Investment Rating - The report raises the S&P 500 return and earnings forecasts, indicating a positive outlook with new 3- and 12-month return forecasts of +1% and +11% respectively, leading to levels of 5900 and 6500 [2] Core Insights - The report emphasizes that lower tariff rates, improved economic growth, and reduced recession risk have led to an upward revision of S&P 500 earnings and returns forecasts [2][5] - Revised S&P 500 EPS forecasts are $262 in 2025 and $280 in 2026, reflecting a 7% year-over-year growth for both years, which is an increase from previous estimates [2][5] - The current P/E ratio of 21x is in the 90th percentile since 1990, with a forecasted 12-month P/E valuation of 20.4x, indicating reduced uncertainty and faster earnings growth [2][10] - The report highlights that light equity investor positioning suggests potential for continued near-term market upside, with the US Equity Sentiment Indicator registering -1.5 standard deviations [2][17] - The report recommends focusing on stocks with high pricing power to maintain margins amid elevated input costs, as tariff rates are expected to be higher in 2025 than in 2024 [2][26] Summary by Sections Earnings Forecasts - The report updates the S&P 500 EPS growth estimates to +7% for both 2025 and 2026, reflecting an improved economic outlook and lower tariff rates [5] - The revised 2025 real US GDP growth forecast is 1% on a Q4/Q4 basis, an increase from 0.5% previously, indicating a more favorable economic environment [6] Valuation - The report notes that the current P/E of 21x is 5% below the peak of 22x earlier this year, with an updated fair value estimate reflecting lower inflation and renewed confidence in fundamentals [10][18] - The report anticipates only one Fed rate cut in 2025, down from three previously expected, which may influence market dynamics [10] Positioning and Market Sentiment - The report indicates that light investor positioning creates the possibility for equity prices to overshoot fair value in the near term, with hedge fund net leverage at low levels [17] - The report also mentions that cyclical stocks have outperformed defensives by 18 percentage points since April 4, indicating a shift in market expectations [21] Sector Focus - The report suggests that AI stocks are expected to regain momentum as tariff-related volatility diminishes, with strong earnings growth profiles attracting investor interest [3][32] - The report emphasizes the importance of high pricing power stocks, which have historically outperformed during periods of margin pressure [26][30]

Investment Rating - The report maintains a "Buy" rating for GDS and VNET, with target prices set at US$42/HK$41 for GDS and US$13 for VNET, indicating upside potentials of 65% and 118% respectively [8][64]. Core Insights - The growth outlook for the China data center sector remains unchanged, with expectations for GDS and VNET to report revenue growth of +16% and +18% year-over-year respectively for 1Q25 [1][61]. - The industry-wide utilization rate is projected to improve from approximately 60% in 2024 to over 70% by 2026, driven by increasing demand from AI and cloud services [20][22]. - Recent developments in domestic chips and AI technologies are expected to sustain wholesale data center demand in the mid-term, while retail demand may recover in the near term [37][41]. Summary by Sections 1. Company Performance Expectations - GDS is expected to report 1Q25 revenue of Rmb2.8 billion (+16% YoY) and adjusted EBITDA of Rmb1.3 billion (+18% YoY), aligning with consensus data [60]. - VNET is anticipated to report 1Q25 revenue of Rmb2.2 billion (+18% YoY) and adjusted EBITDA of Rmb610 million (+13% YoY), slightly below consensus expectations [61]. 2. Demand-Supply Dynamics - The report highlights a dual scenario of supply tightness and oversupply in China's data center market, with utilization rates expected to rise significantly by 2026 [20][36]. - Demand for data center capacity is projected to grow at a CAGR of 21% from 2024 to 2027, reaching 26GW by 2027 [22][25]. 3. Financing Developments - GDS and VNET have made significant progress in financing, enabling them to meet their capital expenditure requirements for 2025, with GDS needing Rmb4.3 billion and VNET Rmb10-12 billion [50][55]. - GDS has completed an ABS issuance, monetizing data center assets and generating Rmb1.2 billion in net cash proceeds [51]. 4. Market Outlook - The report anticipates that AI will account for 24% of the market demand by 2027, up from 11% in 2024, indicating a substantial shift in demand drivers [28]. - The upcoming results from major cloud players like Tencent and Alibaba are expected to provide insights into capital expenditure trends, which are crucial for the data center sector [38][59].

