Report Industry Investment Rating - No information provided on the industry investment rating Core Viewpoints - Asia IG names were unchanged to 2bps tighter in the morning, with flows favoring higher - yielding issues in greater Asia and LGFV spaces [3] - Macau's gaming industry had solid GGR growth in 2025, and the 2026 target seems conservative [6] - China's PMI signaled a temporary improvement, with expected GDP growth decline from 5% in 2025 to 4.8% in 2026, and potential policy stimulus [3][10][11][15] Summary by Related Catalogs Trading Desk Comments - ARAMCO 35s tightened 1bp, FABUH 30 widened 5bps last Friday [2] - Chinese IG names had spreads changes of 5bps tighter to 4bps wider, NWDEVL Perps rose 0.2 - 1.9pts, VDNWDL 9 Perp increased by 1.4pts [2] - The buy recommendation on NWDEVL 5.25 Perp and NWDEVL 8.675 02/06/28 was changed to neutral, and a buy on VDNWDL 9 Perp was initiated [2] - Lai Sun Development's Chairman made a profit of USD11.3mn from trading LASUDE 26, and LASUDE 26 was up by 0.8pt [2] - Various bonds in different regions and industries had price and spread changes, such as Macau gaming, Chinese properties, JP, and SE Asia [2] Last Trading Day's Top Movers - Top performers included VLLPM 9 3/8 07/29/29 with a 3.3 price change, NWDEVL 5 1/4 PERP with a 1.9 change [4] - Top underperformers included FTLNHD 11.88 09/30/27 with a - 0.9 change, COSL 2 1/2 06/24/30 with a - 0.9 change [4] Macro News Recap - S&P (+0.19%), Dow (+0.66%) and Nasdaq (-0.03%) were mixed last Friday, and Trump made a statement about Venezuela [5] - 5/10/30 year UST yield was higher, with 2/5/10/30 year yield at 3.47%/3.74%/4.19%/4.86% [5] Desk Analyst Comments - Macau Gaming - Macau's GGR in Dec'25 increased 14.8% yoy to MOP20.9bn, and cumulatively in 2025, it increased 9.1% to MOP247.4bn, 84.6% of 2019 level [6] - In 2025, tourist arrival was 40.1mn, up 15% yoy and exceeding the 2019 record [6] - Macau government's 2026 GGR target of MOP236bn seems conservative [6] - MPELs and STCITYs are top picks, WYNMAC'27 and '29 are yield - pick - up plays, and neutral on MGMCHIs, SANLTDs, and SJMHOLs [7] Desk Analyst Comments - China Economy - China's manufacturing PMI rebounded in December but recovery was fragile due to seasonality [10][11][12] - Demand improved with new orders expanding and export orders approaching expansion, deflation pressure eased [10][11][12] - Service PMI remained in contraction, construction PMI rebounded [11][13] - Growth is expected to be under pressure in early 2026, potentially triggering policy stimulus [11][14][15] - Expect a 50bp cut in RRR and a 10bp cut in LPR in 1Q26, an additional 10bp LPR cut in 3Q26, and broad fiscal deficit at 8.5% in 2026 [11][14][15] Offshore Asia New Issues - No new offshore Asia issues were priced on the last trading day [17] - Pipeline issues include BOC Aviation, Export - Import Bank of India, and Hyundai Capital America with various tenors and coupon rates [18] News and Market Color - Onshore primary issuances suspended last Friday during the New Year Holiday [21] - China will broaden fiscal spending in 2026 and prioritize domestic demand [21] - Multiple corporate events such as China Jinmao's redemption, CTF Services' acquisition lapse, and rating changes [21]

