Investment Rating - The industry investment rating is In-Line [4] Core Insights - BYD Auto Japan launched the Sealion 7 in April 2025, which has a driving range of 540km to 590km on a single charge, with prices ranging from ¥4,950,000 to ¥5,720,000 [3][6] - BYD Auto Japan aims to introduce PHEVs in 2026 and plans to establish a lineup of 7-8 models of BEVs and PHEVs by around 2027 [7][6] - The company is focusing on improving battery performance in cold climates and plans to launch a mini EV with unique specifications for Japan in late 2026 [6][8] Summary by Sections Growth Strategy - BYD Auto Japan's sales volume for 2024 was 2,223 vehicles, with a forecast of 1,120 vehicles for January to May 2025 [3] - The Sealion 7 addresses issues related to battery efficiency in cold weather through advanced heating systems [3][6] PHEV Launch - PHEVs are expected to appeal to Japanese consumers due to their electric efficiency and overall quality, with 65% of BYD's global passenger car sales being PHEVs [7][6] Mini EV Market Entry - BYD plans to enter the mini EV market in Japan with a platform unique to the region, leveraging technologies like e-Platform3.0 and LFP blade batteries [8][9] - The mini EV market is anticipated to grow with several Japanese OEMs launching their models, which may stimulate demand [8][9] Implications for Auto Parts Industry - The expansion of mini EV sales in Japan highlights the need for Japanese parts suppliers to focus on cost reduction for EV components [10]

Investment Rating - The report maintains a positive outlook on credit quality and demand, suggesting an "Own but Protect" strategy, emphasizing the importance of being up in quality and owning CDX hedges [1][2][4]. Core Insights - The macroeconomic environment is mixed, favoring investment-grade (IG) and BB-rated credits due to lower recession risks and attractive yields, while caution is advised for lower-rated credits [2][3][32]. - Corporate balance sheets are healthier than in previous slowdowns, which reduces sensitivity to macroeconomic changes, and demand for credit remains strong despite modest supply increases [3][32]. - Investment-grade yields are attractive across various metrics, with expectations for spreads to stabilize around 90 basis points, generating returns in line with historical averages [4][54]. - The leveraged credit market is expected to see modestly wider spreads, with total returns projected at 9% for high-yield (HY) and around 7% for loans, while default forecasts have been increased to 3.5% for HY and 4.5% for loans [5][55]. - Private credit is anticipated to remain resilient, offering high single-digit returns through mid-2026, with a modest increase in defaults expected [6]. Summary by Sections Macro Overview - The macro environment is characterized by lower recession risks and strong corporate balance sheets, which support a favorable setup for IG and BB credits [2][3]. - Slowing growth and delayed rate cuts are expected to impact lower-rated credits negatively, suggesting a cautious approach [2][5]. Investment Grade Insights - Investment-grade yields are attractive, with a base case for spreads at 90 basis points, and a focus on 5-10 year maturities is recommended [4][54]. - The report suggests being overweight in sectors like Utilities and Telecom while being underweight in Energy and Consumer Finance [4][66]. Leveraged Credit Insights - The leveraged credit market is expected to see wider spreads, with a cautious stance on CCC-rated credits due to fundamental challenges [5][68]. - The report highlights a preference for BB-rated credits within the leveraged finance space, indicating a focus on quality [5][68]. Private Credit Insights - Direct lending loans are expected to perform well, with modest increases in defaults anticipated, aligning with public market trends [6]. Credit Derivatives Insights - The report suggests considering hedges again, particularly through CDX, as the market environment becomes more favorable for such strategies [7][46].