Investment Rating - The report does not explicitly provide an investment rating for the transportation industry but discusses trends and potential impacts of tariffs on trade flows, indicating a cautious outlook for the sector. Core Insights - The ongoing trade tensions between the US and China are leading to a significant decline in freight flows from China to the US, with a reported drop of 22% year-over-year in laden container vessels [4][9][14]. - There is a bifurcation in trends, with concerns about product availability if the trade war continues, particularly as the second half of the year approaches [4]. - The report highlights the potential for a freight air pocket in the second quarter, which could affect inventory levels and order spikes in the second half of 2025 [5][8]. Summary by Sections Trade Flow Trends - Freight flows from China to the US have decreased by 22% year-over-year, with a sequential drop of approximately 21% in the most recent week [4][9]. - Expected TEU imports into the Port of Los Angeles are set to drop for a third consecutive week, although a sharp spike is anticipated in the following weeks, possibly indicating a shift in trade patterns [4][30]. Inventory and Demand - The Logistics Managers Index (LMI) indicates an expansion in inventory costs, suggesting that goods are not moving as expected, which could lead to empty shelves if the situation persists [4][57]. - There are two main questions being monitored: the potential for empty shelves and whether there will be a spike in orders in the second half of the year, which depends on consumer resilience and the severity of the freight air pocket [4][5]. Future Scenarios - The report outlines three potential scenarios for 2025: continued pull forward leading to inventory build followed by a sharp fall in demand, a stall in pull forward creating an air pocket for volumes, or a scenario where the economy does not fall into recession, leading to a surge in orders [8]. - UPS anticipates a decline of up to 25% in China to US business as the second quarter progresses, while trade from China to the rest of the world is expected to pick up some of the slack [5][8]. Container Rates and Shipping Activity - Ocean container rates from China to the US West Coast have increased by 3% week-over-week but are down 38% year-over-year, indicating a lack of recovery in shipping rates [27]. - Planned TEUs into the Port of Los Angeles have decreased by 32% year-over-year, with forecasts showing a potential increase as trade shifts from China to other regions [30][32].

Investment Rating - The report maintains a "Buy" rating for both Innolight and Eoptolink, with a 12-month price target of Rmb115 for Innolight and Rmb136 for Eoptolink, indicating potential upside of 19.2% and 26% respectively [30][34]. Core Insights - The optical transceiver demand outlook for 2025 remains firm, driven by AI infrastructure needs, with key customers maintaining their transceiver volume expectations [1][16]. - Supply constraints are expected to ease as new laser capacity comes online around the end of 2Q25, which could support a faster shipment cadence in 2H25 [8][15]. - The 1.6T shipment ramp is anticipated to concentrate in 2H25, with initial demand forecasts for 2026 expected to be communicated by customers in mid-2025 [14][3]. Summary by Sections Demand Outlook - The demand for optical transceivers is primarily driven by AI infrastructure, with a robust outlook for 800G transceiver orders in 2025 [1][13]. - Concerns regarding 2026 demand persist, but clarity is expected as customers begin to communicate their forecasts [3][20]. Supply Chain Dynamics - The supply chain is experiencing tightness in laser components, but improvements are anticipated as new capacities are introduced [15][8]. - The ongoing ramp of 800G products is expected to be a key growth driver, with significant shipments anticipated in 2H25 [4][11]. Earnings Revisions - Earnings estimates for Innolight and Eoptolink have been revised upward, reflecting improved supply conditions and steady demand [17][22]. - Innolight's revenue estimates for 2025-2027 have been increased by 3%-8%, while Eoptolink's estimates have been raised by 4%-9% [21][22]. Competitive Positioning - Innolight is positioned as a leader in the 800G/1.6T optical transceiver market, benefiting from strong relationships with major customers [26][28]. - Eoptolink is also well-positioned to capitalize on the ramp-up of 400G/800G transceivers, with a focus on AI infrastructure [31].

Investment Rating - The report maintains a "Buy" rating for both Mindray and United Imaging, indicating a positive outlook for their stock performance in the near future [82][83]. Core Insights - The procurement value of main medical devices in China has shown strong year-over-year (YoY) growth, with a month-over-month (MoM) increase of 13% in April, surpassing expectations [1]. - The report anticipates a high level of activity in medical equipment procurement throughout 2025, driven by government funding and a recovery in hospital demand [1][25]. - Mindray is expected to maintain its market leadership with multiple growth drivers, while United Imaging is projected to see significant long-term growth potential due to increasing service-related revenue [82][83]. Summary by Sections Procurement Trends - The total bidding value for nine main medical devices in China has reached a high level, with positive MoM growth observed in seven out of nine devices in March [26]. - The report notes that procurement activities are supported by government funding and the implementation of a trade-in program, which is expected to drive demand in the coming quarters [1][25]. Company Performance - Mindray's revenue growth is projected to be +10% in 2Q24, +40% in 3Q25, and +36.5% in 4Q25, reflecting a recovery in its end markets [9]. - United Imaging's management expressed optimism about the upcoming trade-in program in 2025, expecting a smoother process compared to 2024 [9]. Market Dynamics - The report highlights that both domestic and multinational companies achieved notable YoY growth in April, indicating a balanced competitive landscape in the medical device sector [64]. - The trend of domestic substitution is not particularly evident, as both local and multinational companies are performing well in the procurement market [64].

