Excerpts:

Key Standpoints:

1. M-shaped economy indicates decline of year-on-year growth at 9.5% in Q2 2010 and inflation anticipation intends to be strong yet with not heavy actual pressure; meantime, May-July CPI exceeds 3% and inflation pressure will be relieved in the second half year. Compared with universal market anticipation, we hold cautious view on economy growth and keep optimistic with inflation complexion.

2. Monetary policy mainly depends on quantitative tools like public market operation and deposit-reserve ratio, thus price-oriented tools like interest rate increase and appreciation are cautious. Policy continues previous control thinking, but policy environment is generally tight in May 2010. Real estate follow-up policy and local financing platform clearing may cause inconvenience to stock market; Sino-US strategy & economic dialogue, approaching of the first delivery date of stock index futures may affect market operation.

3. Capital maintains tight currently. Fund position is relatively high and offering keeps fast if offering process of China Agricultural Bank generates obvious negative affect on market. New capital keeps cautious in entering in the market, following hot money inflow, deposits movement and real estate capital of the stock market will be main power to judge market status; current evidence of market inflow is not obvious, more observation is necessary.

4. Performance and estimation of listed companies support stock market to some extent. Listed companies see net profit growth of 28% in 2009 and year-on-year growth of 65% in Q1 2010, which is beyond expectation. Look from the history, Q2 performance is better than that of Q1, thus we should not excessively worry about the Q2 performance. 2010 P/E ratio of Shanghai Stock 50 Index is only 13.57x, or even around 10x for some superior companies.

5. Affected by elements like policy, performance and capital, stock market is estimated to see concussive rebound. Development-pattern transformation and economic structure adjustment make investment and demand-related periodic stocks hard to reach high value level before 2007, rebound space should be not quite optimistic.

6. Large-cap stocks see smaller decline than that of small-cap stocks in April 2010, and the pattern conversion is expected to continue in the following months; small-cap stocks continue diversification.