Investment Rating - The report suggests a positive outlook for investment in China's AI sector, particularly highlighting the emergence of DeepSeek as a significant milestone in the industry [1][3]. Core Insights - DeepSeek's development represents China's ambition to lead in the tech revolution, potentially inspiring a new generation of talent and contributing to national pride [1][7]. - The cost-effective training of DeepSeek, reportedly under $6 million, challenges the narrative that China lags behind the U.S. in AI innovation, as it achieves near-parity with top models [2][3]. - The MSCI China Index surged 26% following DeepSeek's unveiling, indicating strong investor enthusiasm for AI-driven economic growth [3]. Summary by Sections DeepSeek's Impact - DeepSeek's breakthrough is seen as a symbol of China's resurgence in innovation and competitiveness, with implications for emerging market investors [1][14]. - The emergence of other AI agents, such as Butterfly Effect's Manus, further illustrates the competitive landscape in China's AI sector [4][5]. Policy and Market Dynamics - A shift in policy from regulatory crackdowns to support for private-sector innovation is noted, with high-level meetings between political leaders and tech executives [8]. - China's AI ecosystem is positioned as a unique opportunity for investors, focusing on consumer-facing applications rather than hardware [9]. Future of AI Development - The report outlines a dual-track future for AI, contrasting China's efficiency-driven approach with the capital-intensive models in the U.S. [13][14]. - Both models are expected to coexist, providing a diversified opportunity set for emerging market investors [14].

Investment Rating - The report revises the GDP forecast for 2025 upward to 4.5% from 4.0% due to stronger-than-expected growth in Q1 and solid capital expenditure momentum [1][2][3] Core Insights - The growth recovery is expected to soften from Q2 2025 onwards due to tariff impacts and reactive policy measures, despite initial positive momentum [2][4] - The report highlights a higher contribution from capital formation to GDP, driven by emerging industries and AI adoption [3][5] - The policy framework is aimed at providing a floor to growth rather than aggressive stimulus, with limited actions anticipated in the near term [11][12] Summary by Sections GDP Forecast - The revised GDP forecast for 2025 is 4.5%, reflecting a stronger-than-expected Q1 performance and solid capital expenditure [1][2] - The nominal GDP growth is projected at 3.6% YoY for 2025, below consensus expectations [2][3] Economic Drivers - Key drivers for the GDP revision include robust Q1 growth tracking at 5.4% YoY and higher capital expenditure growth supported by emerging sectors [3][4] - The report notes that the economy has become less sensitive to tariffs due to lower direct trade exposure to the US and supply chain adjustments [4][5] Policy and Market Dynamics - The report indicates a reactive policy response rather than proactive stimulus, with a wait-and-see approach on potential new initiatives [11][12] - The housing market is not expected to see a sustained recovery, with recent rebounds attributed to pent-up demand rather than broader economic strength [12][13] Currency and Inflation Outlook - The RMB forecast has been revised, expecting USDCNY to reach 7.35 by mid-2025, reflecting a focus on currency stability [14][16] - The GDP deflator is forecasted at -0.9% YoY for 2025, indicating ongoing deflationary pressures despite stronger domestic demand [13][14]

March 23, 2025 10:00 PM GMT Meituan | Asia Pacific Core OP Intact, but Wider New Initiatives Loss and Increased AI Investment We continue to estimate 2025 CLC OP at Rmb61bn, but expect the new initiatives loss to widen to Rmb9.5bn on a slower loss reduction pace for Select. Impact from the social security scheme should kick in from 2Q, but limited effect on 2025 food delivery OP and UE. OW. 4Q24 beat on CLC OP: Total revenue and adjusted EBITDA were largely in line with consensus, while core local commerce ...

March 20, 2025 09:00 PM GMT China Equity Strategy | Asia Pacific A-Share Sentiment Edged Down on Lower Trading Volume A-share sentiment dropped with lower trading volume but remains elevated. We expect some volatility in the earnings season, but remain cautiously optimistic on a six-/12-month basis. Watch for geopolitical developments and tariff-related US government investigations on April 2. A-share investor sentiment dropped vs. pervious week: Weighted MSASI and simple MSASI dropped 7ppt to 84% and 5ppt ...

Investment Rating - The report does not explicitly state an investment rating for the industry Core Insights - Policymakers have initiated multi-channel funding initiatives to stimulate tech innovation, reviving investor confidence in the tech sector [2] - Significant increases in government spending on technology are projected, with on-budget tech spending expected to reach Rmb1.2 trillion, representing an 8.3% year-on-year growth compared to 4.4% for overall fiscal spending [3] - The report anticipates a nominal GDP growth of less than 4% in China starting from the second quarter of 2025, driven by slower exports and ongoing housing market weaknesses [36][37] Summary by Sections Technology Sector - A new tech board for direct debt financing by tech companies and private equity is being established [3] - The state startup fund could grow to Rmb1 trillion after incorporating private investments [3] - AI capital expenditure is projected to increase, with a notable rise in China's share of global patent applications related to humanoid technology since 2023 [4][6] Consumer Goods - The trade-in program is supporting goods consumption, with decent sales reported for home appliances and passenger cars in the first quarter of 2025 [9][10] - Online home appliance sales have shown fluctuations, with a significant year-on-year change noted [10] Government Financing - Local government financing has been strong year-to-date, with faster issuance of local government special bonds to support infrastructure capital expenditure [13] - A Rmb2 trillion local debt swap program has been front-loaded this year [15] Real Estate Market - The report indicates a need to monitor the sustainability of the recent rebound in the property market, as secondary housing sales have softened post-Lunar New Year [18] - A comprehensive housing buyback program of Rmb500 billion is planned, alongside measures to ease housing demand [42] Economic Indicators - Early signs of declining export orders and a larger-than-seasonal drop in new export orders have been observed [21] - Household credit demand remains weak, despite fiscal measures supporting credit growth [25][27]

March 17, 2025 10:14 PM GMT Asia Economics | Asia Pacific M Idea The Viewpoint: Seeking Reciprocity – What's Next? Raising defense spending and putting tariffs on China were raised as potential asks for a trade deal in addition to importing more from the US to fix the trade balance. We explore if other Asia economies will be able to meet these demands and what this means. Key Takeaways Morgan Stanley Asia Limited Jonathan Cheung Economist Jonathan.Cheung@morganstanley.com +852 2848-5652 Kelly Wang Economist ...

