Global Market Overview - The Hang Seng Index closed at 26,608, up 1.44% for the day and 3.82% year-to-date [1] - The Hang Seng Tech Index rose by 3.10% for the day and 6.29% year-to-date, indicating strong performance in the technology sector [1] - The Shanghai Composite Index increased by 1.09% for the day and 4.95% year-to-date, reflecting positive sentiment in the Chinese market [1] Hong Kong Stock Performance - The Hang Seng Financial Index closed at 50,080, with a slight increase of 0.14% year-to-date [2] - The Hang Seng Industrial Index saw a rise of 2.26% for the day and 4.53% year-to-date, indicating robust performance in industrial stocks [2] - The Hang Seng Real Estate Index increased by 1.02% for the day and 6.95% year-to-date, suggesting a positive trend in the real estate sector [2] Chinese Market Dynamics - Chinese stocks saw gains, particularly in consumer discretionary, information technology, and materials sectors, while energy, finance, and utilities lagged [3] - Southbound capital recorded a net inflow of 7.306 billion HKD, with notable net purchases in Kuaishou, Tencent, and Xiaomi [3] - A surge in demand for storage chips is impacting the testing and packaging industry, with companies raising prices due to high capacity utilization [3] U.S. Market Insights - U.S. stocks opened lower but closed slightly higher, with consumer staples, industrials, and materials leading the gains [3] - The U.S. Department of Justice is investigating Federal Reserve Chairman Jerome Powell, which initially pressured the market but was mitigated by reassurances from the White House [3] - Google’s market capitalization surpassed 4 trillion USD, and Apple announced plans to use Google’s Gemini model for future AI products, indicating significant developments in the tech sector [3] Investment Trends - Emerging market ETFs attracted a net inflow of 3.97 billion USD, with Chinese ETFs leading in capital attraction, reflecting growing investor interest in Chinese assets [3] - The demand for AI data centers is reshaping the DRAM market, with AI-related demand accounting for 50%-60% of the market, indicating a structural shift in supply and demand dynamics [3]

Investment Rating - The industry investment rating is "Buy" for companies such as 三生制药 (1530 HK), 固生堂 (2273 HK), 药明合联 (2268 HK), and 中国生物制药 (1177 HK) [3][4][32]. Core Insights - The MSCI China Healthcare Index has increased by 11.8% since the beginning of 2026, outperforming the MSCI China Index which rose by 9.1%. The pharmaceutical sector has seen significant growth due to strong institutional investor interest at the start of the year following a valuation correction in Q4 of the previous year [2]. - The trend of innovative drugs going overseas is expected to continue in the long term, with a focus on the clinical progress and data validation of pipelines that have already gone abroad [2]. - The domestic innovative drug market is still relatively small, with an estimated market size of 300-400 billion RMB, of which domestic innovative drugs account for about 1/3, or 100-130 billion RMB. If the proportion of patented drugs in China reaches 66% like the global average, the market size could potentially reach around 760 billion RMB [6]. Summary by Sections Company Recommendations - Recommended companies for investment include 三生制药 (1530 HK), 固生堂 (2273 HK), 药明合联 (2268 HK), and 中国生物制药 (1177 HK) [3][4]. Market Trends - The market for domestic innovative drugs is characterized by high demand due to aging populations, weak pricing from insurance negotiations, strong competition, and short product life cycles. The global pharmaceutical market is projected to reach 1.74 trillion USD in 2024, with China's market size at 166 billion USD, representing only 9.5% of the global market [6]. - The potential market size for domestic innovative drugs going abroad could reach 110 billion USD, nearly 800 billion RMB, if one-third of the global patented drug market is sourced from China [6]. Clinical Development and Financials - In 2025, the total transaction amount for BD (business development) licensing for Chinese innovative drugs is expected to reach 135.65 billion USD, a year-on-year increase of 161%, with 70 million USD in upfront payments [6]. - Basic medical insurance expenditure showed a slight recovery in 2025, with cumulative spending growth of 0.5% and income growth of 2.9%, indicating a shift in the growth catalyst from insurance to out-of-pocket and commercial insurance [6].