Global Market Observation - The Hang Seng Index closed at 26,338, up 2.76% for the day and 2.76% year-to-date [1] - The Hang Seng Tech Index saw a significant increase of 4.00% [1] - The US markets showed mixed results, with the Dow Jones up 0.66% and the S&P 500 up 0.19%, while the Nasdaq slightly decreased by 0.03% [1] Hong Kong Stock Performance - The Hang Seng Financial Index rose by 2.12%, while the Hang Seng Industrial Index increased by 3.27% [2] - The Hang Seng Property Index experienced a gain of 1.96% [2] Sector Performance Insights - Information technology, materials, and discretionary consumption sectors led the gains in the Hong Kong market, while utilities, staples, and real estate lagged [3] - The domestic semiconductor industry is undergoing a wave of mergers and acquisitions, indicating a strategic intent to strengthen supply chains and enhance core competitiveness [3] Consumer Trends - The New Year holiday consumption in China exceeded expectations, with 595 million people traveling, a year-on-year increase of 19.6% [3] - Sales in the duty-free market in Hainan during the holiday saw significant growth, with sales volume, shopping visits, and spending increasing by 52.4%, 60.6%, and 128.9% respectively [3] International Market Dynamics - European stocks rose significantly, while US stocks had modest gains, with energy, industrials, and materials leading the way [3] - The US military action in Venezuela slightly increased geopolitical and supply chain risks, impacting US market performance [3] Commodity Market Movements - Oil prices initially rose but later fell, with OPEC+ confirming no change in oil supply for the first quarter [3] - The IEA forecasts a surplus of 3.8 million barrels per day in the oil market by 2026 [3]

Global Market Overview - The Hang Seng Index closed at 25,855, up 0.86% for the day and 28.89% year-to-date [1] - The Hang Seng Tech Index rose by 1.74%, reflecting a year-to-date increase of 24.85% [1] - The Shanghai Composite Index remained unchanged at 3,965, with an 18.30% increase year-to-date [1] - The US markets showed slight declines, with the Dow Jones down 0.20% and the S&P 500 down 0.14% [1] Sector Performance in Hong Kong - The Hang Seng Financial Index increased by 0.44%, with a year-to-date rise of 40.32% [2] - The Hang Seng Industrial Index rose by 1.15%, reflecting a year-to-date increase of 24.53% [2] - The Hang Seng Real Estate Index saw a modest increase of 0.34%, with an 18.61% rise year-to-date [2] Chinese Market Dynamics - Chinese stocks experienced a slight increase, with energy, materials, and information technology sectors leading gains, while healthcare, utilities, and consumer staples sectors declined [3] - Southbound capital recorded a net sell-off of HKD 3.845 billion, with Tencent, China Mobile, and Alibaba seeing the most significant net sell-offs [3] - The Chinese government announced tax exemptions on personal home sales after two years to stimulate market activity [3] US Market Insights - The US stock market experienced slight declines, particularly in consumer discretionary, financials, and industrials, while energy, communication services, and utilities sectors showed gains [3] - Tesla's market analysis indicated a potential 15% year-over-year decline in Q4 vehicle deliveries due to tax credit reductions and increased competition [3] - The Federal Reserve's meeting minutes suggested a consensus on potential interest rate cuts if inflation trends downward, although some members expressed concerns about persistent inflation risks [3] Commodity and Currency Movements - Metal prices showed mixed trends, with gold's gains narrowing and silver rebounding; copper prices reached their highest annual increase since 2009 [3] - Oil prices experienced a slight decline, while cryptocurrencies saw a pullback after initial gains [3] - The USD/CNY exchange rate fell to around 6.99 [3]

