Investment Rating - The report maintains a positive investment stance on China's biotech and pharmaceutical sector, driven by the evolving domestic drug innovation policies and the strengthening home market [1][2]. Core Insights - China's National Healthcare Security Administration (NHSA) and National Health Commission (NHC) have introduced a new policy framework aimed at promoting drug innovation, particularly through a new category for commercial insurance innovative drugs [1][2]. - The new commercial insurance innovative drug list is designed to include drugs that demonstrate significant clinical benefits and exceed the coverage scope of basic medical insurance, with exemptions from certain existing restrictions [2][7]. - The report highlights the importance of the new policy in addressing the stagnation of basic medical insurance fund inflows, which could limit the capacity of China's single-payer system in the long run [1]. Summary by Sections Drug Policy Framework - The NHSA and NHC's new policy framework aims to establish a diversified healthcare social security system by 2030, facilitating drug innovation and addressing critical payor/access aspects [1]. - The introduction of the commercial insurance drug list is a significant step towards enhancing the ecosystem for drug innovation in China [1]. Innovative Drug List - The new category for innovative drugs will include those with highly differentiated innovation and significant clinical benefits, exempting them from certain restrictions on prescription drugs [2]. - Key aspects such as selection criteria for drugs and payment mechanisms for this category remain to be clarified [2]. R&D and Market Access - The framework encourages the provision of NHSA's national data for innovative drug R&D, which could be beneficial for pharmaceutical companies in China [3][7]. - Incremental financing is encouraged through dedicated funds from commercial insurance to invest in biotech startups, although further guidelines are awaited [7]. - The report notes that local hospitals are encouraged to expedite the decision-making process for drug formularies, particularly for innovative drugs [7].

Investment Rating - The report indicates a positive outlook for US equities, with expectations for net buying in various scenarios over the next month [2][5]. Core Insights - The report highlights that professional investors have driven equities higher, with macro investor optimism significantly influenced by Fed policy [80]. - Global equities experienced the largest net buying in five weeks, primarily driven by long buys and some short covering [38]. - The report notes that 6 out of 11 global sectors were net bought, with Financials, Info Tech, and Industrials leading, while Energy, Comm Svcs, and Real Estate saw the most net selling [40]. Summary by Relevant Sections CTA Corner - CTAs are long $67 billion in global equities, with a significant portion in the US, and are expected to shift from selling to buying in the coming month [2][5]. - In the past week, there was a net selling of $9.2 billion, but future estimates suggest a reversal in buying trends [2]. Market Flows - The report details expected flows in different market scenarios, indicating a potential for significant buying in flat and up scenarios over the next month [7]. - Notably, the S&P 500 E-mini is projected to see varied flows, with net buying expected in flat and up scenarios [7]. Sector Performance - The report indicates that the Financial sector saw the largest net buying since December 2016, driven by hedge funds [40]. - Energy stocks faced the largest net selling since September 2024, attributed to increased short positions amid geopolitical tensions and declining oil prices [41]. Trading Activity - Trading volumes were light due to corporate blackout periods ahead of earnings, with a significant portion of trading focused on Financials, Tech, and Health Care [54]. - The report anticipates a slow trading week ahead due to the Independence Day holiday in the US [54].

Investment Rating - The report indicates a positive outlook for the S&P 500, suggesting a continuation of the recent rally in the short term, with expectations of a peak around mid-July before a potential decline in August [2][11]. Core Insights - The S&P 500 has experienced a 10% increase since the end of March, marking the fastest recovery from a sell-off exceeding 15% in history [2]. - The report highlights that July is historically the strongest month for the S&P, with an average return of 1.67% since 1928, and the first half of July is projected to yield an even higher average return of 2.43% [6][11]. - The Russell 2000 index is noted to be trading 11.5% below its high, indicating a divergence in performance compared to the S&P and NDX [5]. - Systematic positioning in equity demand is expected to increase, with an estimated $80 billion of global equity demand over the next month, including $44 billion from U.S. markets [26]. Summary by Sections Market Performance - The S&P 500 reached another all-time high last week, the first since February 19, indicating strong market performance despite narrow market breadth [47]. Volatility - The report discusses a decrease in market panic as indicated by lower volatility levels, with a shift in investor preference towards "wingier" options for exposure to extreme risks [20][21]. Liquidity - S&P top of book liquidity stands at $12.48 million, up 21% from the one-year average, indicating improved trading conditions [41]. Retail Sector - Dips in retail demand have been correlated with declines in the S&P, suggesting that retail performance is a significant factor to monitor [54].

Investment Rating - The market is currently pricing a full rate cut by September and more than two cuts by the end of the year [4][15]. Core Insights - Since late April, the market has upgraded its growth views while easing its view of the Fed's reaction function, reversing less of the tighter policy shock than the negative growth shock [2][3]. - Strong labor market data and higher inflation prints could challenge the easing priced in by the market, but favorable inflation news could create more room for earlier and deeper easing [2][16]. - The best expression of the market moving towards pricing more rate cuts depends on the accompanying growth backdrop [15]. Summary by Sections Market Dynamics - The market has begun to push towards pricing more Fed easing, with potential scenarios illustrating how this could affect various assets [5][15]. - A dovish policy shock could lower 2-year yields by 25 basis points, leading to rising equities and a weaker dollar [8]. Scenarios Analysis - **Scenario 1**: Dovish policy shock with equities rising and yields falling [8]. - **Scenario 2**: US growth expectations fall by 50 basis points, leading to mixed currency performance and falling equities [9]. - **Scenario 3**: Dovish Fed shift combined with downgraded growth expectations results in modest equity declines and pronounced yield falls [10]. - **Scenario 4**: Dovish Fed shift with upgraded growth expectations leads to clear risk asset gains and slight yield decreases [11]. Investment Strategies - Positioning for lower yields and higher equities offers leverage in a dovish shock scenario [15]. - Lower yields but lower equities provide the best leverage in a negative growth shock [15]. - A shift towards pricing more Fed easing could reinforce USD weakness and steeper yield curves [15].

