Goldman Sachs - China A shares strategy

Market view: Grinding up. We think the strong upward impetus for A shares ytd could taper off as investor concerns over liquidity (potential IPO resumption after June 5, tighter bank lending, and low cash ratio from mutual funds), above midcycle valuations and anemic earnings statistics could weigh on market sentiment over the near term. That said, we still think it makes strategic sense to accumulate on dips to position for potential returns provoked by favorable policy/economic dynamics, sequentially improving macro trends and a potential extended rally in H shares. We maintain our end-2009E index target of 2,600 for CSI300 (20.0X 2010E GS P/E), with 3,200 and 2,000 being our optimistic case and strong downside support, respectively.

Strategies: Staples and GARP as core; add beta on dips.
We continue to like banks and brokers (GARP) and reputable staples (earnings visibility) as core holdings in our portfolio and will look to increase exposure on: (1) A-H dual-listed stocks that are traded at an Ashare discount; and (2) selective cyclical sub-sector (property, building materials, and container shipping) on meaningful market weakness.