Investment Rating - The report raises the 2025 growth forecast by 0.5 percentage points to 1% Q4/Q4 and lowers the 12-month recession odds to 35% from 45% previously [11][14][15]. Core Insights - The US and China have agreed to a 90-day pause in retaliatory tariffs, resulting in a net increase of +30 percentage points for US tariffs on China and +15 percentage points for China's tariffs on the US by 2025 [4][6]. - The effective US tariff rate is expected to increase by +13 percentage points in 2025, slightly lower than the previous assumption of +15 percentage points, due to anticipated sectoral tariffs on pharmaceuticals and semiconductors [6][10]. - The report indicates a smaller increase in consumer prices, leading to a reduced tax-like impact on real disposable income and firmer consumption growth [10][11]. Summary by Sections Economic Forecast - The report anticipates a peak hit to year-over-year GDP growth from tariffs of 1.4 percentage points, down from 1.8 percentage points previously [11]. - The unemployment rate is projected to rise to 4.5% in December 2025, a slight decrease from the previous forecast of 4.7% [11]. Federal Reserve Policy - The rationale for Federal Reserve rate cuts has shifted from insurance to normalization, with expectations for three 25 basis point cuts starting in December 2025, rather than sequentially from July [17][19][20]. - The terminal rate range remains unchanged at 3.5% to 3.75% [19]. Tariff Policy Implications - The report suggests that the lower US tariff rates on China may influence reciprocal tariff rates on other trading partners, indicating a potential for lower rates overall [5][6]. - The ongoing dialogue between the US and China on economic and trade relations is expected to contribute to a rebalancing of trade [4].

12 May 2025 | 1:40AM HKT Navigating China Internet What to expect & key investor focuses into mega-caps 1Q prints With Tencent, Alibaba and JD reporting this week, we see upside to Tencent's 1Q advertising revenues (i.e. marketing services, GSe: +18%), expect a potential for JD Retail 1Q profits to beat (GSe: +28% yoy) and anticipate solid Alibaba March-quarter with sustained Taobao-Tmall Customer Management Revenue (CMR) momentum and acceleration in cloud, in line with street expectations (V.A. Consensus). ...

Investment Rating - The report maintains a cautious outlook with a moderate return expectation of -4% over 3 months and +4% over 12 months for the MXAPJ index, with updated targets of 570, 595, and 620 for 3, 6, and 12 months respectively [28][41]. Core Insights - The MXAPJ index has rebounded 16% since its April low, recovering from a 15% decline earlier in the year, indicating a strong recovery trend across Asian equity markets [2][3]. - The earnings growth forecast for 2025 and 2026 has been adjusted to 7% and 8% respectively, which is below consensus estimates of 10% and 11%, reflecting a subdued earnings outlook [19][21]. - Market pricing appears complacent, with the MXAPJ index's performance exceeding macro-modelled returns, suggesting a lack of consideration for geopolitical risks [21][28]. Summary by Sections Market Performance - The MXAPJ index has fully recovered from its early April plunge and is near year-to-date highs, with most Asian markets showing similar recovery patterns [2][3]. - The report notes that markets that experienced the largest declines have tended to recover more sharply [6]. Rally Drivers - Key factors driving the recent equity market rebound include increased expectations around trade deals, moderated stress measures, a weaker US dollar, and signs of renewed foreign investment in emerging Asia [8][19]. Earnings Outlook - The earnings outlook remains subdued, with the report highlighting potential risks from trade dislocations and softer global demand, as indicated by weak survey data [19][21]. - The report's earnings revision lead indicator suggests further downgrades to consensus profit forecasts, reflecting negative corporate sentiment [23]. Market Pricing and Valuation - Current market pricing is viewed as complacent, with the MXAPJ index's forward P/E returning to mid-range levels without adequate allowance for geopolitical risks [21][31]. - The report indicates that the forward 12-month P/E is at 13.3x, aligning with historical averages but suggesting potential overvaluation given the earnings growth outlook [21][31]. Scenario Analysis - The report presents upside and downside scenario analyses, indicating potential for +6 percentage points upside and -23 percentage points downside relative to the baseline return of +4% over 12 months [34][37]. Allocation Strategy - The report recommends maintaining a domestic and defensive allocation stance, favoring China and Japan while underweighting Australia and Taiwan, with a focus on internet and defensive sectors over commodities and global cyclicals [40][41]. Key Themes - The report identifies several key themes, including resilience in a challenging macro environment, support from Chinese policy, and opportunities in AI and shareholder yield [43].

