Market Summary:

Last week, there was generally decrease over the market. SSE Composite Index (000001.SH) changed -0.89 % to 2493.90. Specifically, large cap shares perform better than small cap shares and we can observe that SSE50 did better than CSI500 (-0.57% vs -1.49%).

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 matched to 10Y spread. As for the spread between Shibor Rates and Treasury bonds yield, short-term (1M) spread experienced obvious increase, they now hold a twist term structure. As for treasury bond yield, the short- term rates experienced obvious fluctuation while long-term rate slightly dropped.

As for exchange rate, there were some appreciation for both inland and offshore rates, that CNY/USD changed -0.52% (up to 16:30 of last Friday) and CNH/USD changed -0.61%.

As for foreign fund flows via both Shanghai and Shenzhen-Hong Kong Stock Connect, last week there were both net inflows for Shanghai but outflow for Shenzhen markets. The net inflow over last week was 0.61 billion CNY and the cumulative net inflow was 641.73 billion CNY at last Friday.

In sum, the market still experienced a drop. Specifically, the new economic data released showed downward pressure of the economy, with the profit of industry above scale in Nov. dropped and manufacturing PMI of Dec. below 50, in shrinkage area. Such news not only indicate potential shrinkage in profit but should also impact confidence of the market. there will be some time for the economy to make adjustment to fully overcome the pressure, then give the fundamental of market rebound.

News:

(1). Chinese President Xi Jinping made a phone call with US President Trump on the 29th Dec. Xi pointed out that at present, the relationship between our two countries is at an important stage. Earlier this month, I had a successful meeting with Mr. President in Argentina and reached important consensus. Since then, the working teams of the two countries have been actively promoting implementation. It is hoped that the two teams will move in righrt directions and work hard to reach a mutually beneficial, win-win and world-friendly agreement as soon as possible.

Xinhua commentary article pointed out that the economic and trade teams of China and the United States are stepping up communication. The two sides should proceed from the overall situation and take advantage of the 90-day consultation window to promote follow-up work and strive for a mutually beneficial and win-win agreement that is beneficial to the world.

(2) China Securities Journal: in 2018, the exchange rate of the world's major currencies against the U.S. dollar declined almost entirely, with only the yen and the Mexican peso rising. In the 2018 spot return of the world's major currencies against the US dollar, the yen rose 2.73% against the US dollar and the Mexican Peso rose 0.04% against the US dollar.

(3) Xinhua News Agency: President Xi Jinping delivered a congratulatory message for the New Year in 2019. He said that the policy measures of tax reduction and fee reduction should take root and let enterprises carry light loads.

(4) China's official manufacturing industry PMI in December was 49.4, the first time since July 2016 to fall below the line of prosperity and decline, expected 49.9, the previous value of 50. Official non-manufacturing PMI 53.8 in December, expected 53.2, pre-value 53.4.

(5) Securities Dealer China: There are 1008 annual report performance forecasts issued by the A-shares. 206 shares are expected to increase more than 50%, 123 shares are expected to increase more than 100%, 45 shares are expected to increase more than 200%, 16 shares are expected to increase more than 500%, and 4 shares, such as Zhongke New Materials, Sante Cable Road, Tianrun Nuamusement and Yagor, are expected to increase more than 1000%.