Group 1: Market Overview - The Hang Seng Index closed at 26,232, up 0.32% for the day and 2.35% year-to-date [1] - The Shanghai Composite Index rose by 0.92% to 4,120, with a year-to-date increase of 3.82% [1] - The US markets showed positive performance, with the Dow Jones up 0.48% and the S&P 500 up 0.65% [1] Group 2: Sector Performance - In the Hong Kong market, the financial sector increased by 0.20%, while the real estate sector rose by 0.32% [2] - Chinese stocks saw gains in materials, consumer discretionary, and integrated enterprises, while consumer staples and utilities declined [3] - The MSCI China Healthcare Index has risen by 11.8% since the beginning of 2026, outperforming the MSCI China Index which increased by 9.1% [5] Group 3: Economic Indicators - China's CPI growth has slightly increased, reaching a near two-year high, driven by rising food and gold jewelry prices [4] - The US non-farm payrolls for December fell short of expectations, indicating a weakening job market, with the unemployment rate dropping to 4.4% [4] - The basic medical insurance expenditure in China showed a recovery with a 0.5% growth in 2025, compared to a 5.5% increase in 2024 [9] Group 4: Pharmaceutical Industry Insights - The market size for patented drugs in China is estimated to be around 300-400 billion RMB, with domestic innovative drugs accounting for about 1/3 of this market [6] - The global pharmaceutical market is projected to reach 1.74 trillion USD, with China's market size at 166 billion USD, representing only 9.5% of the global market [7] - The trend of Chinese innovative drugs going overseas is expected to continue, with a significant increase in BD (business development) transactions projected for 2025 [8]

Employment Data - In December, the U.S. added 50,000 non-farm jobs, below the market expectation of 70,000[6] - The October and November employment figures were revised down by a total of 76,000[6] - Private sector job growth fell significantly from 50,000 in November to 37,000 in December[6] Unemployment Rate - The unemployment rate decreased to 4.4% in December, better than the expected 4.5%[6] - November's unemployment rate was revised slightly down to 4.54%[6] - Labor force participation rate declined to 62.4%, influenced by retirements and reduced labor supply[6] Sector Performance - Job losses in the goods-producing sector totaled 21,000 in December, with construction and manufacturing losing 11,000 and 8,000 jobs respectively[6] - Service sector jobs increased from 32,000 in November to 58,000 in December, primarily in leisure and hospitality, and education and healthcare[6] Federal Reserve Outlook - The Federal Reserve is expected to cut rates by 25 basis points once in June, largely as a political statement with the new chair[6] - Economic growth is anticipated to rebound in the first half of the year due to tax cuts, despite inflation pressures from commodity prices[6] - In the second half, economic growth may slow again, with inflation potentially rising due to stabilizing oil and rent prices[6]

Macro Commentary - Global markets showed mixed performance, with the Hang Seng Index closing at 26,149, down 1.17% for the day but up 2.02% year-to-date [1] - The US stock market exhibited varied results, with the Dow Jones increasing by 0.55% and the S&P 500 slightly up by 0.01%, while the Nasdaq fell by 0.44% [1] - The Eurozone's unexpected drop in PMI to 6.3% indicates a potential slowdown, with implications for the European Central Bank's interest rate decisions [3] Sector Performance - In the Hong Kong market, the financial sector led declines with the Hang Seng Financial Index down 1.53%, while the real estate sector saw a gain of 1.04% [2] - The Chinese stock market experienced a pullback, particularly in the non-bank financial, non-ferrous metals, and telecommunications sectors, while defense, media, and construction sectors showed strength [3] Economic Insights - The US economy remains resilient, supported by a strong services sector, with the services PMI reaching a one-year high, while manufacturing PMI continues to contract [4] - The labor market shows signs of resilience, with initial jobless claims lower than expected, indicating a stable employment environment despite some signs of slowdown [3][4] - Oil prices are influenced by US inventory declines and strategic moves by the White House to control oil prices around $50, aiming to reduce inflation and support political approval [3]