Investment Rating - The industry view on Greater China Semiconductors is rated as "In-Line" [3]. Core Insights - The report maintains a positive outlook on cloud AI demand, supported by US cloud service providers indicating strong AI capital expenditure (capex) intensity in the near future [1][3]. - Concerns exist regarding semiconductor tariffs and foreign exchange (FX) impacts; however, these are not expected to significantly affect the long-term profitability of TSMC, which is identified as a top pick [1][3]. - The report highlights that AI semiconductors are projected to account for approximately 34% of TSMC's revenue by 2027 [19]. Summary by Sections AI Semiconductor Outlook - The demand for AI semiconductors is expected to accelerate due to generative AI, which is spreading across various sectors beyond the semiconductor industry [5]. - The anticipated total addressable market (TAM) for cloud AI in China is projected to reach USD 48 billion by 2027 [51]. Company Valuations - TSMC's current price is 967.0 TWD with a target price of 1,288.0 TWD, indicating a 33% upside potential [6]. - Winbond is also highlighted as a top pick with a current price of 17.7 TWD and a target price of 25.0 TWD, representing a 41% upside [6]. Market Dynamics - The report notes that the semiconductor inventory days have declined, which historically signals positive price appreciation for semiconductor stocks [5][10]. - The report discusses the impact of tariffs on AI recovery in the second half of 2025, suggesting that tariff costs could hinder growth [5]. FX and Tariff Impacts - The report indicates that a 1% appreciation in the TWD against the USD could lead to a 40 basis points (bps) decline in gross margin for TSMC, but the overall structural profitability remains intact [27]. - The TWD has appreciated by 9.46% quarter-to-date, which could impact earnings but is not expected to harm fundamental profitability [24][27]. Supply Chain and Production - The report mentions that the supply ramp of China fabs has contributed to a prolonged downcycle in mature node foundries and niche memory sectors [5]. - The domestic GPU supply chain is expected to improve, with local GPU revenue projected to grow significantly by 2027, driven by advancements in SMIC's leading node capacity [52][54].

Investment Rating - The industry view is rated as Attractive [7] Core Insights - The anticipated surge in China exports during the 90-day tariff pause has not materialized, with exports showing only a mild recovery of approximately 30% from April lows, remaining below the last twelve months' average and slightly down year-over-year [4][10] - Domestic US inventories are considered outsized due to a period of tariff pull forward, leading to risks for short-cycle production rates in the second half of 2025 [4][9] - US import volumes have softened, particularly at major ports like LA and Long Beach, indicating a sluggish demand environment [4][12] Summary by Sections Section: China Exports - Daily China maritime exports have rebounded but remain soft, indicating well-stocked domestic US inventories [2][4] - The expected influx of imports during the tariff pause did not occur, leading to a situation described as a "mole hill" rather than a "mountain" of exports [4][10] Section: US Imports and Inventory - Over $180 billion of imports have been pulled forward since the election, impacting customer balance sheets and crystallizing sales negatively [8][13] - Companies within the coverage, such as MMM, SWK, LII, CARR, and EMR, are identified as most at risk for channel digestion in the second half of 2025 due to the pre-buy phenomenon [9] Section: Market Dynamics - The report highlights a concern that corporations are not seeing the expected pre-buy during Q1, with inventories ramping higher at major US retailers and manufacturers [16] - The analysis suggests that price action will be a catalyst for destocking, with price increases not expected to fully ramp until Q3 [9]

Investment Rating - The industry view is rated as Attractive [8] Core Insights - The fiscal year 2026 (F3/26) plans of the banks covered are conservative and fully account for downside risks, with net interest income being the primary driver of year-over-year profit growth [4][11] - Megabanks are factoring in tariff impacts, leading to rising credit costs and a decline in stock-related income, with consolidated net profit guidance for F3/26 set at ¥940 billion for Mizuho FG and ¥1.3 trillion for SMFG [5] - Shareholder return policies are being strengthened, with Mizuho FG targeting a total return ratio of 50% or more and a dividend increase of ¥5 per share per fiscal year [6] Summary by Sections Bank Guidance - The banks' F3/26 plans incorporate potential risks, with net interest income expected to drive profit growth, and interest rate hikes anticipated to contribute positively [4][11] Tariff Impact - The impact of tariffs is evident in increased credit costs and reduced income from domestic corporate and asset management businesses, necessitating conservative planning by banks [5] Shareholder Returns - New shareholder return policies have been announced, emphasizing stable dividends and share buybacks, particularly by Mizuho FG and SMFG [6] Interest Rates and Deposits - The competition for deposit acquisition is expected to intensify, with potential increases in pass-through rates for time deposits [13] - The direct impact of rising long-term Japanese government bond yields on banks is expected to be limited, as banks do not hold significant amounts of ultra-long-term bonds [12]