Global Market Overview - The Hang Seng Index closed at 25,635, down 0.71% for the day but up 27.79% year-to-date [1] - The S&P 500 Index in the US closed at 6,906, down 0.35% for the day and up 17.41% year-to-date [1] - The Shanghai Composite Index showed a slight increase of 0.04% to close at 3,965, with a year-to-date increase of 18.30% [1] Hong Kong Stock Performance - The Hang Seng Financial Index closed at 49,089, down 0.36% for the day, with a year-to-date increase of 39.71% [2] - The Hang Seng Real Estate Index decreased by 1.45% to 17,628, with a year-to-date increase of 18.21% [2] - The Hang Seng Utilities Index closed at 38,202, down 0.71% for the day, with a year-to-date increase of 7.12% [2] Chinese Market Dynamics - Southbound capital recorded a net sell-off of 3.414 billion HKD, with major sell-offs in China Mobile, Alibaba, and Zijin Mining [3] - The A-share market saw declines in non-ferrous metals, utilities, and power equipment, while oil, defense, and banking sectors performed well [3] - The Chinese market regulatory authority announced plans to strengthen antitrust enforcement by 2026, targeting "involution" competition [3] US Market Insights - The US stock market experienced declines, particularly in materials, consumer discretionary, and financial sectors, while energy, real estate, and utilities outperformed [3] - Tesla faced significant setbacks due to delays in the Cybertruck project and a drastic reduction in battery material supply contracts, leading to a decline in its stock [3] - A Bloomberg survey indicated that institutional views on the S&P 500 for 2026 remain optimistic, with an average predicted increase of 9% [3] Debt and Credit Market Trends - US Treasury yields slightly decreased due to a rise in risk-averse demand [3] - Private credit assets in the US recorded their worst performance since 2020, with the Cliffwater BDC Index down approximately 6.6% year-to-date [3] - The demand for housing improved as the November pending home sales index rose by 3.3% month-on-month and 2.6% year-on-year, marking the highest level since February 2023 [3]

Global Market Overview - The Hang Seng Index closed at 25,819, showing a year-to-date increase of 28.71% [1] - The Shanghai Composite Index rose by 0.10% to 3,964, with a year-to-date increase of 18.26% [1] - The US Dow Jones Index decreased by 0.04% to 48,711, with a year-to-date increase of 14.49% [1] - The Nikkei 225 in Japan increased by 0.68% to 50,750, with a year-to-date increase of 27.21% [1] Sector Performance in Hong Kong - The Hang Seng Financial Index remained unchanged at 49,269, with a year-to-date increase of 40.22% [2] - The Hang Seng Real Estate Index also remained unchanged at 17,887, with a year-to-date increase of 19.94% [2] - The Hang Seng Industrial Index stayed at 13,971, reflecting a year-to-date increase of 24.19% [2] Recent Market Trends - A-shares rose last Friday, led by non-ferrous metals, electric equipment, and steel, while electronics, light manufacturing, and communications lagged [3] - The USD/CNY exchange rate fell below 7.0, with expectations of further decline to 6.95 in the first half of next year [3] - The Chinese Ministry of Finance plans to implement more proactive fiscal policies in 2026 to support consumer spending [3] - The Bank of Japan's December meeting minutes indicated a need for gradual interest rate hikes to avoid falling behind inflation [3] US Market Insights - US stocks experienced low trading volume post-Christmas, with materials, information technology, and healthcare sectors rising, while consumer discretionary, energy, and financial sectors fell [3] - Gold and silver prices surged significantly, influenced by margin requirement adjustments for futures contracts [3] - Cryptocurrency markets saw a decline as US investors sold off to offset tax liabilities from stock gains [3]

Market Performance - Hang Seng Index closed at 25,774, down 0.11% for the day but up 28.49% year-to-date[1] - Shanghai Composite Index closed at 3,920, up 0.07% for the day and 16.95% year-to-date[1] - US Dow Jones closed at 48,442, up 0.16% for the day and 13.86% year-to-date[1] Sector Performance - Hang Seng Financial Index at 49,069, up 0.58% for the day and 39.65% year-to-date[2] - Hang Seng Industrial Index at 13,970, down 0.55% for the day and up 24.18% year-to-date[2] - Hang Seng Real Estate Index at 17,858, up 0.56% for the day and 19.75% year-to-date[2] Capital Flows and Market Trends - Southbound capital net inflow of HKD 611 million, with Alibaba, Meituan, and Zijin Mining as top net buys[3] - A-shares in social services, beauty care, and retail saw the largest declines, while power equipment, building materials, and electronics led gains[3] - Anticipation of a spring market in early 2024, with technology and consumer sectors expected to outperform[3] Economic Indicators - US GDP growth at an annualized rate of 4.3% in Q3, the highest in two years[3] - Core PCE inflation at 2.9%, indicating persistent inflationary pressures[3] - Consumer confidence index declined for the fifth consecutive month, while the job market shows improvement[3]

