Investment Rating - The report indicates a positive shift in the US-China trade relationship, suggesting a favorable environment for investment opportunities in the Asia-Pacific region [1][2]. Core Insights - The US-China tariff de-escalation occurred more rapidly and significantly than anticipated, with a joint announcement to reverse the tit-for-tat tariff escalation and suspend 24% of the remaining reciprocal 34% hike for a 90-day period starting May 14 [1][2]. - The effective US trade-weighed tariff on China is now approximately 40%, down from 107%, which is a substantial improvement compared to previous forecasts [1][3]. - The establishment of a standing consultation mechanism between the US and China marks a shift from confrontation to managed negotiation, potentially stabilizing trade relations [2]. Summary by Sections Tariff Changes - The US has reduced headline reciprocal tariffs on China from 125% to 34%, with a 90-day suspension of 24% of the remaining hikes [8][9]. - The actual tariff path has deviated significantly from earlier assumptions, indicating a more favorable trade environment than previously expected [7][8]. Economic Implications - The tariff pause is expected to provide a temporary boost to GDP, with 2Q GDP potentially exceeding the current tracking of approximately 4.5% and 3Q GDP stabilizing above 4% [3][4]. - Despite the positive short-term outlook, a durable resolution to trade tensions remains complex due to the intricate bilateral relationship [3].

Investment Rating - The report indicates a positive outlook on the US-China tariff situation, suggesting a significant reduction in tariffs which could benefit trade dynamics [5][4]. Core Insights - The US has reduced headline reciprocal tariffs on China from 125% to 34%, with further suspensions on specific tariffs, indicating a faster-than-expected tariff de-escalation [4][5]. - April 2025 saw a temporary stabilization in exports due to trade rerouting, although a decline in exports to the US is anticipated for May [7][11]. - The report highlights a weakening in property transactions and a decline in secondary home sales, reflecting broader economic challenges [12][13]. - Consumer spending has shown signs of slowing, particularly during the Labor Day holiday, indicating subdued consumption appetite [18][20]. - Deflationary pressures are worsening as tariffs impact prices, with core CPI holding steady but expected to soften [25][23]. Summary by Sections Tariff Changes - The US and China have mutually agreed to meaningful tariff cuts, with the US reducing tariffs significantly [5][4]. - The report notes that the actual tariff levels are lower than previously assumed, which could positively influence trade [4][6]. Trade Dynamics - April exports were supported by front-loaded shipments and supply-chain adjustments, but a decline is expected in May [7][11]. - The report discusses the impact of tariffs on export elasticity, suggesting that high tariffs may not be sustainable long-term [29]. Economic Indicators - There is a noted decline in secondary home sales and transaction prices, indicating a cooling property market [12][13]. - Consumer spending has decreased, particularly in sectors like auto and online home appliances, reflecting a broader trend of reduced consumption [20][21]. Policy Responses - The report outlines a reactive policy approach, including faster government bond issuance and modest monetary easing measures [28][29]. - A comprehensive fiscal package is anticipated to support consumption and infrastructure investment, with a focus on addressing housing inventory issues [38][39].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - Deflationary pressures are worsening in China, primarily due to the impact of tariffs on the Producer Price Index (PPI) and the overall economic environment [1][7] - Core Consumer Price Index (CPI) remains stable at 0.5% year-on-year, indicating some resilience despite broader deflationary trends [2][4] - The PPI has shown a significant decline, with a month-on-month decrease of -0.4%, driven by lower prices in oil, raw materials, and durable consumer goods [3][7] Summary by Sections CPI Analysis - Core CPI year-on-year remained at 0.5% in April, unchanged from March, while month-on-month seasonally adjusted annual rate (SAAR) was 0.7% [2] - Food inflation reached its highest level in five months, primarily due to increased prices for fruit and beef, countering the effects of lower international oil prices [2] PPI Analysis - The PPI year-on-year decreased to -2.7% in April, reflecting ongoing tariff impacts and weaker final demand [6][7] - Specific sectors such as textiles, wood products, chemicals, rubber, and plastics experienced accelerated price declines, indicating significant exposure to the US market [3][7] Outlook - The PPI is expected to slip below -3% year-on-year from the current -2.7% during the May-July period due to less favorable base effects and continued tariff impacts [4] - Core CPI is anticipated to soften sequentially as the effects of PPI pass through, although year-on-year figures may remain resilient due to a low base [4][7]

