Investment Rating - The report maintains an Overweight (OW) rating for Netflix (NFLX), Spotify (SPOT), Google (GOOGL through YouTube), and Meta (META) [4][12]. Core Insights - Generative AI (Gen AI) is expected to have a profound long-term impact on content creation, distribution, and monetization, presenting both opportunities and risks across the media and entertainment value chain [3][4]. - The report highlights that Gen AI could lead to significant cost reductions in TV and film production, potentially decreasing costs by 10-30% [8]. - New creator tools are anticipated to narrow the gap between professional and user-generated content, increasing the stakes for AI leadership among major players like Netflix and YouTube [8]. Summary by Sections Winner's Circle - The report updates price targets for Netflix to $1,450 and Spotify to $850, reflecting a positive outlook driven by Gen AI advancements [4]. - The bull case valuation for Netflix is raised to $2,250, while Spotify's is set at $1,200, indicating strong growth potential [4][19]. Netflix - Gen AI tools could significantly reduce Netflix's production costs, which currently represent about 40% of revenues [13]. - Enhanced personalization through AI could extend user engagement beyond the current average of two hours per day [13]. - Innovations in targeted brand marketing could help sustain double-digit revenue growth for Netflix over the next decade [14]. Spotify - Gen AI is expected to improve personalization and content discovery, enhancing user experience and engagement [17][19]. - The potential for Spotify to expand its offerings into new verticals beyond music is highlighted, supporting its "super-app" strategy [19]. - The bull case for Spotify suggests a sustained mid-teens revenue growth with margins approaching 30% [19]. Google (YouTube) and Meta - Both companies are positioned to benefit from Gen AI through enhanced user experiences and improved ad monetization [25][26]. - The report notes that a 1% increase in engagement and monetization could lead to an incremental ~$1 billion in YouTube revenue and ~$5 billion in Meta revenue by 2027 [32][37]. - Gen AI tools are expected to democratize video generation capabilities, allowing for greater content personalization and engagement [27][28]. Experiential and Sports Assets - Live experiences, such as concerts and sporting events, are seen as relatively insulated from Gen AI disruptions, with companies like Live Nation and Walt Disney expected to benefit from Gen AI technology [10][11]. - Sports rights holders are anticipated to gain from the increased volume of content driven by Gen AI, although they must balance consumer access with monetization strategies [11].

Investment Rating - The industry view for Telecom & Networking Equipment is rated as In-Line [5]. Core Insights - The Q2 2025 CIO Survey indicates a largely stable spending environment, with Communications growth expectations at +2.9%, a slight deceleration from previous quarters but still above 2024 expectations [4][8]. - Networking equipment has seen a decline in prioritization among CIOs, now ranking 8th, but remains a relatively defensible sector [9][25]. - AI continues to be the top priority for CIOs, with a significant portion of AI investments coming from new budget allocations rather than reallocations [11]. Summary by Sections Spending Expectations - Overall IT budgets are expected to grow by +3.6% in 2025, reflecting a deceleration from earlier expectations [4][14]. - Networking equipment is anticipated to see a spending increase from 3.7% of CIOs, down from 4.0% in Q1 2025 [9]. Communications Sector - Communications growth expectations remain stable at +2.9%, with no significant step back from earlier expectations [8]. - The sector has shown resilience despite broader IT spending challenges, maintaining growth expectations above those of 2024 [4][8]. Networking Equipment - Networking equipment ranks 8th in priority for CIOs, indicating a slight decline from the previous quarter but an improvement year-over-year [9]. - The sector is viewed as relatively defensible, with 3.7% of CIOs expecting the largest spending increase in 2025 [9][25]. AI and Cloud Trends - 60% of CIOs expect to launch AI projects in production by 2025, with 56% of AI investments funded by new budget dollars [11]. - Public cloud usage is projected to rise significantly, with CIOs expecting 68% of workloads to be in the public cloud by the end of 2027, up from 44% today [11][30].

