Investment Rating - The report does not explicitly provide an investment rating for the industry or specific assets. Core Insights - The report indicates a less urgent need for substantial policy easing in the near term, with June PMI surveys showing resilient economic momentum and Q2 real GDP growth tracking slightly above 5% [5] - The report suggests a gradual descent of the USD/CNY exchange rate, with a forecast of 6.90 for the USD/CNY spot in 12 months, implying limited total returns for long CNY positions against the USD [5] - The rates market is expected to continue short-term consolidation, with interest rates in China drifting lower over the medium term due to resilient economic growth and limited appetite for significant easing [6] Valuations and Policy Stance - The USD/CNY spot fell further in June, while the CNY depreciated modestly against the CFETS basket, indicating a shift in valuations [10] - The countercyclical factor widened in June, suggesting an appreciation bias in the USD/CNY fixing [17] Technicals - The carry-to-volatility ratio for USD/CNH and EUR/CNH remained largely unchanged in June, indicating stable market conditions [20] - Momentum to buy USD or EUR and sell CNH remained largely unchanged, reflecting consistent trading patterns [21] Fundamentals - China's trade balance rose in May, driven by a higher goods trade surplus, indicating strong export performance [32] - Long-term cash bond yields and NDIRS rates remained largely stable in June, suggesting a balanced outlook for bond markets [38] - The consensus forecast for CPI inflation edged down in June, while the forecast for real GDP growth edged up, reflecting a mixed economic outlook [56] Liquidity and Leverage - The PBOC injected liquidity into the interbank market in June primarily through pledged reverse repos, indicating active liquidity management [58] - Repo rates declined in early to mid-June before rising at the quarter-end due to seasonal liquidity demand, reflecting fluctuations in funding conditions [61] Bond Supply and Demand - Net issuance of central government bonds was around RMB 706 billion in June 2025, with the central government utilizing 51% of the annual issuance quota [69] - Local government general bond net issuance was around RMB 94 billion in June 2025, with local governments utilizing 56% of their general bond issuance quota [72]

Investment Rating - The report maintains a Neutral rating for Hua Hong, with a 12-month target price of HK$40.9, indicating a relatively lower upside potential from the current price of HK$35.65, which translates to an upside of 14.7% [1][12]. Core Insights - Hua Hong's management is optimistic about operations, reporting that utilization (UT) rates across major fabs are at 100% or above, driven by strong demand in power discrete, microcontrollers (MCUs), and power management integrated circuits (PMICs) [1][3]. - The company has begun to implement price increases for both 8-inch and 12-inch products, anticipating that this will enhance gross margins in the upcoming quarters [2][11]. - Capacity expansion is ongoing, with plans to ramp up the second 12-inch fab to 83,000 wafers per month (wpm) and potential future capacities at 28nm and 22nm [4][11]. Pricing Outlook - The pricing strategy is set to improve, with management confident in the ability to raise prices due to solid demand, which is expected to positively impact gross margins [2][11]. Utilization Rates - Management reports full loading across its fabs, except for the new fab that is in the ramp-up phase, with a noted recovery in demand for power discrete products and sustained demand for PMICs related to AI applications [3][11]. Capacity Expansion Plans - The second 12-inch fab is being ramped up, with expectations to achieve positive gross margins once it surpasses 50,000 wpm of loading, while the first 12-inch fab is already achieving positive gross margins [4][8]. Financial Projections - Revenue projections for the next few years indicate growth, with expected revenues of $2,004 million in 2024, increasing to $3,910.5 million by 2027 [12].

6 July 2025 | 2:08PM HKT Desay SV (002920.SZ): Mgmt. visit: Smart driving continues to grow; full stack solutions to accelerate deployment We visited Desay SV in Huizhou recently. Management remains positive on the smart driving trend, domain controllers growth, full stack solutions, and ongoing costs control and operation efficiency. We are positive on Desay SV's product expansion from smart cockpit to smart driving and automotive software, supporting them to better ride on the growing smart driving trend ...