Investment Rating - The report maintains a real GDP growth forecast of 4% for 2025, with a revised export volume growth forecast for 2025 adjusted to -5% from -10% previously, indicating a more resilient export performance than initially expected [1][3]. Core Insights - Chinese exports showed unexpected strength in April, with a year-over-year increase of 8.1% in USD terms, which was significantly above market expectations. This resilience is attributed to trade re-routing and front-loading activities during a temporary tariff pause [2][3]. - The report suggests that the better-than-expected export performance reduces immediate pressure on Beijing for aggressive policy easing, with the next critical milestone for potential easing being the July Politburo meeting [4][9]. - The forecast for overall real domestic demand growth has been slightly lowered to 4.5% for 2025, down from 5.0%, reflecting a delay in the rotation towards domestic demand due to sustained export strength [9][21]. Summary by Sections Export Performance - The report highlights that despite weaker signals from manufacturing PMIs, actual trade data showed resilience, with exports expected to decline by 5% in 2025, a revision from a previous forecast of -10% [3][4]. - The net export contribution to GDP is now forecasted at -0.5 percentage points, an improvement from the earlier estimate of -1.0 percentage points [3]. Policy Outlook - Following recent monetary policy adjustments, including a 50 basis point cut in the reserve requirement ratio and a 10 basis point policy rate cut, the report anticipates further policy rate cuts of 20 basis points for the remainder of the year [4][8]. - The augmented fiscal deficit is projected to widen from 10.4% of GDP in 2024 to 13.5% in 2025, indicating a more significant fiscal stimulus than previously expected [8][16]. Inflation and Trade Uncertainty - The report anticipates continued PPI deflation, with forecasts for PPI inflation at -2.1% for 2025 and -0.6% for 2026, reflecting sluggish domestic demand and overcapacity in various industries [10][19]. - There remains high uncertainty regarding US-China trade relations, with expectations that bilateral tariffs may decrease from current levels of over 100% to around 50-60% in the near future [11][20].

Investment Rating - The report indicates a positive outlook for Emerging Market (EM) equities, suggesting a strong case for relative outperformance against US equities [4][12][17]. Core Insights - EM equities have shown unusual outperformance, with MSCI EM returning +6% year-to-date, significantly outperforming SPX at -5% and its implied returns at -6% [8][12]. - The report highlights a growing need for diversification away from US assets, which could support stronger medium-term returns for EM equities, particularly domestic cyclicals [4][17][28]. - The macro environment is favorable for EM local fixed income, benefiting from a weaker US Dollar and lower commodity prices, leading to one of the best year-to-date performances in the past decade [33][37]. - EM currencies have recently appreciated against the Dollar, driven by improving global risk sentiment and repatriation flows, particularly in Asian low-yielders [50][58]. Summary by Sections EM Equities - EM equities have outperformed both SPX and historical betas, with a 15% rally since April lows and a current position only 1% lower than the February peak [4][12]. - The report notes that much of the rally is attributed to a decline in risk premia, despite weak earnings sentiment [12][17]. - Domestic cyclicals in EM are expected to perform better in an optimistic medium-term scenario, particularly in Brazil and South Africa [28][31]. EM Local Rates - The macro environment for EM local fixed income is supportive, with a broad-based rally driven by a weaker US Dollar and disinflationary trends [33][37]. - Recent EM inflation data has surprised to the downside, suggesting inflation could fall within central bank targets by year-end, providing more room for policy responses [41][44]. EM FX - EM FX has recently outperformed G9 FX, with Asian low-yielders leading the appreciation due to improved sentiment and repatriation flows [50][58]. - The report emphasizes that while recession risks remain elevated, there are growing right-tail risks for EM FX appreciation if market conditions improve [65]. EM Sovereign Credit - Recent widening of EM sovereign credit spreads has opened up some value, but the asymmetry remains unattractive due to high recession risks [70][74]. - The report suggests focusing on 'high-quality' sovereigns with solid fiscal outlooks and relatively attractive spread entry levels [70][74].