GUANGZHOU (Fund China) - There will be more uncertianty embodied in multi-sides in the stock market 2008.

Firstly, from the macroeconomic point of view, the external economic environment, particularly, the possibility of the U.S. economy slumpping into recession is increasing, and whether the U.S. subprime mortgages would spread further, the real estate situation would be further deteriorated or not as well as the U.S. consumption & employment indicators would further slip or not, still have much variables. The slowdown in China’s export growth would be obvious and sharp if the U.S. economy(especially the U.S. consumption) appears a significant decline. The end of the RMB to non-dollars currency disguised develuation cycle will exacerbate the slip in the export growth. The investment growth will strongly depends on the extent of government implementation and regulation intensity. What can be assured relatively is the consumption growth, but this indicator will also be affected by the inflation extention,income growth and the governement economic structural reform process.

Secondly, from the enterprise profit point of view, generally, the lsited companies’profit will remain in an elevated level and the profit growth would reach 30% as the market expection. However, the issue of the giant corporation such as the China Oil is profoundly changing the A share listed companies’overall profit gorwth structure; and the increase in the factor price is spreading gradually. Labour, energy and raw material costs increas will also bring a gloom to the corporations profit expection 2008 as well as the environmental protection and the operation and export cost increase caused by the exchnaged ratio might also lift a big pressure to some industries. The tax reform is the most favorable factor for the 2008 market profit growth.

Thirdly, from the market liquidity, the dollar contiunal weakness will be a good for resolving the real estate indursty crisis. And from the view of the economy stepping into recession protection, there is still a large space for the Federal Reserve intetest cut, the weak dollar will futher boost the international capital injection into the emerging countries. Therefore, the external liquidity is still adequate. However, we have to beware of the strong dollar rise in the short & medium term although the asking of storng dollar due to the political cosideration is like hanging by a thread. Though China domestic liquidity overflow is a un-changed trend in the medium term, the government regulation and control will bring a short-term shocks to the market liquidity.

lastly, the innovative financing tools such as stock index futures’launch, the Second Board formal operation and the Equity Incentive gradual approval may bring a significant disturbance in the market, and the specific timetable for these events is still unknown.

As calculation, if the lsited companies’ profit expection reaches 30%, then the Shanghai and Shenzhen 300 index PE (Price/Earnings) centre will be about 26 times. And if the valuation is taken a further horizontal and vertical comparison, it wll be found in a relative high level and we will get a reasonable answer if the valuation is connected with the listed companies profit growth.

Therefore, we will face directly a high valuation and various uncertainty in 2008. Seeking for the confirmed high growth industries and related listed companies as well as seeking for the sectors with sustainable growth in the near future and the related listed companies will be the key point for the 2008 investment.

Following the above guidance, the 2008 investment key point will be focused on the domestic demand-oriented indutries and the industries that related closely with the mass livelihood. And as far as possible, evade the indurstries that are sensitive to the exteranl economic fluctuations. The following sectors will be our investment election for 2008:

Banking. As subjected to country tight regulation and control, the 2008 bank credit growth would drop to the level of around 15%, while the non-interest-bearing assets growth will be accelerated, and the overall interest-bearing assets will continue to mainta in a relatively high growth level; The non-loan interest-bearing assets of low consumption capital is now with a good yield and good uptrend, so even the interest rate remain unchanged, the net interest margin will expand further; The tax reform and decompression on baning risk reserve will be the important supports for banking industry higher-than-expected performance; the banking sector is now with a relatively attracted valuation and a favorable liquidity,etc..

Consumable industries.the general Consumer Goods Industry will be the most significant and most assurable beneficiary in the China’s economic strutural adjustment in the near future. Seeing from the international experience side, China Consumer Goods Industry’s overall market value is still small, but the leading listed companies’long-term investment value is significant. From the policy perspective, the Consumer Goods Indsutry will enjoy the supports of government policies in quite a long time. The abundant fiscal revenue will boost the improvement of the social security system construction and the implementation of transfer payment. Peoper will become more and more enjoyable in consumption. The Olympic game will be a catalyst for China economy entering a new consumption era. In 2008, the food and beverage, retail sales, household electrical appliance and medicine such general consumer goods industries will gain a higher allocation.

The real estate industry. If the bullish market supporting a related high valuation is still assuable, then there is not a reason for us to abandon the invesetment opportunity in the real estate which is wilth the abundant liquidity. The banking loans reduction and loan threshold’s advance can not restrain the housing demand effectively. The real estate direct financing’s halt is a short term regulation in some extent amd the leading companies will find the suitable financing tools ultimately. The real estate regulation will bring an aggressive differentiation, the quality companies will accelerate its industry concentration with the help of this external forces, and such a quality compay will be prime choice of investment in 2008. Of course, the investment will be according to industry specific development movement and the policy regulation.

basic industries such as the energy, railway which is with a fund shortage and a greater government support. At present, the basic industry such energy and railway have become a majoy bottleneck for national economic development. The government will increase its investment intensity in such basic industries in the near future and the related listed companies is expected to gain a obvious yield. So, in 2008, the above mentioned listed companies will be also the main choice for investment.

Besides, the following topics will be another choice.

Energy conservation and environmental protection. National (energy saving and pollution release reducing)environment policy will affect various industries demnad and supply significantly. So we have to take a in-depth analyse of the environment policy’s impact on the demand and supply of lots of cyclic industries besides pay attention to thoes industries and companies that directly benefit from the environment policy. Iron and steel,cement, chemical, electric power even the mechanical industry, may gain phased or long-term investment opportunities under the environment policy.

Capital injection. Epitaxial growth is still a important chocie for the 2008 market to defuse the high valuation pressure. Railway, electric power and coal industries all have a better potential epitaxial growth which are worthy for our attention. We will maintain close tracking and select and invest in those exact benefited companies under the premise of safety guarantee.

Equity incentives. With the 2007 company self-examination required by the CSRC ending, the equity incentive may be in the overall examination and implementation in 2008, which promotion may provide an important fundament for the market valuation upgrade. Some quality companies with excellent management structure and fine growth may enter a new development path with the equity incentive. We will pay attentino to theses companies and make timely selection and investment.

Olympic Games. The Olympic Games will affect various sides of China economyh, especially in awakening people’s brand consciousness and new consumption concept. The meaning of such a global event is more reflected in the consumption. the Olympic will promte China consumption service upgrading and bring China hotel tourism, retail sales and the food industry into a new high altitude. We will dig out the related companies for investment.

Copyright Fund China 2008.

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