Market Summary:

Last week, there was generally decrease over the market. SSE Composite Index (000001.SH) changed -2.99 % to 2516.25. Specifically, small cap shares perform better than large cap shares and we can observe that CSI500 did better than SSE50 (-2.44% vs -4.84%).

As for the overall market valuations, they remain at low level in a longer historical view.

As for Credit spread between A-rate corporate bonds, the 5Y spread slightly rose and now is closed to 10Y sprad. As for the spread between Shibor Rates and Treasury bonds yield, short-term (1M) spread experienced obvious fluctuation, they now hold a twist term structure. As for treasury bond yield, the short- term rates experienced obvious increase.

As for exchange rate, there were some depreciation for both inland and offshore rates, that CNY/USD changed 0.06% (up to 16:30 of last Friday) and CNH/USD changed 0.31%.

As for foreign fund flows via both Shanghai and Shenzhen-Hong Kong Stock Connect, last week there were both net outflows for Shanghai and Shenzhen markets. The net outflow over last week was -3.91 billion CNY and the cumulative net inflow was 638.97 billion CNY at last Friday,. Specifically, more fund outflow from Shenzhen market than Shanghai market.

In sum, the market experienced an obvious drop, dragged by weighted sectors such as banking. As we mentioned last week, the short-term rates increase and we think it will keep rising during the last week of this year. Furthermore, the Fed rose the interest rate as market expectation while the tone are more aggressive than previously thought. The market is still under pressure.

News:

(1). The State Council issued Interim Measures for special additional deduction of personal income tax, and defined the scope, standards and methods of deduction of six special additional deductions, which will come into effect on January 1, 2019. Li Keqiang signed the decree of the State Council and promulgated the revised Regulations on the Implementation of the Personal Income Tax Law of the People's Republic of China, which will be implemented simultaneously with the new Personal Income Tax Law from January 1, 2019. The State Administration of Taxation has promulgated the Measures for the Administration of Individual Income Tax withholding declaration (for trial implementation), which will come into effect on January 1, 2019.

(2) Securities Dealer China: goodwill impairment risk hints come centrally? 49 annual reports forecast goodwill risks, performance may be impacted. According to statistics, there will be a peak of performance commitment expiration in 2018. Including the first to the last period, the performance commitment of A shares will reach 198.7 billion yuan, of which the last period is about 65.6 billion yuan.

(3) Tencent: According to IMF Secretary-General Lin Jianhai, the global economy faces at least three uncertainties: first, the global economic growth rate may decline in the next two years; second, the normalization of monetary policy in developed economies will bring severe spillover effects to emerging economies; third, the international financial environment is tightening and the debt burden is increasing.

(4) Wind: Zhu Guangyao, former deputy finance minister, said that the "complexity and severity" is reflected in four uncertainties: first, the uncertainty of the overall layout of the global supply chain; second, the uncertainty of global rules, especially trade rules; third, the uncertainty brought about by Britain's exit

from Europe in 2019; and fourth, the uncertainty of interest rate policy of the Federal Reserve Bank of the United States.

(5) CCTV: some federal agencies in the United States have been "suspended" since 0 a.m. Eastern Time on the 22nd. Moreover, the suspension will continue in the next few days. From 22, the U.S. Senate recess into the holiday, as planned, will meet again on 27.