Investment Rating - The report maintains an unchanged view on emerging markets (EM) inflows, driven by lower yields and a weaker USD, which are expected to support EM inflows [1][10]. Core Insights - A 1% decrease in the USD is projected to result in approximately US$360 million inflows into EM local markets [10][29]. - A 1% outflow from foreign US Treasury holdings into EM local markets could equate to around 3% of local debt market size, 48% of daily FX turnover, and 0.8% of GDP across GBIEM countries [10][39]. - Current valuations in sovereign credit show little risk premium for tariff policy, with idiosyncratic drivers being the main source of dispersion [10][44]. Summary by Sections EM Flows and USD Sensitivity - The analysis indicates that EM local flows are significantly influenced by USD movements, with historical data supporting this relationship [21][32]. - The report highlights that the relationship between USD weakness and EM inflows has been consistently negative and statistically significant over the past decade [32][36]. Sovereign Credit Strategy - The report notes that EMBI index spreads are trading close to historical lows, with minimal risk premium priced in for potential tariff impacts [44][45]. - Specific countries like Zambia are on the verge of a credit rating upgrade, which could enhance their debt carrying capacity [70][50]. Regional Strategies - In Latin America, the Mexican Peso (MXN) has shown mild long positioning despite recent rallies, with its performance linked to US risk appetite [3][62]. - The report emphasizes the importance of macroeconomic fundamentals in shaping currency performance, particularly in the context of upcoming elections in Chile [83]. Trade Recommendations - The report includes specific trade recommendations, such as buying Zambia's 2053 bond with a target price of 77, reflecting a positive outlook on its credit rating upgrade [70][61]. - It also suggests maintaining positions in Turkey's sovereign credit, anticipating gradual rate cuts and resilience against economic shocks [71][75].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Viewpoints - Trade uncertainty is expected to persist, impacting corporate confidence, capital expenditure (capex), and the overall trade cycle [6][36] - High-frequency data is anticipated to reflect negative impacts on the growth cycle in the upcoming 2-3 months [6][36] Summary by Relevant Sections Trade Negotiation Status - Vietnam is the only country that has secured a trade agreement, while negotiations with other economies remain unclear [6] - The US and China face significant challenges in reaching a comprehensive trade deal, particularly regarding transshipments and sectoral tariffs for pharmaceuticals and semiconductors [6][33] Economic Implications - The report highlights that if trade agreements are secured, the best-case scenario would be for tariff rates to remain at current levels [18] - If no progress is made, tariff rates could revert to levels announced on April 2, 2025, which would significantly impact various economies [18] Country-Specific Negotiation Updates - **China**: Current tariff rate is 42%, with ongoing negotiations regarding rare earth exports and chip design software [56] - **India**: Current tariff rate is 11%, with India emphasizing that trade agreements must align with national interests [56] - **Indonesia**: Current tariff rate is 15%, with a focus on securing a comprehensive trade deal covering critical minerals and energy [56] - **Japan**: Current tariff rate is 17%, with unresolved issues on auto tariffs and agricultural market access [56] - **Korea**: Current tariff rate is 16%, with ongoing negotiations to extend tariff pauses [56] - **Malaysia**: Current tariff rate is 8%, with limited updates following two rounds of negotiations [56] - **Taiwan**: Current tariff rate is 7%, aiming for a zero-tariff deal and increased US goods purchases [56] - **Thailand**: Current tariff rate is 11%, with proposals to reduce trade surplus with the US [56] - **Vietnam**: Current effective tariff rate is 20%, with commitments to remove tariffs on US goods [56] Tariff Rate Changes - The report indicates that the US trade-weighted tariff rates on imports from Asia have increased significantly, with potential further increases [13][14] - The emergence of a two-tiered tariff structure for imports from Vietnam highlights the US's focus on addressing transshipment issues [21][22] Economic Data Trends - High-frequency shipping indicators show a slowdown in activity, suggesting that the initial strength in trade may be waning [36][46] - Capital goods imports have held up, but there are signs of potential weakness in the coming months [36][41]

Investment Rating - Industry View: In-Line [6] Core Insights - In June 2025, there were inflows to 30 major HK-listed consumer stocks covered in the Shanghai/Shenzhen-Hong Kong Stock Connect, with average Southbound holdings as a percentage of free float increasing by 0.4 percentage points month-over-month for the 66 major HK-listed consumer stocks eligible for Connect trading [6][10] - Year-to-date 2025, average net flows from Southbound were up 2.9% compared to the end of 2024, with 40 stocks showing inflows and 26 showing outflows [2][3][6] - The top five stocks with inflows in June were Xiaocaiyuan (7.5 percentage points increase), Maogeping (5.8 percentage points), Topsports (5.6 percentage points), CR Beverage (4.5 percentage points), and Chervon (4 percentage points) [9][10] - The top five stocks with outflows included Wisdom Education (-3.2 percentage points), UPC (-2.8 percentage points), XBXB (-2 percentage points), Weilong (-1.8 percentage points), and JS Global (-1.6 percentage points) [9][10] Summary by Category - In June 2025, categories such as HPC, Agriculture, Home Appliances, Toys, Education, Luggage, and Duty-free recorded average outflows, while other categories experienced average inflows [9] - Year-to-date 2025, Beer, HPC, Education, Home Appliances, and Luggage recorded outflows, while other categories had average inflows [9]