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The global economic forecasts remain skewed to the downside, with expectations of no Federal Reserve cuts this year, influenced by delayed tariffs impacting confidence and inflation [4][5] - The report highlights a mixed macro backdrop with sluggish growth across major economies, including the US, Euro Area, UK, Japan, and China, which is expected to affect credit markets [6][7] - There is a focus on the potential for wider spreads in Asia IG due to tariff uncertainties and USD weakness, with a base case forecast for the Asia IG spread to widen to 100 basis points in the next 12 months [31][32] Economic Forecasts - US GDP growth is forecasted at 1.0% for both 2025 and 2026, with core inflation at 3.3% in 2025 [5] - Euro Area GDP is expected to grow by 0.8% in 2025, with core inflation at 2.3% [5] - China is projected to have a GDP growth of 4.0% in 2025, with core inflation at 0.1% [5] Credit Market Insights - The report indicates that credit is a good place to access high-quality income, with positive carry, momentum, and attractive valuations [16] - It suggests that corporate balance sheets are stronger than in previous slowdowns, which may temper the sensitivity of high and mid-quality credit to macroeconomic challenges [37] - Investment grade (IG) credit is expected to generate strong total returns, with a base case for spreads remaining sideways, while high yield (HY) spreads are anticipated to widen modestly [43][44] Asia Credit Outlook - Four key delays are identified in the normalization of Asia credit: high US rates, USD weakness, tariff uncertainty, and tight valuations [22] - The report forecasts that Asia IG spreads should widen, reflecting concerns about weaker growth and tariff uncertainties [31] - The Asia IG spread is currently at 81 basis points, with forecasts suggesting a potential increase to 100 basis points under base case scenarios [30] Sector Preferences - The report recommends an overweight position in sectors such as money-center banks, telecom, and utilities, while being cautious on cyclical risks, particularly in energy [48][64] - It emphasizes a preference for non-China IG over China IG due to tariff uncertainties impacting China more significantly [32] - The report suggests a shift in preference towards the belly of the curve (5-10 years) in IG to capture better carry and roll-down [48]

Investment Rating - The report maintains a solid equal-weight on China within the Emerging Markets/Asia Pacific ex-Japan framework, indicating a balanced approach to investment opportunities [13]. Core Insights - A-share investor sentiment has dropped significantly, with the weighted Morgan Stanley A-share Sentiment Indicator (MSASI) falling to 54%, down 7 percentage points from the previous cutoff date [2][7]. - Despite the current macroeconomic challenges, structural improvements in China's equity market are expected to remain intact, driven by a heavier index weight of high-quality companies and advancements in technology and AI [12]. - The report suggests a preference for offshore markets over onshore A-shares in the near term, influenced by the strengthening of the Chinese Yuan and a partial de-escalation in tariff tensions [14]. Summary by Sections Investor Sentiment - The MSASI has decreased to 54% (weighted) and 41% (simple), reflecting a decline in investor sentiment compared to the previous cycle [2][7]. - Average daily turnover for ChiNext, A-shares, and Northbound fell by 9%, 7%, and 9% respectively, indicating reduced trading activity [2]. Macro Economic Indicators - Macro signals remain lackluster, with ongoing supply-demand imbalances contributing to deflationary pressures, particularly highlighted by the recent car price competition [4]. - Retail sales growth in April slowed to 5.1% year-on-year, down from 5.9% in March, attributed to tariff disruptions [5]. Market Outlook - The report projects 2025 earnings growth for China at 7%, compared to a consensus of 8%, suggesting limited room for further earnings estimate reductions after a prolonged cycle of estimate cuts [12]. - Index targets for Chinese equities have been raised, with June 2026 targets set at 24,500 for MSCI China and 4,000 for CSI 300, despite challenges in broad macro-level recovery [13].

Investment Rating - The report holds a bullish/widening bias for the Japan Rates market, specifically for JGB futures rollover transactions [1][11]. Core Insights - Market activity is expected to focus on rollover transactions as the last trading day approaches, with a modest bullish/widening bias anticipated on the calendar spread [2][4]. - The theoretical value of the calendar spread as of May 29 was estimated at 60.8 sen, which is 4.8 sen higher than the actual market close of 56.0 sen [11][44]. - The report forecasts the trading range of the calendar spread to be between 51 and 66 sen, with a close at 56 sen on May 29 [44]. Summary by Sections Rollover Analysis - The JBM5 and JBU5 futures contracts are expected to see concentrated market activity in rollover transactions as the last trading day nears [2][4]. - The calendar spread is expected to rise as short rollovers predominate, reaching the upper bound of the anticipated range before declining as long rollovers occur [44]. Positioning - Foreign investors were estimated to be net long around 1,300 contracts, while domestic investment trusts were net short by approximately 8,000 contracts as of May 23 [17][22]. - The positioning of CTAs is significant, as they hold relatively large short positions, which could lead to a bullish/widening bias on the calendar spread [21][45]. CTD Bonds and Scarcity - The CTD bonds for the JBM5 and JBU5 futures contracts are JB367 and JB368, with the Bank of Japan holding 86% and 87% of these bonds, respectively, indicating a neutral bias on the calendar spread due to scarcity [35][36]. - The CTD spread between JB368 and JB367 closed at around 3bp, which is expected to remain stable, contributing to a neutral impact on the calendar spread [37][43]. Delta and Sensitivity - A 1bp parallel shift in the yield curve results in a 0.295 sen sensitivity of the calendar spread, indicating a neutral bias overall [7][43]. - Even with a 3bp parallel shift in the yield curve, the calendar spread is expected to widen by less than 1 sen, reinforcing the neutral outlook [43].