March 17, 2025 04:21 AM GMT China Economics | Asia Pacific Q1 GDP Tracking at 5.4%, Limited Policy Actions Ahead Key Takeaways Strong start to the year: FAI saw the largest beat, with a large uptick in housing investment as we expected, but manufacturing and infrastructure investment also came in stronger than we expected on policy support. The beat in industrial production also defied softer-than-expected (yet still decent) exports somewhat amid possible front-loading. Growth mix echoes policy support: Loc ...

Investment Rating - The report suggests a defensive macro positioning, favoring long government bond duration in the US and the UK, and shorting the US dollar [11][39][40]. Core Insights - The report highlights significant uncertainty surrounding US trade policy, which has led to a decline in investor and CEO confidence, potentially impacting economic activity [12][15][31]. - The upcoming FOMC meeting is anticipated to either alleviate or heighten concerns regarding economic growth, with expectations for a steady message from the Fed [32][39]. - The report notes that the S&P 500 has lost 10% from its all-time high, reflecting heightened uncertainty in economic policy [12][31]. Summary by Sections US Rates Strategy - The report indicates that US Treasury yields are expected to decline further due to ongoing tariff threats and fiscal austerity, with no signs of overextension in the current market [44][46]. - A hawkish dot-plot from the Fed could extend the bull market in Treasuries, while the current market conditions suggest a defensive stance [44][46]. UK Rates Strategy - The report turns bullish on UK duration, suggesting an attractive opportunity for lower yields ahead of the Spring Forecast, despite recent weak trading [51][55]. G10 FX Strategy - The report maintains a bearish outlook on the USD, recommending shorts against EUR, GBP, and JPY, while targeting a resistance level of 1.12 for EUR/USD [58][61]. Japanese Investment Behavior - The report revisits the investment behavior of Japanese investors, who hold approximately US$48 trillion in financial assets, indicating potential impacts on asset class performance due to recent economic changes [53][56].

Investment Rating - The report indicates a measured and reactive approach to consumer stimulus and gradual social welfare reform, suggesting a cautious investment outlook for the sector [7]. Core Insights - The central government announced a modest increase of approximately Rmb4 billion in subsidies for basic public health services, medical assistance, and employment promotion, leading to a total rise of Rmb75 billion in basic welfare spending for 2025 compared to 2024 [2][7]. - There is limited clarity regarding the fertility subsidy and potential expansion of the consumer goods trade-in program, with policymakers indicating these initiatives may be introduced in the second half of the year if economic growth experiences a double-dip [3][7]. - Zhejiang province is piloting new social welfare initiatives aimed at providing public education access to migrant workers' children, with expectations for gradual nationwide implementation over the next 3-5 years [4][7]. Summary by Sections - **Welfare Spending**: The report highlights a modest increase in welfare spending, with a total rise of Rmb75 billion in 2025 compared to 2024, reflecting a cautious approach to economic stimulus [2][7]. - **Fertility Subsidy and Trade-in Program**: Policymakers are still formulating the fertility subsidy and are taking a wait-and-see approach regarding the trade-in program, indicating potential future measures depending on economic conditions [3][7]. - **Zhejiang Province Initiatives**: The introduction of new social welfare measures in Zhejiang, particularly for migrant workers' children, is noted, with a forecast for gradual implementation across the country [4][7].

Investment Rating - The report maintains a support level for the S&P 500 at 5500, indicating a potential for a tradable rally, particularly among cyclicals and lower-quality stocks [4][7][20]. Core Insights - The current market sentiment is lighter, and seasonality is expected to improve, suggesting a possible rally despite ongoing growth concerns and volatility [4][7][10]. - The report highlights that while a relief rally may occur, it does not signify a durable reduction in volatility, as policy uncertainty and growth risks persist [4][10][20]. - Earnings revisions breadth is a critical factor for sustainable recovery, and without a positive reversal in this metric, the index may struggle to recover [13][20][21]. Summary by Sections Market Conditions - Major US equity indices are oversold, with the S&P 500 testing the 5500 level, which is seen as a critical support point [4][7][10]. - Recent dollar weakness and declining rates could provide a tailwind for earnings revisions and economic surprises [4][7][10]. Growth Concerns - Policy uncertainty has increased, leading to persistent growth risks, and the current administration does not appear focused on stock prices [4][10][20]. - The report anticipates that the market will eventually focus on positive aspects of the policy agenda, but the path to recovery will be slow and bumpy [4][10][20]. Economic Indicators - Current growth data, including ISM Manufacturing and Services above 50, indicates stability, but further confirmation is needed through payroll gains and stable unemployment rates [21][23]. - The report emphasizes the importance of monitoring earnings revisions breadth and other economic indicators to gauge the market's direction [20][21]. Sector Recommendations - The report provides sector ratings, with Financials, Industrials, and Energy rated as Overweight, while Consumer Discretionary is Underweight [43].