China Strategy:Boom goes property

Rising property and commodity prices boosted 2Q16A-share results and weexpect this to be sustained through 2H16. We continue to see upside to earningsestimates for both A shares and HK-listed China shares. Weaker cash flowsoutside the property sector, while indicating corporates are becoming less bearish,may be a warning signal for next year’s earnings. Credit tightening now looms asthe major risk for China equities, yet the importance of a smooth political transitionnext year is an obstacle to tough tightening measures in the near term. Neweconomysectors continue to do well, while utilities, transport and consumer arethe main drags. Non-bank financials are a sector to watch in 2H16.