Group 1: Market Dynamics - The emergence of "Little Dragons" like DeepSeek and Yushutech has renewed confidence in China's supply chain competitiveness and technological innovation[2] - China's supply chain advantages stem from cost reduction and efficiency, but reliance on exports may continue due to domestic economic imbalances[4] - The potential market growth rate may fall below the pace of capacity expansion due to upcoming tariff pressures and long-term multipolar trends[4] Group 2: Economic Challenges - Structural economic imbalances and cyclical deflation pressures cannot be resolved solely through technological innovation[2] - Risks of capital misallocation persist, exacerbated by corporate profit pressures and non-market investments driven by supply-side policies[4] - Evidence of capital misallocation includes weak total factor productivity growth and rising debt ratios[4] Group 3: Policy Recommendations - A five-part policy framework is proposed to address economic challenges: re-inflation, rebalancing, restructuring, reform, and revitalizing private enterprise confidence[8] - Progress in the five-part framework could help overcome supply-side growth bottlenecks and enhance China's supply chain and innovation capabilities[8]

Group 1: Market Performance - Recent rebound in the Chinese market is primarily driven by AI momentum, with significant divergence between tech stocks and others[3] - From January 13 to February 7, 2025, the Hang Seng Index rose by 12%, while the Hang Seng Tech Index surged by 22%[3] - The MSCI China Index increased by 13%, with the MSCI China IT sector up by 24% during the same period[3] Group 2: Investment Trends - Southbound capital inflow reached $17 billion year-to-date, primarily directed towards IT and communication services[11] - Daily average net inflow for IT sector doubled from $42 million in 2024 to $88.1 million in 2025[11] - Global long-term investors still hold significant underweight positions in relevant sectors, indicating potential for catch-up[11] Group 3: Economic Outlook - Continued deflationary pressures are expected to hinder consumption and traditional non-tech sectors, prolonging performance divergence[12] - Recent macroeconomic data shows little improvement in deflationary pressures, with weak sales in duty-free shops during the Spring Festival[12] - Concerns over economic slowdown may limit broad beta investment opportunities until after the National People's Congress in March[12] Group 4: AI Sector Insights - The report highlights 15 AI-related stocks that are expected to benefit from advancements in AI technology, particularly in infrastructure and applications[13] - The technology from DeepSeek significantly reduces AI training and inference costs, potentially accelerating AI adoption in China[13] - The shift in global investor sentiment towards China's tech and AI sectors is seen as more sustainable than previous short-term rebounds[6]

Macro Policy and Economic Forecast - The official deficit rate is expected to reach 4% or higher, with a fiscal stimulus increment of around 2 trillion RMB[1] - Policy focus shifts towards consumer goods renewal, with a predicted cumulative policy rate cut of 40 basis points by mid-next year[1] - Unconventional counter-cyclical measures include central enterprises issuing special investment bonds and coordinated fiscal and monetary policies, injecting 2 trillion RMB in liquidity[5] Economic Priorities and Structural Reforms - Expanding domestic demand is prioritized over technology and industrial chain investments, signaling a shift towards an internal demand-driven framework[3] - Structural reforms are necessary to transition from an investment and real estate-centric economy to a more balanced structure, a process expected to be long-term[5] - Addressing real estate bad debts requires a combination of policy intervention and market-based mechanisms to clear the market and ensure fiscal sustainability[5] Financial and Insurance Sector Outlook - Loose monetary policy has led to increased deposit savings rates, limited consumption stimulation, and reduced resource allocation efficiency[8] - The insurance sector shows strong investment value, with significant growth in new business value and improved performance due to channel optimization and product structure enhancements[13] - Challenges for the insurance industry in 2025 include managing new business value growth and addressing market concerns over interest rates and opening red scenarios[14]

Investment Rating - The report indicates a cautious outlook on the Chinese economy, with lowered GDP forecasts for 2024 and 2025, reflecting concerns over soft activity data [7][19]. Core Insights - The report highlights a significant decline in China's industrial production, retail sales, and fixed asset investments, leading to a negative GDP deflator throughout the forecast period [2][19]. - The Federal Reserve is expected to consider a 50 basis point rate cut in the upcoming FOMC meeting, with market participants anticipating a shift in monetary policy [3][7]. - The Bank of Canada is also under scrutiny, with Governor Macklem expressing concerns about economic slack, which may lead to more aggressive rate cuts [10][19]. Summary by Sections Global Macro Commentary - Soft economic data from China has raised growth fears, prompting economists to lower GDP forecasts [7]. - The USTs rallied amid expectations of a potential 50 basis point Fed cut, while uncertainty remains regarding the exact size of the cut [3][7]. Developed Markets - The Empire State Manufacturing Survey showed a significant improvement, rising to 11.5 in September, indicating a rebound in new orders and shipments [19]. - The Canadian economy is facing pressure, with the BoC Governor indicating a desire to avoid further economic slack, which may lead to rate adjustments [10][19]. Emerging Markets - China's August activity data was disappointing, with industrial production growth moderating to 4.5% year-on-year, and retail sales slowing to 2.1% [19]. - In India, the RBI Governor expressed confidence in sustaining a growth rate of 7.5% over the next few years, despite external influences from major central banks [19].