Investment Rating - The report indicates a positive sentiment towards Chinese equities, suggesting a better chance of inflow upside than downside due to measured macro and earnings drag from tariffs compared to peers [2][3]. Core Insights - The report highlights that new developments in trade talks and domestic policy easing by the PBOC and CSRC have led to a rapid shift in market dynamics, with a record-high attendance at the MS China BEST conference indicating rising investor interest in China [3][4]. - Despite potential headwinds on corporate earnings starting from Q2, the overall setup for Chinese equities remains relatively stable compared to other major economies, with a smaller magnitude of negative change expected [4][7]. - The report emphasizes that the listed Chinese equity universe is less exposed to the tariff dispute due to limited foreign revenue exposure, which is less than 15% [7][19]. Summary by Sections Market Dynamics and Investor Sentiment - Investors expressed a strong willingness to diversify their asset allocation towards China, driven by a weakening US dollar and ongoing tariff uncertainties [8][9]. - The report notes that China presents the largest underweight gap within existing global EM equities, with over 80% of investors indicating a likelihood to increase their Chinese equity exposure in the near term [9][19]. Economic Forecasts - The report revises down the 2025 annual real GDP growth forecast for China from 4.5% to 4.2%, a 6.7% cut, which is less severe than the 60% cut for the US and 9.1% for Asia [4][7]. - Earnings growth forecasts for MSCI China have been revised down from 7% to 5%, while the broader MSCI EM index forecast has been cut from 11% to 3% [4]. Sectoral Insights - The report identifies AI, technology, and new economy sectors as emerging equity market champions, with increasing investor interest amid tariff uncertainties [19][20]. - The report highlights the resilience of Chinese internet companies in enhancing shareholder returns and adapting to new business models, which are less susceptible to ongoing macro challenges [20][21]. Trade Talks and Tariff Outlook - The report anticipates prolonged US-China trade talks, with expectations of elevated tariff rates persisting in the near term, despite potential de-escalation [21][24]. - A balanced investment approach is recommended, focusing on high-quality, large-cap internet names and selective high-tech players, while also considering dividend yield plays to mitigate market volatility [25][26].

Investment Rating - The report indicates a cautious outlook on the industry, with a potential downside risk of 0.5 percentage points to the 2025 GDP growth forecast if US-China tariffs remain at current levels [11]. Core Insights - The report highlights that while direct tariff impacts have been mitigated by trade rerouting, growth and deflationary pressures are mounting, with real GDP year-on-year expected to slip by approximately 1 percentage point to around 4.5% in the second quarter of 2025 [9][11]. - The report discusses the ongoing US-China trade tensions, noting that the terminal tariff rates will remain elevated despite potential de-escalation talks [5][6]. - It emphasizes the need for policy measures to support consumption and economic growth, including a supplementary fiscal package and monetary easing [34][40]. Summary by Sections Tariff Impact - The report outlines that headline reciprocal tariffs would remain at 60%, but the trade-weighted tariff hike would be reduced to 34% with exemptions on certain products [6][7]. - It notes that the direct tariff shock was mitigated in April, but exports to the US could decline further in May [13]. Economic Growth - Real GDP growth is projected to decline, with a new forecast indicating a drop to around 4.5% year-on-year in 2Q25 [9][10]. - The report suggests that deflationary pressures are likely to persist, affecting overall economic performance [28][30]. Consumption and Investment - There is a noted decline in consumer spending, particularly during the Labor Day holiday, indicating subdued consumption appetite [23][24]. - The report identifies potential investment opportunities in manufacturing upgrades, urban infrastructure renewal, and basic scientific research [36][40]. Policy Measures - The report outlines a series of policy measures aimed at stimulating the economy, including faster issuance of government bonds and a consumer goods trade-in program [34]. - It anticipates a Rmb1-1.5 trillion supplementary fiscal package in the second half of 2025 to support economic recovery [34][40].

May 11, 2025 11:28 PM GMT China Equity Strategy | Asia Pacific Morgan Stanley Asia Limited+ M Update Laura.Wang@morganstanley.com +852 2848-6853 Substantial Progress Made at US/China Trade Talks - Positive for Sentiment and Flow China's Vice Premier, He Lifeng, and US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer, who led the US/China trade talks in Geneva, stated at a press conference that important consensus and substantive progress had been achieved (see report). The two sides ...

Investment Rating - The report assigns a Neutral rating to AppLovin (APP) with a price target of $355.00 for December 2025, raised from a previous target of $270.00 [1][11][21] Core Insights - AppLovin reported a strong first quarter, with revenue growth of 40% year-over-year and adjusted EBITDA growth of 83% year-over-year, significantly exceeding management's guidance [4][7][15] - The advertising segment was the primary driver of growth, with a 71% year-over-year increase in advertising revenue [7][10] - The company is expected to expand its total addressable market (TAM) beyond gaming into e-commerce and connected TV, although its ability to scale meaningfully outside gaming remains uncertain [10][20] Financial Estimates - Revenue estimates for FY2025 have been raised from $4,957 million to $5,410 million, and for FY2026 from $5,783 million to $6,610 million [1][18] - Adjusted EBITDA estimates for FY2025 have been increased from $3,736 million to $4,222 million, and for FY2026 from $4,713 million to $5,515 million [1][18] - The quarterly forecasts for FY2025 show a significant increase in adjusted EBITDA across all quarters, with Q1 at $1,005 million and Q4 projected at $1,172 million [2][18] Performance Drivers - The report highlights that improvements in technology and a data advantage over peers have led to increased advertising revenue and EBITDA [10][20] - The upcoming launch of a self-serve platform is anticipated to drive demand from advertisers, further enhancing revenue potential [4][10] Valuation - The valuation is based on applying a 22.5x multiple to the 2026E adjusted EBITDA of $5.5 billion, which is a premium compared to competitors [11][21]