Investment Rating - The report assigns an "In-Line" investment rating for the Greater China Tech Semiconductors industry [5]. Core Insights - The report emphasizes a positive outlook for auto semiconductor localization in China, driven by the dominance of Chinese EVs in the global market, government support, and sufficient mature node foundry supply [1][19]. - Three key investment themes are identified within the China auto semiconductor supply chain, focusing on power semiconductors, autonomous driving chips, and microcontroller units (MCUs) [20][21]. Summary by Sections Investment Themes - The report identifies three main investment themes in the China auto semiconductor supply chain: 1. **Power Semiconductors**: Companies like Yangjie Technology and Starpower are highlighted for their strong positions in the market, with Yangjie showing a stable net margin of approximately 18% over the last three years [2][20]. 2. **Autonomous Driving Chips**: Companies such as Horizon Robotics and Alchip are noted for their roles in the growing ADAS market, with increasing adoption in more affordable EVs [21][23]. 3. **Microcontroller Units (MCUs)**: GigaDevice is recognized for its potential to benefit from localization trends, despite the current low self-sufficiency ratio of 3% in auto MCUs [21][40]. Market Dynamics - The report discusses the competitive landscape, noting that global auto semiconductor vendors from Europe, Japan, and the US dominate the market, with Greater China's share accounting for less than 5% [8][22]. - The growth of the electric vehicle (EV) market in China is highlighted, with expectations for EV production to nearly triple by 2030, leading to increased semiconductor content per vehicle [22][36]. Self-Sufficiency and Growth Potential - The report projects that China's auto semiconductor self-sufficiency will reach 28% by 2027, with significant growth opportunities in power discretes and MCUs due to their current low self-sufficiency ratios [10][46]. - The report indicates that local power semiconductor companies are willing to sacrifice margins for market share, which may lead to increased competitiveness against global players [26]. Export Opportunities - The potential for direct exports of auto semiconductors from China is deemed low, with the focus instead on leveraging EV exports, which are expected to grow by 31% in 2025 [4][19]. Stock Recommendations - The report provides a list of recommended stocks, with Yangjie Technology and OmniVision favored for their growth prospects in the auto segment, while Horizon Robotics faces challenges due to heavy R&D investments [2][18].

Investment Rating - The report indicates a preference for A-shares over offshore markets due to their lagging performance year-to-date and more reasonable valuations compared to offshore markets [12]. Core Insights - Investor sentiment for A-shares has improved, with the weighted Morgan Stanley A-share Sentiment Indicator (MSASI) rising to 78% and the simple MSASI to 65% [2][6]. - The Chinese government has intensified its anti-involution message to address overcapacity issues in sectors like solar, lithium batteries, new energy vehicles, and e-commerce [4]. - Despite the positive sentiment, near-term volatility is expected to rise, and the report cautions against a beta-focused strategy in the offshore market [12]. Summary by Sections Investor Sentiment - A-share investor sentiment improved with the weighted MSASI increasing by 7 percentage points to 78% and the simple MSASI rising by 8 percentage points to 65% compared to the previous cutoff date [2]. - Average daily turnover for ChiNext and A-shares decreased by 11% and 7% respectively, while equity futures and Northbound turnover increased by 7% and 9% [2]. Market Inflows - Southbound markets experienced net inflows of US$2.7 billion from July 2 to July 9, with year-to-date and month-to-date net inflows reaching US$95.8 billion and US$0.5 billion respectively [3]. Economic Indicators - The Producer Price Index (PPI) showed a deflation of -0.4% month-over-month in June, driven by weak construction activities and tariff impacts, while the Consumer Price Index (CPI) rose to 0.1% year-over-year from -0.1% in May [5]. Policy Implications - The report emphasizes the need for a tailored approach to the anti-involution initiative, as different sectors have varying competitive landscapes, ESG considerations, and market sizes [4]. - The implementation of policies to rebalance and reflation the economy remains challenging due to institutional inertia [5].