Investment Rating - The report indicates a positive outlook for cash returns in the Chinese market, with expectations for aggregate dividends and buybacks to reach Rmb3.0tn and Rmb0.6tn respectively in 2025, reflecting a year-on-year growth of 10% and 35% [1][11]. Core Insights - Chinese listed companies are experiencing record-high cash returns, driven by strong policy support and conservative cash return practices, with a significant increase in dividends and buybacks anticipated in the coming years [1][11]. - The report highlights a preference among investors for "Old China" companies that prioritize shareholder returns, with a correlation between cash spending on dividends/buybacks and increased company valuations [2][45]. - There is a growing appetite for cash return strategies among various types of Chinese investors, as these strategies are perceived as offering superior returns compared to bonds in a low-interest rate environment [3][53]. Summary by Sections Cash Returns Growth - Following the "Nine Measures" policy released in April 2024, over 4300 companies recorded Rmb2.7tn in dividends in 2024, with a dividend payout ratio of 39%, up from 37% in 2023 [11][12]. - The expectation for total dividends in 2025 is Rmb3.0tn, supported by high-single digit earnings growth and an increase in payout ratios [11][12]. Buybacks and Financial Incentives - A-share and offshore companies repurchased approximately Rmb160bn and Rmb300bn worth of shares in 2024, marking increases of 56% and 79% year-on-year [20][31]. - The re-lending program for corporate buybacks has seen strong adoption, with over 620 A-share firms announcing credit agreements totaling Rmb133bn [31][25]. Investment Strategies - The GS China Shareholder Returns Portfolio has been refreshed to include 30 GS-Buy rated companies, which are actively returning capital to shareholders [63][64]. - The GS Chinese Prominent 10 portfolio focuses on large-cap companies investing heavily in growth while also providing decent cash returns, appealing to investors seeking a mix of growth and income [64][65]. Sector Analysis - Companies in traditional sectors like Financials and Utilities tend to favor dividends, while those in New Economy sectors like TMT and Healthcare are more inclined towards buybacks [37][46]. - The report categorizes over 6700 Chinese listed companies into "New China" and "Old China," noting differing investor preferences for capital allocation between these groups [46][45].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - Manufacturing PMIs in China showed improvement from May to June, with NBS manufacturing PMI rising from 49.5 to 49.7 and Caixin manufacturing PMI increasing from 48.3 to 50.4, indicating better manufacturing growth. Conversely, services PMIs declined, with NBS services PMI falling from 50.2 to 50.1 and Caixin services PMI decreasing from 51.1 to 50.6, suggesting weaker services growth in June [1][2] - Recent policy developments include a meeting chaired by President Xi on July 1, focusing on creating a unified national market to reduce local protectionism and implementing reforms to address overcapacity and deflation. Additionally, a nationwide childbirth subsidy program was announced, providing RMB3600 per child per year until the age of three, which may signal a shift in government fiscal spending priorities [3][8] - Foreign investors are currently seeking catalysts for investment in the Chinese market, with discussions revolving around US tariffs, property market conditions, and consumption weaknesses. Local investors are more focused on domestic policy implementations, while foreign investors express concerns about geopolitical risks, particularly regarding Taiwan [8] Summary by Sections - **Manufacturing and Services PMIs**: The report highlights a rise in manufacturing PMIs and a decline in services PMIs, indicating a shift in economic activity favoring manufacturing over services [1][2] - **Policy Developments**: Key policy initiatives aim to address local protectionism and overcapacity, with a new childbirth subsidy program reflecting a change in fiscal priorities [3][8] - **Investor Sentiment**: There is a notable divide in focus between local and foreign investors, with the former concentrating on domestic policies and the latter on macroeconomic catalysts and geopolitical risks [8]

