There are many scenarios for the remainder of this year, but one which we think is
more plausible looks like the following:

1) The market rebound started from Friday last week on strong expectation that policy relaxation will likely continue in the very near term, reflecting market momentum, short covering and high cash positions of many investors. This short-term uptrend is to some extent self-fulfilling and does not require much support from improvement in macro fundamentals.

2) A pull-back is likely after this short-term rebound. This can be triggered by a few of the following likely events:

- No confirmation from the government on policy relaxation within weeks;
- Some government agencies publicly defy market speculations on specific policy relaxations or stimulus in areas such as property, fiscal spending and credit quota;
- Economic data including PMI, industrial production, and power consumption may surprise on the downside; and
- Data on non-viable projects under the local financing platforms may turn out to be a negative surprise, and the lack of a clear resolution strategy could undermine the government's ability to provide stimulus next year.

3) When the government has reported some worse economic numbers in Q3, which would raise the probability of Q4 policy relaxation to 70% (up from the current 50-60% in our view), the market could begin a more sustained recovery that we think could last six to nine months. Following that, the sequential (qoq) economic growth may show a consecutive recovery for 2-3 quarters (from Q4 this year to Q2 next year).