Investment Rating - The report indicates a tactical escalation scenario regarding trade tensions, with potential tariff increases affecting corporate confidence and capital expenditure [2][4]. Core Insights - The US administration has extended the deadline for trade talks to August 1, after which tariffs may rise to levels similar to those on April 2, leading to a weighted average tariff increase for Asia to 27% [2][8]. - President Trump has suggested that a deal with India is close, while negotiations with Japan and Korea may face challenges, particularly concerning auto tariffs and agricultural products [3][4]. - The report highlights that trade tensions are resurfacing, which could lead to uncertainty impacting corporate confidence and the trade cycle [4]. Summary by Sections Tariff Rates Overview - Current weighted average tariffs for various countries in Asia are as follows: - China: 42% - India: 11% - Indonesia: 15% - Korea: 16% - Malaysia: 8% - Philippines: 10% - Singapore: 5% - Taiwan: 7% - Thailand: 11% - Australia: 9% - Japan: 17% - Vietnam: 18% - New headline reciprocal tariffs to be implemented on August 1 will adjust these rates, with the overall weighted average for Asia projected to be 27% [8].

Investment Rating - The industry view is rated as Attractive [6] Core Insights - US Industrials are expected to drive broad margin upside into Q2 2025, with a forecasted sequential operating margin (OM) expansion of just 45 basis points (bps), significantly below the 105 bps average observed over the last decade, indicating a low bar due to tariff cost inflation concerns [3][9] - Companies best positioned for margin upside are those that are pushing prices early and decisively in Q2, particularly in industrial-facing categories with elevated metal content [3][4] - The report identifies several equities as attractive for Q2 margin beats, including Stanley Black & Decker (SWK), Allegion (ALLE), Trane Technologies (TT), Vertiv Holdings (VRT), and Eaton Corporation (ETN) [3][4] Summary by Sections Margin Outlook - The forecast for Q2 2025 indicates a conservative modeling of margins, with a focus on the delta between forecasted Q2 YoY margin expansion and realized Q1 YoY margins [3][13] - The report highlights that the ability to sustain pricing power and grow volumes will be critical for companies to maintain excess margins in the current cost environment [8] Pricing Power - US Industrial pricing power is viewed as an under-appreciated driver of operational durability, with companies realizing strong real EPS growth and healthy incrementals through inflationary periods [8] - The report emphasizes that the best-positioned companies for price increases include Eaton (ETN), Fastenal (FAST), Trane Technologies (TT), and others [8] Market Dynamics - The report notes that macroeconomic uncertainty is high heading into the second half of 2025, which may impact investor sentiment and company performance [3][4] - The cumulative percentage change in Producer Price Index (PPI) from May 2025 compared to February 2025 is tracked to capture tariff impacts, indicating strong pricing power in certain sectors [3][4]

Investment Rating - The industry investment rating is "In-Line" for Greater China Technology Semiconductors [2]. Core Insights - The report highlights the growth potential in China's AI semiconductor sector, with a forecasted capital expenditure increase of 62% year-over-year to RMB 373 billion for the top six companies [19]. - TSMC's revenue guidance for Q3 2025 indicates a potential growth of approximately 3% quarter-over-quarter in USD, but a decline of 1.6% in TWD [12]. - The report anticipates that China's local GPU market will significantly expand, with local GPU revenue projected to reach RMB 287 billion by 2027, driven by advancements in SMIC's leading node capacity [33]. Summary by Sections Valuation Comparison - TSMC's target price is set at 1,288 TWD, representing a 19% upside potential, with an estimated P/E ratio of 23.9x for 2024 [8]. - The average EPS growth for the semiconductor sector is projected at 40% for 2024, with a mean P/B ratio of 2.3x [8]. - The memory segment shows a notable upside potential for Giga Device, with a target price of 145.0 CNY, indicating a 20% upside [9]. TSMC Preview - TSMC's Q3 2025 revenue is estimated at NT$ 910 billion, with a gross profit of NT$ 508 billion, reflecting a year-over-year growth of 35.1% [12]. - The gross margin is expected to be 55.8%, while the operating margin is projected at 45.5% [12]. China AI Semiconductor Demand - The report projects that China's GPU self-sufficiency ratio will increase from 34% in 2024 to 82% by 2027, indicating a strong trend towards domestic production [28]. - The total addressable market (TAM) for cloud AI in China is expected to reach USD 48 billion by 2027 [30].