Global Market Overview - The Hang Seng Index closed at 25,802, up 0.43% for the day and 28.62% year-to-date [1] - The Shanghai Composite Index closed at 3,917, up 0.69% for the day and 16.87% year-to-date [1] - The Shenzhen Composite Index closed at 2,493, up 1.13% for the day and 27.35% year-to-date [1] - The US Dow Jones closed at 48,363, up 0.47% for the day and 13.68% year-to-date [1] - The S&P 500 closed at 6,878, up 0.64% for the day and 16.95% year-to-date [1] Sector Performance - In the Hong Kong market, materials, consumer staples, and energy sectors led the gains, while healthcare, conglomerates, and telecommunications lagged [3] - The Hang Seng Financial Index closed at 48,788, up 0.52% for the day and 38.85% year-to-date [2] - The Hang Seng Industrial Index closed at 14,047, up 0.41% for the day and 24.87% year-to-date [2] - The Hang Seng Real Estate Index closed at 17,759, down 0.08% for the day and 19.08% year-to-date [2] Capital Flows - Southbound capital recorded a net inflow of 3.13 billion HKD, with notable net purchases in SMIC, Xiaomi, and Tencent [3] - Major net sell-offs were observed in China Mobile, Alibaba, and Pop Mart [3] Economic Indicators - The People's Bank of China (PBOC) has kept the Loan Prime Rate (LPR) unchanged for seven consecutive months, with expectations of two rate cuts totaling 20 basis points in Q1 and Q3 of next year [3] - The Ministry of Commerce announced temporary anti-subsidy measures on dairy products imported from the EU [3] International Market Insights - The US stock market saw gains in materials, financials, and industrials, while consumer staples, information technology, and utilities underperformed [3] - Nvidia made significant adjustments to its cloud business strategy, focusing on internal demand for chips rather than external sales [3] - Tesla reached a new historical high during trading [3] Interest Rates and Commodities - US Treasury yields rose, with weak demand observed in the two-year bond auction [3] - The dollar index retreated, while gold, silver, and copper reached historical highs [3] - Oil prices increased due to the US blocking Venezuelan oil exports [3]

Investment Rating - The report assigns a "Buy" rating to several companies in the pharmaceutical sector, indicating a potential upside of over 15% in the next 12 months [30]. Core Insights - The MSCI China Healthcare Index has increased by 51.9% since the beginning of 2025, outperforming the MSCI China Index by 24.3%. However, there has been a recent correction of 14% in the healthcare index, which is viewed as a rebalancing of valuations and expectations, creating better investment opportunities [1][3]. - The long-term trend of Chinese innovative drugs entering international markets is expected to continue, driven by competitive advantages such as higher early-stage R&D efficiency, faster clinical recruitment, and lower clinical costs. The focus for 2026 will be on the clinical progress and data release of pipelines that have already entered international markets [3]. - The impact of the recently enacted "Biological Security Act" on Chinese CXO companies is anticipated to be limited, as it does not affect Medicaid and Medicare procurement and has clear definitions regarding related parties. The revenue from U.S. government agencies for Chinese CXO companies is relatively small [3]. Summary by Sections Industry Overview - The recent industry correction is attributed to profit-taking and the market digesting previously high valuations, particularly in the innovative drug sector. This adjustment is seen as a rebalancing of valuations and performance, leading to more attractive investment opportunities [3]. - The report emphasizes the importance of monitoring the progress of products that have already entered international markets, as their clinical trials and data releases will serve as key catalysts for stock prices in 2026 [3]. Company Ratings and Valuations - The report recommends buying the following companies: - **Sihuan Pharmaceutical (1530 HK)**: Market cap of $8,178 million, target price of $37.58, with a potential upside of 44% [2]. - **Gusongtang (2273 HK)**: Market cap of $924.7 million, target price of $44.95, with a potential upside of 52% [2]. - **WuXi AppTec (2268 HK)**: Market cap of $10,782.4 million, target price of $74.00, with a potential upside of 6% [2]. - **China National Pharmaceutical Group (1177 HK)**: Market cap of $15,842.2 million, target price of $9.40, with a potential upside of 43% [2].

