Semiconductor Manufacturing International Corporation’s (SMIC) ADR price has appreciated significantly since our 4Q 08 and FY 2008 update report dated 14 April 2009, reflecting a general improvement in global investor confidence, particularly for semiconductor stocks supplying China, the impact of the strong order book recovery and improved outlook, with profit targeted for next year, and the launch of 65-nm low leakage process IPs. We continue to expect SMIC to benefit from a boost in Chinese demand, however we believe that the recent price surge has left the stock overvalued at the current level and therefore we downgrade the ADR from a HOLD to a SELL. We will reassess the ADR target pricing and rating for SMIC in our next update report. We downgrade the Hong Kong stock from a HOLD to a SELL rating based on our fundamental outlook. The Hong Kong dollar is pegged to the US dollar; therefore, we do not anticipate any currency impact. We will reassess the Hong Kong stock (50 Hong Kong shares = 1 ADR) rating for SMIC in our next update report.

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