Markets slightly set back last week, with Shanghai Composite Index dived below the 60-day moving average after touching 2100 points, and we project that the market is to weakly balance recently. Under circumstances that positive effects of fiscal policies have terminated and that macro-economic data is pessimistic, index ascension will be in great pressure. Previous substantial adjustment and present active individual shares will limit index modulation in short term, and we hereby suggest investors pay close attention to financial & stock market stabilization policies ahead, which are potential favorable factors.

Positive effect of fiscal policies retreated. The central government clarified several highlights for economic work in the Central Economic Working Conference in November, including domestic demand expansion, structural adjustment and employment stabilizing, etc. However, these policies didn't bring beyond-expectation effects. Meanwhile, the market went into the weak-concussion period soon after the conference called an end, which also signed retreat of the impetus. As previous surge is mainly propelled by positive effect of the pro-active fiscal policies, when the impetus is wearing off, we predict weak-concussion to be the mainstream in future.

Economic downside deteriorated. According to the latest macro-data, November export presented a negative growth, and industrial added-value suffered consecutive substantial rebound; real estate investment was still sluggish. As indicated above, macro-economy is experiencing a further slide down. On the other hand, both PPI and CPI tumbled; PPI will be further declined due to the aggregated contradictions between surplus capacity and short demand; inflation is drawing near. Moreover, as industrial output retreats, the leading indicators, m1 and m2 growths will be caught more attention, and the market will be in further concussion in the short period.

Previous severe reduction will limit the market adjustment, and financial & stock market stabilization policies ahead will also support the market. We believe that there will be more favorable for the stock market, and we predict that the market will be in weak balance in the short term. Concerning investment strategy, we insist that investors follow the government's macro-policy and choose those policy-beneficiaries, giving top priorities towards sectors of daily consumer goods, infrastructure construction, etc.