Investment Rating - The investment rating for Hong Kong Exchanges is "Buy" with a 12-month target price of HK$398, indicating an upside potential of 6.9% from the current price of HK$372.40 [1][3]. Core Insights - The report revises the earnings per share (EPS) estimates for Hong Kong Exchanges for 2025E, 2026E, and 2027E by +2%, +4%, and +4% respectively, based on disclosed April 2025 volumes and May 2025 month-to-date volumes [1]. - The target price increase of 3% from HK$386 to HK$398 is derived from a three-stage Dividend Discount Model (DDM), implying a price-to-earnings (P/E) ratio of 34.5X for 2025E [1][2]. Financial Estimates - Market capitalization is reported at HK$472.1 billion (approximately $60.7 billion) [3]. - Revenue estimates for the upcoming years are as follows: 2024E at HK$22,374 million, 2025E at HK$25,342.7 million, 2026E at HK$25,220.8 million, and 2027E at HK$26,277.5 million [3]. - EPS estimates have been updated to: 2025E at HK$11.53, 2026E at HK$11.25, and 2027E at HK$11.65 [3]. - The report indicates a dividend per share (DPS) of HK$10.38 for 2025E, with a dividend yield of 2.8% [3]. Valuation Metrics - The P/E ratios for the upcoming years are projected as follows: 2025E at 32.3X, 2026E at 33.1X, and 2027E at 32.0X [3]. - The price-to-book (P/B) ratios are estimated at 8.5X for 2025E, 8.2X for 2026E, and 6.5X for 2027E [3]. - Return on equity (ROE) is projected to be 26.7% for 2025E, 25.2% for 2026E, and 22.8% for 2027E [3].

Investment Rating - The investment rating for Ningbo Joyson Electronic Corp is Overweight, with a price target of Rmb20.00, indicating a potential upside of 22% from the current price of Rmb16.46 [5]. Core Insights - Joyson has secured an A-DCU project order based on Black Sesame's C1296 AD chip, positioning itself as the exclusive DCU supplier for multiple Dongfeng models launching in 2025 [1]. - The company can provide up to Rmb50,000 worth of components per humanoid robot, including sensors and battery management systems, highlighting its competitive advantage in scaling and mass production [2]. - Joyson's global presence, with over 50 plants, mitigates tariff impacts and allows it to secure projects from Chinese OEMs looking to localize production in regions like ASEAN, LaTAM, and Europe [3]. Financial Summary - For the fiscal year ending December 2024, Joyson's projected revenue is Rmb55.864 billion, with an expected EBITDA of Rmb4.620 billion and a net income of Rmb960 million [5]. - The earnings per share (EPS) are forecasted to grow from Rmb0.69 in 2024 to Rmb1.27 by 2027, reflecting a positive growth trajectory [5]. - The company's market capitalization is currently Rmb22.373 billion, with an enterprise value of Rmb44.740 billion [5].

Investment Ratings - The overall industry view is rated as Attractive [4] - Specific company ratings include Equal-Weight (EW) for Compass, Inc. (COMP), DoubleVerify Holdings Inc (DV), Playtika Holding Corp (PLTK), FIGS, and Peloton Interactive, Inc. (PTON) [6][9][10][11][12] - Underweight (UW) rating for Yelp Inc (YELP) [11] Core Insights - Compass, Inc. (COMP) reported lower-than-expected results in 1Q, with revenue and EBITDA 4% and 15% below estimates, but management remains optimistic about future growth [2] - DoubleVerify Holdings Inc (DV) showed encouraging signs of stabilization with 1Q revenue 7% above estimates, driven by strong growth in Activation [6] - Playtika Holding Corp (PLTK) posted solid 1Q results, with revenue and EBITDA exceeding estimates, but faces challenges in its social casino segment [9] - FIGS delivered strong 1Q results, but lowered its FY25 EBITDA margin guidance due to tariff impacts [7][8] - Yelp Inc (YELP) exceeded expectations in 1Q, but faces uncertainty in long-term growth due to macroeconomic pressures [11][12] Company Summaries Compass, Inc. (COMP) - 1Q results were below expectations, but management added 700 new agents and expects positive free cash flow by year-end [2][5] - Revenue guidance for 2Q is 5% and 2% ahead of estimates, indicating potential recovery [5][69] DoubleVerify Holdings Inc (DV) - 1Q revenue growth was driven by a 20% increase in Activation, with profitability exceeding estimates [6] - The company maintains a FY revenue growth guide of 10% despite solid 1Q results [6] Playtika Holding Corp (PLTK) - 1Q revenue and EBITDA were 12% and 6% above estimates, but social casino challenges persist [9] - The company is optimistic about improving margins and increasing direct-to-consumer revenue [9] FIGS, Inc. (FIGS) - Strong 1Q results with revenue and EBITDA above consensus, but lowered FY25 EBITDA margin guidance due to tariffs [7][8] - Management is focused on long-term growth despite near-term challenges [8] Yelp Inc (YELP) - 1Q results exceeded expectations, driven by strength in Services advertising [11] - The company has widened its revenue and EBITDA guidance for FY25, reflecting ongoing macro uncertainty [12]