Top Down Strategy and Large Cap Stock Picks - the DBS Vickers ...
Top Down Strategy and Large Cap Stock Picks - the DBS Vickers ...
Top Down Strategy and Large Cap Stock Picks - the DBS Vickers ...
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Country Assessment<br />
Regional Equity <strong>Strategy</strong> Q4 2007<br />
Estimated financial asset breakdown in China’s household in mid-2007<br />
FX deposits<br />
1.6%<br />
Bonds<br />
4.1%<br />
Insurance<br />
4.0%<br />
RMB deposits<br />
65.5%<br />
Equity<br />
16.8%<br />
O<strong>the</strong>rs<br />
0.6%<br />
Cash<br />
7.4%<br />
Source: CEIC, <strong>DBS</strong> <strong>Vickers</strong><br />
Exodus to second tier cities<br />
Investment appetite will stay high amidst <strong>the</strong> serious negative real interest rate situation in<br />
China. We foresee investment interest in second-tier cities (such as Changsha <strong>and</strong><br />
Chengdu), which experience higher inflation, will grow at a faster rate as inflation rate<br />
exceeds post-tax borrowing costs (of 5.46% for 1-year loans). Property companies (such as<br />
Beijing North Star (588 HK), R & F Properties (2777 HK, Buy) <strong>and</strong> China Overseas<br />
(688 HK, Buy)) that have rapidly diversified <strong>the</strong>ir l<strong>and</strong>bank into second-liner cities may<br />
benefit.<br />
Developers may be attracted to China’s second tier cities for <strong>the</strong>ir higher inflation trends<br />
Yoy, %<br />
9.0<br />
8.0<br />
7.0<br />
6.0<br />
5.0<br />
4.0<br />
3.0<br />
2.0<br />
1.0<br />
0.0<br />
Xining<br />
Chengdu<br />
Hefei<br />
Zhengzhou<br />
Changsha<br />
Xian<br />
Tianjin<br />
National<br />
Guangzhou<br />
Shenzhen<br />
Ningbo<br />
Shanghai<br />
Beijing<br />
Source: CEIC<br />
57
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