Investment Rating - The report provides a detailed forecast for various asset classes, indicating a bearish outlook for equities and a mixed sentiment for fixed income and commodities [2]. Core Insights - The report highlights significant declines in equity indices, with the S&P 500 expected to drop by 20.7% in a bear scenario, while the MSCI Europe is projected to decline by 22.3% [2]. - The report notes that the AAII survey for Net Bulls has reached a six-month high, indicating a potential shift in market sentiment [6]. - US Quality metrics have fallen to their lowest levels since 2001, suggesting deteriorating market conditions [6][9]. Summary by Sections Equities - S&P 500 forecasted returns range from 4,900 to 7,200, with a base case return of 4.7% [2]. - MSCI Europe shows a similar trend with a forecast range of 1,610 to 2,620 and a base case return of 7.3% [2]. - Topix is projected to decline by 23.3% in a bear scenario, with a base case return of 5.0% [2]. Fixed Income - UST 10-year yields are forecasted to range from 2.85% to 4.35%, with a base case return of 12.1% [2]. - US Investment Grade (IG) credit is expected to yield excess returns of -0.1% in a bear scenario [2]. Commodities - Brent crude oil is projected to have a bear case return of -23.6%, with a base case return of -8.3% [2]. - Gold is expected to decline by 20.6% in a bear scenario, with a base case return of -6.5% [2]. Market Sentiment - The Market Sentiment Indicator (MSI) reflects a negative sentiment shift, with various indicators showing increased volatility and negative positioning [55][62]. - The report indicates a significant divergence in positioning among asset managers, hedge funds, and dealers across different markets [62]. Cross-Asset Correlations - The report notes that cross-asset correlations have increased, with equities showing a correlation of 71% and credit at 82% [73]. - The correlation between equity and rates is notably negative at -7%, indicating a potential decoupling of these asset classes [73].

Global Economic Briefing July 7, 2025 04:01 AM GMT M Global Idea The Weekly Worldview: The Tariff Show Must Go On Short-term "deals" are limited in scope and leave several questions unanswered. Comprehensive trade deals that reduce trade uncertainty will take much longer to finalize, and will require clarity on ongoing investigations and legal challenges. M The headlines have already started to trickle in: Canada repeals digital services tax, Vietnam agreement secured, EU on track. These seem like the previ ...

But it's worth considering what happens if things don't go according to plan. There's been little publicly reported concrete progress on trade deals. There have also been some hawkish signals from the administration – consider that it has floated the idea of a tiered system for global trade partners, similar to the messaging we saw ahead of the April 2 'Liberation Day' announcements. And as our colleague Rajeev Sibal points out in recent work, we're likely not yet seeing concrete effects of tariffs on infla ...

Investment Rating - The report maintains an Overweight (OW) rating on Aspeed Technology and Montage Technology, with a price target for Aspeed raised to NT$6,100 [6][38][45]. Core Insights - The outlook for cloud semiconductors is improving, particularly with the anticipated mass production of key components for Rubin architecture starting in Q2 2026, which is expected to enhance growth in the sector [3][10]. - ASIC servers are projected to see significant growth, with estimates suggesting that ASIC BMC could account for 5-10% of global shipments in 2026, driven by lower upfront costs and increased demand from major cloud service providers [4][10]. - Demand for storage servers has strengthened since Q4 2024, particularly from top cloud service providers in the US and China, indicating a robust market environment [4][10]. Summary by Sections Market Outlook - The 2026 GPU server outlook is becoming clearer, with increased supply chain engagement for Rubin racks and a potential mix of architectures that could mitigate supply chain risks [3][10]. - The report highlights a positive near-term outlook for non-rack servers and anticipates continued growth in cloud capital expenditures, with a projected 43% year-over-year growth in 2025 [20][21]. Company Performance - Aspeed reported June revenue of NT$782 million, with Q2 revenue reaching NT$2.2 billion, exceeding company guidance by 15% [6][29]. - Earnings estimates for Aspeed have been revised upward by 6%, 6%, and 10% for 2025, 2026, and 2027, respectively, reflecting higher BMC shipment forecasts and increased demand for IO expanders [29][32]. Financial Projections - The report projects total revenues for Aspeed to reach NT$8.410 billion in 2025, NT$10.060 billion in 2026, and NT$12.983 billion in 2027, with significant year-over-year growth rates [54]. - The gross margin for Aspeed is expected to improve to 66% in 2025, with operating income projected to increase to NT$4.200 billion [54][55]. Valuation Methodology - The price target increase for Aspeed from NT$5,000 to NT$6,100 is based on higher EPS estimates and an increased growth rate assumption from 17.2% to 18.5% [32][38]. - The new price target implies a forward P/E ratio of 51x for 2026, which is considered justifiable given the improving demand dynamics in the market [32][40].