Investment Rating - The report does not explicitly provide an investment rating for the industry discussed Core Insights - Strengthening China's social safety net is crucial for rebalancing the economy towards consumption, as highlighted by recent policy discussions and government statements [3][4][5] - The current state of China's social safety net is characterized by significant gaps in coverage and benefits, particularly for unemployment, work-related injury, and maternity insurance [3][6][42] - The report emphasizes the need for the Chinese government to broaden coverage, reduce contribution rates, and increase expenditure on social security to ensure equitable access [3][6][60] Summary by Sections Overview of China's Social Safety Net - China's social security insurance includes five types: pension, medical, unemployment, work-related injury, and maternity insurance, with pension and medical insurance achieving near-universal coverage [3][6] - As of the end of 2024, basic medical insurance covered 1.33 billion people (94% of the total population) and pension insurance covered 1.07 billion people (92% of those aged 16 and above) [6][20] Challenges in the Current System - The unemployment, work-related injury, and maternity insurance programs have low coverage ratios, primarily affecting flexible workers who often do not participate [3][6][42] - The average monthly pension for urban retirees is significantly higher than that for rural residents, indicating disparities in benefits [20][22] Areas for Improvement - The report suggests that to enhance the social safety net, the government should consider increasing fiscal subsidies, reducing contribution rates, and integrating programs across cities to facilitate participation by flexible workers [60][61] - The aging population poses a significant challenge, with projections indicating a decline in the potential support ratio from 2.7 in 2025 to 1 in 2060, necessitating a shift in government spending priorities [61][62]

Investment Rating - The report initiates coverage on Huaqin Technology with a "Buy" rating and includes it on the APAC Conviction List [1]. Core Insights - Huaqin's target price is raised to Rmb94, with expectations for net income to grow at a 27% CAGR from 2024 to 2027, driven by an increase in AI server shipments [1]. - The contribution of AI servers to Huaqin's revenues is projected to rise from 14% in 2024 to 45% by 2027 [1]. - The company is diversifying from consumer electronics to data centers, capitalizing on stronger market demand and healthier competition [1]. Revenue and Growth Projections - Huaqin's blended revenues are expected to grow at a 29% CAGR from 2024 to 2028 [5]. - The data center business, which includes general servers, switches, and AI servers, is anticipated to see AI servers grow at a 73% CAGR from 2024 to 2028, followed by switches at 67% CAGR and general servers at 8% CAGR [6]. - Data center revenues are expected to increase from 21% in 2024 to 51% by 2028 [6]. Earnings Revisions - Revenue estimates for 2025-2028 have been revised upwards by 1%, 14%, 21%, and 29% respectively, primarily due to higher expectations for AI servers and switches [9]. - Despite a reduction in net income estimates by 12% to 0% for 2025-2028, the target price is raised by 14.9% due to a higher target P/E multiple [9][13]. - The new target P/E multiple is set at 18.8x, reflecting a positive outlook on earnings growth driven by the data center business [13]. Financial Metrics - The report outlines expected revenues of Rmb147.2 billion in 2025, Rmb208.4 billion in 2026, and Rmb253.2 billion in 2027 [21]. - The net income for 2025 is projected at Rmb3.89 billion, increasing to Rmb5.07 billion in 2026 and Rmb5.91 billion in 2027 [21]. - The gross margin is expected to decline from 9.4% in 2025 to 8.4% in 2028, while the operating margin is projected to decrease from 2.6% in 2025 to 2.5% in 2028 [10][18].

