Market review:

China stock market continued the weakness from the last week and SHA broke down below 2700 again for poor PMI data, closed at 2688.85. For if gov got money to spend, they 'd better spend it on forex market to maintain the exchange rate, and to boost stock market is always secondary issue.

Research Notes:

1.The manufacturing PMI fell to 3year low of 49.4 for Jan. Investors can’t tell whether it’s the economy deteri orating further or gov ‘s decapacity effort worked, as a result the sentiment ‘s biased to pessimistic side.

2.All sectors recorded money outflow except Agriculture. Electronics, Finance and Real Estate sectors once again are the ones been sold the most. Smart city stocks risen against the bearish trend, with Infinova, a se curity products manufacturer, rallied to limit-up.

3.

Econ slow------>deflation------->CNY weak<-------|

|—------------------> RRR cut -------------------|

Based on The monetary triangle, so both measure will lead to CNY weakness, for the root issue is econ slow. So Yu Yongding said it's time to go the 4-trillion stimulus old method, and Lee and Xi can't make a fast decision on this, for they also want to do the de-capacity, then market becoming to believe to easing policy won't boost econ much.

As we will have the US Non-Farm Employment Change number by Friday, which could offer some lift for USD, the concern for CNY won’t cease before the Spring Festival holiday. Though more easing effort is likely from PBOC, we felt it’s not worth the risk to load up positions before the vacation, so the recommended strategy could still be stay-light-and-stay-hedged.

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