Investment Rating - The report assigns an "Overweight" rating to Futu Holdings Ltd, with a price target increase from US$140.00 to US$160.00, indicating a potential upside of 23% from the current price of US$130.53 [6]. Core Insights - Futu Holdings is positioned to capitalize on the growing cryptocurrency market, which has seen its market cap rise to US$3.4 trillion from US$2 trillion in the past year, with spot trading volume reaching US$18.8 trillion in 2024 [2][18]. - The company has obtained necessary licenses to operate in the cryptocurrency space, including a brokerage license in 2H24 and a VATP license in January 2025, allowing it to offer a range of crypto services [3][4]. - Futu's competitive advantages include a strong brand reputation, a large existing client base, and a comprehensive service offering that enhances trust among potential crypto investors [3][10]. Summary by Sections Market Opportunity - The cryptocurrency market is experiencing significant growth, with a market cap of US$3.4 trillion as of mid-2025, driven by regulatory developments that encourage traditional financial institutions to participate [2][18]. - Futu's strategy includes expanding its crypto offerings to deepen client wallet penetration, particularly in Hong Kong and Singapore, where over 60% of client assets are estimated to be held [8][10]. Revenue Potential - Futu could see an incremental revenue of HK$3.4 billion from spot trading by 2027 if crypto assets grow to 12% of total client assets, compared to an expected gross profit of HK$14.3 billion in 2025 [4][11]. - Additional revenue streams could arise from stablecoins, derivatives, and margin finance, contingent on a clear regulatory framework [4][11]. Regulatory Environment - The Hong Kong SFC has introduced a comprehensive regulatory roadmap for virtual assets, which includes licensing for various crypto-related activities, enhancing the market's credibility and operational framework [9][31]. - The regulatory landscape is evolving, with expectations for further developments in custody, derivatives, and margin trading, which will expand the total addressable market for firms like Futu [36][37]. Competitive Landscape - Futu's established brand and regulatory compliance position it favorably against emerging competitors in the crypto space, allowing it to leverage its existing client relationships to promote crypto adoption [10][83]. - The company has seen significant growth in client numbers and assets, with a 41% increase in funded accounts from 2023 to 2024, indicating strong market demand for its services [85][86]. Client Engagement - Futu's client assets grew at a compound annual growth rate (CAGR) of 33% over the past two years, reaching HK$829 billion in Q1 2025, reflecting increasing client trust and engagement [86][90]. - The firm aims to enhance its offerings through investor education and competitive pricing, which are critical for attracting both retail and high-net-worth clients [10][58].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Viewpoints - The report emphasizes that trade tensions are escalating as deadlines for agreements approach, leading to increased uncertainty that may impact business confidence, capital expenditure, and trade cycles [1][7][32] Summary by Sections Trade Negotiation Updates - The report outlines the current status of trade negotiations across various economies in the region, highlighting that only Vietnam has reached an agreement so far, while others remain uncertain [7][9] - Key issues include tariff adjustments, market access for agricultural products, and the complexities surrounding the approval of exports, particularly for critical materials like rare earths [9][48] Tariff Implications - The report indicates that the U.S. may unilaterally set tariff rates, with potential increases in tariffs on pharmaceuticals and semiconductors, reflecting ongoing trade uncertainties [7][12][21] - Current tariff rates on imports from Asia, excluding China and Vietnam, have seen a significant rise, with the weighted average tariff rate increasing [12][14] Economic Impact - High-frequency data suggests that the growth cycle may be adversely affected in the next 2-3 months due to the ongoing trade tensions, with indicators showing signs of a slowdown in economic activity [32][41] - The report notes that while some economic indicators have remained strong, there is a concern that this may be due to preemptive demand ahead of the July 9 deadline, with subsequent data expected to reflect a downturn [32][42] Regional Trade Dynamics - The report highlights that countries like India, Indonesia, and Thailand are facing significant tariff increases, which could further complicate trade relations with the U.S. [25][48] - The complexities of defining and measuring transshipment issues are also discussed, indicating that imports perceived as transshipped from China may face higher tariffs, complicating trade for other Asian economies [21][31] Future Outlook - The report concludes that trade uncertainties are likely to persist, affecting corporate confidence and capital spending, with potential tactical tariff increases expected if negotiations stall [7][22][32]

Investment Rating - The report maintains a cautious outlook on global economic growth, with expectations of a slowdown due to tariffs and restrictive immigration policies [17][41]. Core Insights - The report highlights that tariff-induced inflation is expected to rise, impacting growth forecasts across various regions, particularly in the US and Euro area [17][41]. - It anticipates a gradual cooling of economic growth in the US, with real GDP growth projected at 1.6% quarter-on-quarter for Q2 2025, and a potential trough in growth by the end of 2025 [13][41]. - In the Euro area, GDP growth for Q1 2025 was revised up to 0.6%, but a decline is expected in Q2 due to trade uncertainties [14][45]. - Japan's economy shows resilience in manufacturing, but inflationary pressures from food prices are becoming a concern [15][43]. - China's GDP is projected to grow 5.2% year-on-year in the first half of 2025, but a slowdown to around 4.5% is anticipated in the second half due to various economic strains [16][47]. - The report emphasizes that while the global economy is slowing, it is not expected to tip into recession, largely due to strong starting conditions at the beginning of the year [17]. Summary by Sections US Economic Outlook - Real GDP growth is expected to be 1.6% quarter-on-quarter for Q2 2025, with inflation pressures leading to a cautious Federal Reserve stance [13][41]. - The labor market remains tight, but immigration restrictions are projected to lower net immigration significantly [41][43]. Euro Area Economic Outlook - GDP growth in Q1 2025 was revised to 0.6%, but a correction is expected in Q2 due to front-loaded exports and trade uncertainties [14][45]. - Inflation is projected to remain below the ECB's target through 2026, with expected rate cuts resuming in September [14][45]. Japan Economic Outlook - Nominal growth remains positive, with manufacturing sentiment holding up despite tariff risks [15][43]. - Food inflation is becoming sticky, pushing underlying inflation higher, while wage growth remains around 3% [15][43]. China Economic Outlook - GDP growth is projected at 5.2% year-on-year in 1H25, with a slowdown to around 4.5% in 2H25 anticipated [16][47]. - Persistent PPI deflation and modest core CPI gains indicate ongoing deflationary pressures [16][47]. Global Strategy Outlook - The report suggests that US risky and risk-free assets are attractive compared to the rest of the world, with a focus on US equities and core fixed income [25].