Group 1: Economic Indicators - The ISM Services PMI rose from 52.6 in November to 54.4 in December, exceeding market expectations of 52.2, marking 10 consecutive months of expansion[2] - The Services PMI corresponds to an annualized GDP growth rate of 1.9%[2] - The Manufacturing PMI decreased from 48.2 in November to 47.9 in December, below the market expectation of 48.4, indicating continued contraction[2] Group 2: Employment and Inflation - The Employment Index in the Services sector increased from 48.9 to 52, indicating a rebound in the job market for the first time since the implementation of tariffs[2] - The Prices Index in the Services sector decreased from 65.4 to 64.3, returning to pre-tariff levels while still indicating rapid expansion[2] - Inflation is expected to decline slightly in the short term due to falling oil prices and slowing rent increases, but may rise again in the second half of the year[1] Group 3: Market Outlook - The U.S. economy is projected to maintain a robust growth rate of 4.3% in Q3, driven by strong consumer spending and a rebound in net exports[2] - The Federal Reserve is anticipated to cut interest rates by 25 basis points in June, adjusting the target federal funds rate from 3.5%-3.75% at the end of 2025 to 3.25%-3.50% by the end of 2026[1] - Risk asset prices may experience volatility as expectations for tighter dollar liquidity increase in the latter half of the year[1]

Macro Strategy - The Chinese economy is expected to slow down, with GDP growth forecasted to decrease from 5% in 2025 to 4.8% in 2026, reflecting a decline in economic activity and consumer confidence [7][10] - Inflation is showing slight improvement, with CPI growth rising from 0.2% in October to 0.7% in November, while PPI decline is narrowing [8] - The real estate market is experiencing a slowdown, with new and second-hand home sales dropping significantly, indicating ongoing challenges in the sector [9][12] Internet Sector - The year 2026 is seen as crucial for capturing user attention in the AI era, with companies that have stable cash flows and strong operational capabilities expected to have higher long-term investment value [1] - Recommended stocks include Tencent, Alibaba, and Kuaishou, which are positioned to benefit from AI-driven growth and foreign capital inflows [1][6] Software and IT Services - The competition in the large model industry is anticipated to intensify, with a focus on AI application monetization expected to grow [1] - Companies like Kingdee are recommended for their potential to achieve incremental monetization through AI [1][6] Semiconductor Industry - The global semiconductor market is projected to grow by 26% to $975 billion in 2026, driven by AI-related sectors [1] - Recommended stocks include Zhongji Xuchuang and Shengyi Technology, which are expected to benefit from structural growth in the semiconductor industry [1][6] Technology Sector - The technology industry is expected to see a divergence in end-user demand and accelerated AI innovation, with a focus on AI computing infrastructure and end-side AI products [1] - Companies like Luxshare Precision and BYD Electronics are highlighted for their potential in this sector [1][6] Consumer Sector - The consumer market is expected to face challenges, with a shift towards essential and low-cost products as consumer sentiment weakens [2] - Recommended stocks include Nongfu Spring and Luckin Coffee, which are positioned to benefit from market trends [2][6] Automotive Industry - The automotive market is projected to see a 2.9% increase in wholesale volume, with new energy vehicle sales expected to grow by 18.5% to 18.5 million units in 2026 [2] - Recommended stocks include Geely and Zhengli New Energy, which are expected to perform well amid market changes [2][6] Pharmaceutical Industry - The pharmaceutical sector is undergoing a valuation correction, presenting new investment opportunities, particularly in innovative drugs [2] - Companies with strong overseas expansion potential are highlighted for their competitive advantages [2][6] Capital Goods - The demand for mining machinery is expected to rise due to increasing global metal prices, with leading Chinese engineering companies focusing on growth in emerging markets [2] - Recommended stocks include Sany Heavy Industry and Zoomlion, which are well-positioned for growth in this sector [2][6] Insurance Sector - The insurance industry is expected to benefit from a recovery in valuations and strong growth in life insurance sales, particularly in dividend insurance [3] - Recommended stocks include China Ping An and China Life, which are expected to perform well due to their strong fundamentals [3][6] Real Estate and Property Management - The real estate sector is anticipated to see a recovery in sales due to recent policy relaxations, with a projected decline in sales expected to be less severe than in previous years [4] - Recommended stocks include China Resources Land and Beike, which are expected to benefit from market improvements [4][6]

Report Industry Investment Rating - Not provided Core Viewpoints - The market effectively absorbed new bond supplies, with strong demand for 5-year duration bonds, while lower-yielding front-end papers faced selling pressure [2]. - Asian IG credits tightened by 1 - 3bps this morning, driven by flows into 5-year duration issues and FRNs with spreads over 90 [4]. Summary by Relevant Catalogs Trading Desk Comments - The new CASHLD 6.25 Perp rose 0.9pt from RO at 99.965; the new FRESHK 29 tightened 10bps from RO at T+178; existing FRESHK 26 - 28s tightened 5bps; EIBKOR 29 - 36s opened 1 - 2bps tighter but retraced and closed flat to 1bp wider; RESONA 31, SWIPRO 31, MITHCC 31s, CLFCAP 31 and BAYFIM 29 tightened 3 - 6bps; new NAB 29 - 31s and STANLN 30 - 37s traded 1 - 2bps inside ROs; EBIUH 31 rose 0.4pt while EBIUH 29 closed around RO; KSA 56s had profit - taking selling and KSA 36s closed 0.1pt higher [2]. - In the secondary market, there was demand for higher - spread FRNs of EU/Chinese/Japanese banks; Japanese/Yankee insurance subs, AT1s, and HYSAN Perps rose 0.3pt; NWDEVL/VDNWDL complex moved 0.2pt lower to 0.7pt higher; EHICARs were down 0.2 - 0.6pt; Macau gaming complex moved 0.1pt lower to 0.2pt higher; VNKRLE 27 - 29 dropped 2.6 - 2.8pts; FUTLN 28/FTLNHD 26 - 27 were unchanged to 0.1pt lower; VLLPM 27 - 29 rose 1.3 - 1.9pts; INDYIJ 29s rose 0.3pt; MEDCIJ 26 - 30s were unchanged to 0.2pt lower [3]. - PMBROV 30/NUFAU 30/EHICAR 26 were 0.7 - 0.9pt lower; LNGFOR 28 27 - 28 were 0.6 - 0.8pt higher; SJMHOLs were unchanged and other Macau gaming bonds were unchanged to 0.1pt lower; TOPTBs/PTTGCs were unchanged to 0.1pt higher [4]. Last Trading Day's Top Movers - Top Performers: CFAMCI 4.95 11/07/47 rose 2.4, VLLPM 7 1/4 07/20/27 rose 1.9, VLLPM 9 3/8 07/29/29 rose 1.3, CHGDNU 4.8 09/11/48 rose 1.1, NWDEVL 5 7/8 06/16/27 rose 0.7 [5]. - Top Underperformers: VNKRLE 3.975 11/09/27 dropped 2.8, VNKRLE 3 1/2 11/12/29 dropped 2.6, FZSZJJ 7 12/27/27 dropped 1.3, EHICAR 12 09/26/27 dropped 0.6, GWFOOD 3.258 10/29/30 dropped 0.5 [5]. Macro News Recap - On Wednesday, S&P was down 0.34%, Dow was down 0.94%, and Nasdaq was up 0.16%. US Dec'25 ADP Nonfarm Employment change was +41k (lower than expected +49k), ISM Non - Manufacturing PMI was 54.5 (higher than forecast 52.2), and Crude Oil Inventories were -3.932mn (lower than expected -1.2mn). UST yield was lower, with 2/5/10/30 year yields at 3.47%/3.70%/4.15%/4.82% [7]. Desk Analyst Comments SJMHOL - The FV of the new SJMHOL 31 is expected to be low - mid 6% vs IPT of 6.875%. The net proceeds will fund a tender offer for USD500mn SJMHOL 4.5 01/27/26 at par and for general corporate purposes. The new bond is puttable at par under certain conditions and has a Change of Control put at 101%. Holders of SJMHOL 26 subscribing to the new bond may get priority acceptance and preferential allocation. The tender offer expires