Investment Rating - The report does not explicitly provide an investment rating for the industry but discusses the relationship between macroeconomic conditions and implied volatility in FX markets, suggesting that current levels of implied volatility are justified given the macro backdrop [4][46]. Core Insights - The report highlights that FX volatility has declined due to improved macroeconomic conditions, including a recent trade deal between the US and China, which has alleviated some recession and inflation risks [4][46]. - There is a strong positive relationship between FX implied volatility and macroeconomic uncertainty, indicating that when uncertainty increases, implied volatility tends to rise [28][32]. - The report emphasizes that US macroeconomic uncertainty has a more significant impact on FX volatility compared to other regions, particularly through factors like CPI uncertainty [28][31]. Summary by Sections Macro Drivers of Implied Volatility - Recent declines in FX implied volatility are linked to a less uncertain macroeconomic environment, with reduced tail risks related to recession and inflation [4][46]. - The report quantifies the impact of macro uncertainty on FX implied volatility using economic forecasts from Consensus Economics [21][27]. Relationship Between Realized and Implied Volatility - Implied volatility is closely related to realized volatility, often leading to mispricing in the early stages of economic shifts [9][12]. - Realized volatility has exceeded implied volatility for most of the year, indicating that markets have underpriced the actual volatility in FX markets [12][46]. Literature on Macro Drivers of Volatility - Previous studies confirm that macroeconomic conditions, particularly monetary policy, are key drivers of FX volatility [16][19]. - The report discusses how inflation and interest rate differentials have historically influenced volatility trends in FX markets [16][19]. Estimating the Impact of Macro Uncertainty - The report employs regression analysis to demonstrate the strong relationship between macroeconomic uncertainty and FX implied volatility across major currency pairs [27][28]. - US CPI uncertainty is identified as the strongest explanatory factor for FX volatility, followed closely by domestic monetary policy uncertainty [31][32]. What Matters at Different Points in Time - The report notes that while inflation has been a key driver of volatility, this relationship can shift over time based on economic conditions [34][35]. - Recent benign inflation data from the US has contributed to lower FX volatility, but potential increases in tariff rates could heighten macro uncertainty and volatility [34][46].

Investment Rating - The report indicates a positive outlook for the steel and cement sectors in China, suggesting potential benefits from a more supportive policy environment on supply discipline [1][12][13]. Core Insights - There is a renewed policy focus on addressing supply discipline in China, with a call for a unified national market and a crackdown on excessive competition leading to lower prices [1]. - The report highlights that excess capacity in various industries ranges from 30% to 50%, with specific figures for steel and cement being around 30% to 50% [2][11]. - The potential for executing production cuts in the steel sector is noted, with a target of 50 million tons, which could lead to a significant reduction in crude steel output in the second half of 2025 [13][18]. - The cement sector is also undergoing capacity categorization and is targeting a reduction of unauthorized and energy-intensive capacities, which could improve capacity utilization from 50% to 70% [13][14]. Summary by Sections Supply Side Expectations - The report discusses ongoing policy efforts to discourage overly fierce competition and control output in sectors like hog farming and steel, aiming to reverse price deflation trends [12]. - The clarity of future policy guidance remains uncertain, but discussions suggest a more supportive context for executing supply plans in the steel and cement sectors [13]. Excess Capacity Analysis - Excess capacity is a persistent challenge, with estimates indicating that unauthorized excess clinker capacity in the cement industry exceeds 400 million tons, representing nearly 18% of the industry [14][15]. - The report estimates that additional requirements could lead to a targeted exit of 277 to 377 million tons of clinker capacity, further reducing excess capacity [13]. Market Impact - The report anticipates that the execution of steel production cuts could create a meaningful deficit in the market, similar to conditions observed in the second half of 2021, which previously led to margin expansion and reduced exports [18][19]. - The implied spread from rebar futures suggests a potential margin expansion of nearly RMB 200 per ton in the steel sector, indicating a strong possibility of production cuts [16].

Per media reports, the government is reportedly planning to roll out nationwide maternity/child-raising subsidies amount to Rmb3,600 per annum for each legally born infant/young child until they reach 3 years old, equivalent to Rmb300 per month. For children born before Jan 1, 2025, and under 3 years old, the subsidy would be calculated proportionally based on the number of months they are eligible. Specifically, per the media report, the central government policy would feature: 1) An extended duration of 3 ...