Group 1: Inflation Trends - November CPI year-on-year growth decreased from 3% in September to 2.7%, significantly below the market expectation of 3.1%[4] - Core CPI year-on-year growth fell from 3% in September to 2.6% in November, also below the market expectation of 3%[4] - Food price month-on-month growth dropped from 0.2% in September to an average of 0% in October-November, with household food prices declining by 0.1%[4] Group 2: Market Impact and Projections - The October data was missing due to the government shutdown, leading to potential underestimation in the November CPI statistics[4] - Market reaction to the CPI data was muted, indicating investor skepticism about data quality and its impact on Federal Reserve decisions[4] - The Federal Reserve is expected to lower interest rates once in June 2024, based on the anticipated inflation rebound in December[1]

Core Insights - The report highlights that the macroeconomic environment in 2026 will be influenced by U.S. midterm election pressures, defense demands in Europe and Japan, and China's focus on stable growth, leading to continued policy easing in the first half of the year [2] - The AI boom is expected to enhance efficiency and stock valuations but may also exacerbate job losses and economic K-shaped divergence [2] - The report suggests that the second half of 2026 may see a rebound in inflation due to global liquidity easing, a weaker dollar, and China's anti-involution efforts, potentially causing volatility in high-valuation assets [2] Industry Outlook Chinese Internet Software - 2026 is seen as a critical year for competing for user attention in the AI era, with a focus on lowering usage barriers, enhancing decision-making efficiency, and creating real value [2] - Companies with stable cash flows supporting AI investments and strong operational capabilities are expected to have higher long-term investment value [5] Semiconductor - The report maintains four core investment themes for 2026: AI-driven structural growth, China's semiconductor self-sufficiency trend, high-yield defensive allocations, and industry consolidation [7] - The global semiconductor market is projected to grow by 26% to $975 billion in 2026, with AI-related segments leading the growth [7] Technology - The global tech industry is expected to experience demand differentiation and accelerated AI innovation, with a focus on AI computing infrastructure and end-user AI products [8] - Key companies to watch include Apple, which is anticipated to have a year of innovation with new AI products [8] Consumer Sectors Essential Consumption - The report identifies three main investment themes: deepening consumption stratification, focusing on essential survival needs, and leveraging overseas expansion to hedge against domestic uncertainties [10][20] - Companies in the food and beverage sector, such as Nongfu Spring and China Resources Beverages, are recommended due to their stable demand and attractive valuations [21] Discretionary Consumption - The outlook for the discretionary consumption sector is cautious, with expected retail sales growth of about 3.5% in 2026, slightly down from 4% in 2025 [11] - The report suggests a focus on survival-type consumption and low-cost emotional comfort products, with recommendations for companies like Luckin Coffee and Bosideng [11][21] Automotive - The Chinese automotive industry is expected to show resilience despite pressures from subsidy reductions and tax incentives, with retail sales of passenger vehicles projected to remain stable [12] - Key trends include intensified competition and the introduction of new models, particularly in the new energy vehicle segment [12] Pharmaceuticals - The innovative drug sector has seen significant growth driven by overseas licensing deals, but future catalysts are expected to shift from upfront payments to milestone achievements [13] - The CXO industry is anticipated to continue its recovery in 2026, supported by a rebound in domestic R&D demand [13] Real Estate - The report forecasts a continued contraction in the real estate market, with total residential sales expected to decline by 8% in 2026 [16][17] - Investment themes include focusing on stock market service providers and companies with strong operational capabilities in commercial assets [18][19]