on 12 Jan'26 at 4pm London Time [8]. - As of Sep'25, SJM had HKD3.4bn cash and short - term deposits and HKD2.7bn undrawn facilities. Its LTM adj. property EBITDA was HKD3.7bn. Budgeted capex was HKD2bn in 2025, HKD1.5 - 1.8bn in 2026, and below HKD1bn in 2027. Moody's/Fitch changed the outlook to negative and affirmed Ba3/BB - rating. Eight of nine satellite casinos ceased operation by 2025, and SJM acquired L'Arc Hotel for HKD1.75bn in Dec'25. The firm is neutral on SJMHOLs and prefers MPELs/STCITYs [9]. TOPTB - The FV of the new PerpNC5.25 is expected to be low 6% vs IPT at 6.625%. The coupon resets in Apr'31, steps up by 25bps in Apr'36, and another 75bps in Apr'51. Coupon payment is cumulative and can be deferred, with restrictions on shareholder distributions [13]. - Proceeds will fund a tender offer for up to USD550mn of 5 USD bonds. An early tender premium of 5pts is provided for tenders on or before 20 Jan'26 5pm EST [14]. - Thai Oil is a leading integrated refining and petrochemical company in Thailand, with a refining capacity of about 275k barrels per day (c22% of total in Thailand). PTT and PTT Oil and Retail are its main customers and PTT is the main feedstock supplier [15]. Offshore Asia New Issues Priced - Riyad Bank issued USD1000mn 10NC5 bonds with a 5.805% coupon at T+210, rated -/BBB -/BBB [20]. Pipeline - Korea Housing Finance Corporation plans to issue 3yr/5yr bonds, sized in USD, with coupons of SOFR+77/CT5+63, rated Aa2/AA - [21]. - SJM International Limited plans to issue 5NC2 bonds in USD with a 6.875% coupon, rated B1/-/BB [21]. - Thaioil Treasury Center Company Ltd plans to issue PerpNC5.25 bonds in USD with a 6.625% coupon, rated Ba2/BB -/- [21]. Onshore Primary Issuances - Yesterday, 79 credit bonds were issued with an amount of RMB64bn. Month - to - date, 258 credit bonds were issued for a total of RMB205bn, a 23.9% yoy decrease [26]. - Dalian Wanda Commercial sold Changde Wanda Property; Emperor International shareholders approved a HKD1.16bn sale of a Hong Kong commercial building to OCBC; Minmetals Land will repurchase USD251.174mn of MINMET 4.95 07/22/26; New World Development expects to redeem 2026 - 2027 bonds with internal cash after selling a project for HKD1.16bn; China Vanke will hold a noteholders' meeting on 21 Jan'26 for RMB3.7bn 22WankeMTN005 notes to vote on maturity extension [26].

Global Market Overview - The Hang Seng Index closed at 26,459, down 0.94% for the day but up 3.23% year-to-date [1] - The S&P 500 closed at 6,921, down 0.34% for the day and up 1.10% year-to-date [1] - European markets showed slight declines, with the DAX reaching a historical high [3] Hong Kong Stock Performance - The Hang Seng Financial Index closed at 50,684, down 0.77% for the day and up 3.58% year-to-date [2] - The Hang Seng Industrial Index closed at 14,299, down 1.15% for the day and up 3.03% year-to-date [2] - The Hang Seng Real Estate Index closed at 18,344, up 0.28% for the day and up 4.45% year-to-date [2] Chinese Market Dynamics - In the Hong Kong market, consumer discretionary, energy, and information technology sectors led the decline, while healthcare, industrials, and consumer staples saw gains [3] - Southbound capital recorded a net inflow of HKD 9.178 billion, with Tencent, Xiaomi, and China Life being the top net buyers [3] - A-shares saw gains, particularly in the comprehensive, coal, and electronics sectors, while oil, non-bank financials, and beauty care sectors faced the largest declines [3] Economic Indicators - China's foreign exchange reserves increased by 0.3% month-on-month in December, with the central bank having increased gold holdings for 14 consecutive months [3] - The Eurozone's December CPI growth slowed to 2%, aligning with the European Central Bank's target, indicating a potential for stable interest rates [3] - U.S. economic data showed mixed results, with the December ISM services PMI reaching a 13-month high, indicating robust demand and a recovery in hiring [3] Commodity Market Insights - Precious metals prices are expected to experience significant volatility due to upcoming adjustments in the Bloomberg Commodity Index [3] - Industrial metal prices have retreated, while oil prices have declined amid expectations of increased supply from Venezuela [3]