Investment Rating - The investment rating for Hong Kong Exchanges & Clearing (HKEx) is Neutral [1][6][19]. Core Insights - The report highlights constructive takeaways from the Global China Summit 2025, indicating improvements in the IPO pipeline and opportunities for Connect over the medium term, which are seen as positives for Greater China equity markets [1][5]. - HKEx has experienced an increase in listing applications, reaching around 150, driven by interest from A-share companies and potential ADR homecoming [5]. - The report forecasts total securities average daily turnover (ADT) of HK$341 billion, HK$337 billion, and HK$367 billion for FY25, FY26, and FY27 respectively [10]. Summary by Sections Investment Thesis - The investment thesis remains Neutral on HKEx, reflecting a balanced view over the next 12 months [6][10]. Valuation - The price target for HKEx is set at HK$340, based on a dynamic P/E of 32.5x, which aligns with the mean [7][19]. Market Dynamics - The report notes that HKEx has delivered a 10% EPS CAGR since the launch of the Connect mechanism, which has facilitated cross-border capital flow [10]. - The report identifies that only a small portion of the 200 million onshore investors currently participate in Southbound trading, indicating potential for growth [5][10]. - The launch of MSCI A-share futures is expected to enhance HKEx's position in the equity derivatives market [10].

Investment Rating - The report assigns an "Overweight" (OW) rating to several companies, including Huaming Equipment, Xuji Electric, and Goldcup Electric, indicating a positive outlook for their performance [7][18]. Core Insights - Chinese power equipment companies are experiencing significant overseas market share gains, with Huaming projecting over 30-35% revenue growth from international markets and Sanxing Medical reporting a 38% year-over-year increase in overseas revenue [2][4]. - The demand for power equipment is strong from both developed markets (DMs) like the US and EU, as well as emerging markets (EMs), with companies like Huaming and Sanxing planning to establish manufacturing facilities abroad to mitigate geopolitical risks [2][4]. - Local manufacturers are gradually increasing their market share in the data center sector, although foreign companies still dominate due to their established reputations for quality [6][4]. Summary by Sections Overseas Market Expansion - Huaming anticipates continued tightness in high voltage transformer supply, benefiting tap changer manufacturers, and expects overseas revenue growth of approximately 30-35% [4]. - Sanxing Medical Electric has seen a 38% increase in overseas revenue and a 27% growth in order backlog, with significant new orders for advanced metering infrastructure (AMI) [4][5]. Competitive Advantages of Chinese Manufacturers - Chinese manufacturers like Huaming stand out due to shorter lead times (4-6 weeks compared to over 12 months for competitors) and significantly lower average selling prices (ASP) [4][5]. - High levels of automation in manufacturing processes, with Sanxing achieving around 90% automation in its power meter plants, enhance efficiency and competitiveness [5]. Data Center Equipment Demand - Liangxin Electrical is witnessing rising demand for its products in the data center sector, although foreign brands still dominate due to their reliability [6]. - The company is optimistic about increasing acceptance of local products among state-owned enterprises (SOEs), which could lead to greater market share for domestic manufacturers [6]. Domestic Demand for Power Equipment - Huaming is optimistic about domestic demand for tap changers, projecting over 10% revenue growth, while Sanxing acknowledges competitive pressures in the domestic market [6]. - Liangxin Electrical expects a 20% revenue growth overall, driven by strong demand from the renewable energy sector and data centers, despite caution regarding the property sector [6].