Investment Rating - The report assigns an "Attractive" investment rating to the industry [1]. Core Insights - The headline Total Social Financing (TSF) growth moderated to approximately 8% year-on-year (YoY) in August, indicating a more rational loan extension which is expected to stabilize loan yields [1][2]. - Government bond issuance is anticipated to be a primary support for investment and consumption in the second half of 2024 [1]. - The report forecasts TSF growth to remain around 8% for 2024, with a potential decline below this level, which is viewed positively for the long-term sustainability of the financial system [1][2]. - Credit growth is expected to slow to approximately 7% in 2025, which will help close the gap between credit supply and demand, thereby supporting loan yields through more market-oriented pricing by banks [1]. Summary by Sections TSF Growth and Loan Dynamics - TSF growth moderated to 8.1% YoY in August, with RMB loan growth also at 8.1% YoY [2][3]. - The moderation in loan growth is attributed to efforts to reduce self-circulating loans and a rationalization of loan growth as banks focus on risk containment [1][3]. - Long-term corporate loans remain weak, influenced by policies on capacity control and fair competition rules [1]. Government Bonds and Investment Support - Government bond issuance increased by 15.8% YoY, providing significant support for investment and consumption [2][3]. - The report highlights that government bonds will likely be utilized to bolster investment and consumption in the latter half of 2024 [1]. Household and Corporate Deposits - Household deposit growth remained stable at 10.9% YoY in August, while corporate deposits declined by 3.9% YoY [1][11]. - The stability in household deposits is seen as a positive indicator for fee income rebound in the second half of 2024 [1]. Loan Types and Trends - Short-term household loans saw a significant decline of 52% YoY, while long-term household loans are experiencing a slower decline [1][11]. - The report notes that mortgages are gradually stabilizing, attributed to lower early repayments and some recovery in demand due to lower mortgage rates [1]. Valuation Comparisons - The report includes valuation comparisons for various Chinese banks, indicating a range of price-to-earnings (P/E) and price-to-book (P/B) ratios, with several banks rated as Overweight (OW) [12][13].

August 30, 2024 08:41 PM GMT cover, CCB bucked the trend, showing improvement in overdue and SML loans. M Update | --- | --- | --- | |------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ...

M Update Asia Quantitative Strategy | Asia Pacific August 26, 2024 12:09 PM GMT Positions of Active Long-only Managers in Asia/EM Our August 2024 positioning guide shows Semis remained the most crowded industry group, although active weights were trimmed to +3.0% with Financials and Brazil were most bought. India has now overtaken China as the largest market in active portfolios. Active GEM funds saw US$2.2bn in redemptions Key Takeaways US$2.2bn outflow from active GEM funds but US$254m inflow into GEM pas ...

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M Global Idea Thematics August 28, 2024 03:00 AM GMT What to Buy & Sell Morgan Stanley & Co. International plc+ Edward Stanley Equity Strategist Edward.Stanley@morganstanley.com +44 20 7425-0840 Matias Ovrum Equity Strategist Matias.Ovrum@morganstanley.com +44 20 7425-9902 The market is fidgeting to find the "next big theme" despite the current ones (1) having attractive fundamentals, (2) performing in line with prior multi-year themes, (3) seeing upgrades to consensus estimates and (4) remaining reasonably ...

Industry Investment Rating - The report highlights a significant pivot in venture funding from blockchain protocols to AI start-ups, with blockchain funding down 75% while AI funding has doubled from 2022 lows [6][7] Core Report Insights - Bitcoin's price is 6% below its 2021 high and 15% below its all-time high, yet venture funding for blockchain protocols has dropped by 75% [6] - AI start-up funding now constitutes over 40% of all venture/growth funding, indicating a strong shift in investor focus [8] - AI funding has a stronger correlation to Bitcoin prices than blockchain funding, a trend only seen once before in 2020 [8] Blockchain Industry Analysis - Blockchain faces challenges with product-market fit and user engagement, with venture-backed investments unlikely to return significant funds compared to previous cycles [2] - Institutional interest in blockchain, driven by ETFs and the recent halving, has supported prices but not on-chain activity levels [6] AI Industry Analysis - AI start-ups have seen better adoption statistics compared to blockchain, but exit challenges remain in the private market [7] - AI funding has surged, with deal flow dominating other verticals, including blockchain-focused companies [8] Crypto Mining to AI Data Center Conversion - There is a growing opportunity for Bitcoin miners to convert mining facilities into AI data centers, with potential valuations up to $10/watt for powered shell conversions [11] - The conversion of a 150 MW crypto facility to an AI data center could yield significant financial benefits, with an indicative enterprise value of $411 million [13] Venture Funding Trends - Venture funding for AI start-ups has doubled from 2022 lows, aligning with the stock performance of key listed AI companies [7] - AI funding now makes up over 40% of all venture/growth funding, significantly outpacing other sectors [8] Market Performance and Correlations - AI funding shows a stronger correlation to Bitcoin prices than blockchain funding, a trend not seen since 2020 [8] - The report includes detailed correlation data between Bitcoin prices and AI/ML capital invested from 2014 to 2024 [9] Largest Deals and Funding Rounds - The report lists significant VC and PE deals, including Grafana Labs' $328 million 6th round and Borealis Biosciences' $150 million 1st round [17][18] - Notable AI-related deals include Story Protocol's $83 million 3rd round and Slingshot AI's $30 million 2nd round [17]