Report Industry Investment Rating - Not provided Core Viewpoints - The Asian IG credit market was actively traded yesterday with abundant primary supplies, and there is diversification demand from Chinese and other Asian investors for Middle East credits [2] - In the secondary market, there was solid deployment demand for wider - spread FRNs and better selling pressure for lower - beta, front - end FRNs [3] - Initiate a buy on the new CASHLD 6.25 Perp due to its higher YTC compared to peers and the stable credit profile of PCCW [9] Summary by Relevant Catalogs Trading Desk Comments - Yesterday, the multi - tranche new MUFG 32 - 37s and SUMIBK 29 - 47s tightened 1 - 3bps from ROs; Fixed - rate HYNMTR 31 - 33s traded 1–3bps wider; BOCAVI 33s closed 2bps tighter; EXIMBK 36s tightened 2bps and EXIMBK 56s tightened 8bps; new UBS perps were initially up and then retraced slightly; KSA 4.875 01/12/36 was up 0.3pt [2] - In the secondary space, there was demand for wider - spread FRNs and selling pressure for lower - beta, front - end FRNs; NWDEVL Perps were up 0.1 - 1.3pts; LNGFOR 27 - 32s were firm and up 0.7 - 1.0pt; FTLNHD 26 - 27 were up 0.3 - 0.5pt, FUTLAN 28 was 0.4pt lower; in SE Asia, GLSP Perps rose 1.4 - 1.5pts [3] - This morning, new BAYFIM 29 and CLFAP 31 tightened 3bps; FRESHK 29 was 5bps tighter; MITHCC 31s were 7bps tighter; RESONA 31/STANLN 30 - 37s/EIBKOR 29 - 36s tightened 1 - 2bps; SWIPRO 31 was 4bps tighter; ZHHFGR 28 and ZHHFGR 6 Perp were 0.5pt lower [4] - In the LGFV space, FZSZJJ 7 12/27/27 recovered 1.3pts, and the rest edged 0.1 - 0.4pt higher [5] Macro News Recap - On Tuesday, S&P (+0.62%), Dow (+0.99%), and Nasdaq (+0.65%) were higher; US Dec'25 S&P Global Services PMI was 52.5, lower than the market expectation; the US Supreme Court is expected to rule on tariffs on 9 Jan'26; UST yield was higher [8] Desk Analyst Comments - Initiate a buy on the new CASHLD 6.25 Perp as it offers higher YTC than peers with a similar first coupon reset date and PCCW has a stable credit profile; it is trading at YTC of 6.1% and rose 0.8pt this morning [9] Offshore Asia New Issues (Priced) - Agricultural Bank of China issued 600mn USD 5 - year bonds at SOFR+45 [16] - CAS Capital No.2 Limited issued 675mn USD PerpNC5.25 bonds at 6.25% [16] - Clifford Capital Asset Finance Pte issued 500mn USD 3 - year bonds at 3.852% and 500mn USD 5 - year bonds at 4.037% [16] - Emirates NBD Bank PJSC issued 300mn USD 3 - year bonds at 4.195% and 700mn USD 5 - year bonds at 4.529% [16] - Far East Horizon issued 400mn USD 3 - year bonds at 5.25% [16] - KFH Sukuk Company issued 1000mn USD 5 - year bonds at 4.563% [16] - Mitsubishi HC Finance America issued 500mn USD 5 - year bonds at 4.558% [16] - National Australia Bank issued multiple - tranche bonds with different amounts, tenors, and coupons [16] - Resona Bank issued 300mn USD 5 - year bonds at 4.286% [16] - Standard Chartered Bank issued multiple - tranche bonds with different amounts, tenors, and coupons [16] - Shandong Development issued 240mn USD 3 - year bonds at 3.9% [16] - Swire Properties issued 500mn USD 5 - year bonds at 4.25% [16] - The Export - Import Bank of Korea issued multiple - tranche bonds with different amounts, tenors, and coupons [16] Offshore Asia New Issues (Pipeline) - There are no offshore Asia new issues in the pipeline today [17] Company - Specific News - 96 credit bonds were issued yesterday with an amount of RMB71bn, and month - to - date, 183 credit bonds were issued with a total amount of RMB143bn, a 29.3% yoy decrease [23] - Fitch placed JSW Steel's BB rating on positive watch [23] - Longfor completed RMB1.0bn payment for onshore bond 21Longhu02 [23] - Mongolian Mortgage repurchased USD 17.54m of MGMTGE 11.5 01/18/27, and the o/s amount is reduced to USD185.149mn [4][23] - SJM Holdings aims to lower net leverage to 5x within two years and is in talks with banks about raising new loans and redeeming debt [23] - Standard Chartered priced SGD750mn PerpNC5.5 AT1 at 4.3% [23]