) Sino Land (83 HK: HK$11.70, HOLD) Sino-Ocean Land Holdings (3377 HK: HK$5.01, BUY) Sinotrans Ltd. (598 HK: HK$5.01, BUY) Soho China Ltd. (410 HK: HK$4.72, HOLD) Springland International Holdings Ltd. (1700 HK: HK$2.55, BUY) Sunac China Holdings Ltd (1918 HK: HK$6.84, HOLD) Suning Commerce Group ( CH: CNY15.17, HOLD) Swire Pacific (19 HK: HK$95.20, HOLD) Swire Properties (1972 HK: HK$23.60, BUY) Tencent Holdings Ltd. (700 HK: HK$140.80, BUY) The Wharf Holdings Ltd. (4 HK: HK$47.25, HOLD) Towngas China (1083 HK: HK$6.86, BUY) Tsingtao Brewery Co. Ltd. (168 HK: HK$41.90, HOLD) Tsingtao Brewery Co. Ltd. - A ( CH: CNY38.98, HOLD) Xinjiang Goldwind Science & Technology (2208 HK: HK$15.74, BUY) Xtep International (1368 HK: HK$3.34, BUY) Yanzhou Coal Mining (1171 HK: HK$4.65, UNDERPERFORM) Distribution of Ratings IB Serv./Past 12 Mos. Rating Count Percent Count Percent BUY % % HOLD % % UNDERPERFORM % % page 10 of 12 Sean Darby, Chief Equity Strategist, , sdarby@jefferies.com

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