Investment Rating - The industry view for Greater China Materials is rated as Attractive [3] Core Insights - Copper, aluminum, and gold are expected to remain at elevated levels, while supply cuts in steel and cement are anticipated in the second half of the year [1] - Morgan Stanley's commodity forecasts indicate a divergence from consensus, with higher price expectations for aluminum and copper compared to market consensus [7][8] Summary by Relevant Sections Commodity Price Forecasts - Aluminum price forecast for 2H2025 is $2,700 per ton, which is 10% higher than consensus [7] - Copper price forecast for 2H2025 is $9,825 per ton, 5% above consensus [7] - Gold price forecast for 2H2025 is $3,650 per ounce, 13% higher than consensus [7] Steel and Cement Demand - Steel demand drivers include residential property (14%), infrastructure (17%), and machinery (30%) [13] - Anticipated supply cuts in steel and cement are expected to impact market dynamics in the second half of the year [1] Consumption Indices - The China Steel Consumption Index shows a year-on-year change indicating fluctuations in demand across various sectors [14] - The China Copper Consumption Index reflects significant contributions from power (47%) and white goods (15%) sectors [17][19] - The China Aluminum Consumption Index indicates property and passenger vehicle sectors as major demand drivers [23] Infrastructure Spending - Infrastructure spending has increased, with a year-on-year growth of 10.4% in May 2025 [30] - Monthly total issuance of local government special bonds shows a trend towards increased funding for infrastructure projects [37] Key Companies Under Coverage - Companies covered include Baosteel, Jiangxi Copper, Zijin, and China Hongqiao among others in the materials sector [5]

Investment Rating - The report maintains a cautious outlook with expectations of persistent lowflation for CPI at 0.1% YoY and PPI deflation at -2.9% YoY for the second half of 2025 [4][7]. Core Insights - The core Consumer Price Index (CPI) increased by 0.1 percentage points to 0.7% YoY, supported by consumer subsidies, while food prices surged by 12% MoM SAAR due to adverse weather conditions [2][6]. - The Producer Price Index (PPI) remains under pressure, declining by 3.6% YoY, primarily driven by weak final demand in sectors such as ferrous metals and cement, reflecting soft construction activities [3][6]. - The central government's guidance on anti-involution is expected to mitigate excessive competition, although implementation challenges persist [4][7]. Summary by Sections CPI Analysis - CPI showed a slight increase to 0.1% YoY in June 2025 from -0.1% in May 2025, with food and energy prices contributing to this rise [6][7]. - Core CPI (excluding food and energy) rose to 0.7% YoY, indicating stable consumer price conditions [6]. PPI Analysis - PPI continued to decline, with a YoY decrease of 3.6% in June 2025, reflecting ongoing pressures from weak demand in construction and export-heavy sectors [3][6]. - Specific sectors such as mining and quarrying experienced significant declines, with PPI for this sector down by 13.2% YoY [6]. Economic Outlook - The report anticipates ongoing lowflation for CPI and persistent PPI deflation in the latter half of 2025, influenced by slower export activities and a high base effect from the previous year [4][7]. - The implementation of government policies aimed at rebalancing the economy remains uncertain, posing challenges for future economic stability [4].

July 9, 2025 02:34 AM GMT China Materials | Asia Pacific Morgan Stanley Asia Limited+ US Set to Announce 50% Copper Tariffs - Chinese Equity Implications Commodity implications: As per our commodities team (Note link), the development is 1) Positive for COMEX copper: COMEX copper is a duty-paid price with all COMEX warehouses located in the US, and therefore should reflect the cost of bringing metal into the US given the US is a net importer. However, the sizeable inventory build-up that has taken place sho ...