Investment Rating - The report has shifted its forecast for the next 25 basis point (bp) rate cut to September, previously expected in December, and has lowered the terminal funds rate forecast to 3-3.25% from 3.5-3.75% [2][3][22] Core Insights - The report indicates that the odds of a rate cut in September are somewhat above 50%, driven by underwhelming tariff effects, larger disinflationary offsets, and potential labor market softness [2][13][10] - The expectation is for three consecutive 25bp cuts in September, October, and December 2025, with additional cuts anticipated in March and June 2026 [3][22] - The report highlights that recent evidence suggests tariff effects on consumer prices are smaller than previously expected, contributing to a more favorable environment for rate cuts [5][4][10] Summary by Sections Rate Cut Forecast - The forecast for the next rate cut has been moved forward to September, with expectations of three 25bp cuts in September, October, and December 2025 [2][3][22] - The terminal rate forecast has been reduced to 3-3.25%, reflecting a change in outlook regarding the economy's performance at higher interest rates [14][18][22] Inflation and Tariff Effects - Recent comments from Fed officials indicate potential support for a cut in September if inflation data is not excessively high [4][6] - Evidence shows that tariff impacts on consumer prices are less significant than anticipated, with moderating wage growth and weak demand for travel providing additional disinflationary pressure [5][10][11] Labor Market Dynamics - The labor market remains healthy, but job openings are slowly declining, making it harder for unemployed individuals to find jobs, which could influence the timing of rate cuts [10][11][12] - Near-term risks to payrolls are noted due to changes in immigration policy and residual seasonality, which could prompt earlier cuts if employment data shows weakness [10][13]

Investment Ratings - Arista Networks Inc (ANET): Buy with a 12-month target price of $115 [20] - Cisco Systems, Inc (CSCO): Neutral with a 12-month target price of $67 [21] - Dell Technologies (DELL): Buy with a 12-month target price of $130 [22] - Super Micro Computer Inc (SMCI): Neutral with a 12-month target price of $24 [23] - Hewlett Packard Enterprise Co. (HPE): Not Rated [24] - Juniper Networks (JNPR): Not Rated [25] Core Insights - The AI data center infrastructure market is expected to grow significantly, with AI servers projected to reach $335 billion by 2028, reflecting a 31% CAGR from 2024 to 2028 [4][8] - AI data center switching is anticipated to grow at a 41% CAGR, reaching $22 billion by 2028, with back-end Ethernet growing at a 60% CAGR and front-end Ethernet at a 52% CAGR [3][8] - The overall server industry forecasts remain largely unchanged, with traditional servers facing a decline of 2% CAGR from 2024 to 2028, while AI servers are expected to see robust growth [2][4] Market Share Dynamics - In the AI Networking segment, ANET lost 2 percentage points in back-end AI Ethernet market share, while Nvidia gained 5 percentage points [1] - In front-end AI Ethernet, ANET gained 3 percentage points, reaching 43% market share, while Cisco maintained its share at 11% [1][3] - Within the AI server market, revenue market share shifts were noted, but overall stability in market share for AI server orders is expected [1] Capital Expenditure Trends - Cloud data center equipment capital expenditures are projected to grow at a 19% CAGR from 2024 to 2028, reaching $591 billion by 2028 [7][25] - Total cloud provider capital expenditures are also expected to grow at a 19% CAGR over the same period, reaching $828 billion [7][25] Vertical Market Growth - The AI switching market is expected to grow at a 33% CAGR among hyperscale customers, 45% CAGR at Tier 2 Cloud & Service Providers, and 58% CAGR in the enterprise sector [3][8] - AI server demand is anticipated to be strong across various verticals, with hyperscalers seeing an 18% CAGR, Tier 2 Cloud at 58%, and enterprise at 48% [6][8]

Investment Rating - The report does not explicitly state an investment rating for the transportation industry or specific companies within it. Core Insights - The report indicates a potential softening in freight trends from China to the US, with a sequential decrease of -4% in laden vessels and -7% in TEUs, suggesting that the anticipated surge in trade may be less robust than previously expected [1][5][21] - Container rates have dropped significantly, with a recent decline of -39% week-over-week, indicating a possible decrease in demand following the surge in imports from China [5][36] - The report outlines two potential scenarios for 2025: a pull-forward surge in trade ahead of a 90-day tariff pause or a continued slowdown in activity due to uncertainty surrounding tariffs [6][7] Summary by Sections Tariff Impact and Freight Trends - High-frequency data shows a decline in inbound traffic from China, with laden vessels down -4% and TEUs down -7% sequentially [1][5][21] - Container rates have decreased sharply, reflecting a potential drop in demand post-surge [5][36] - The report notes that while weekly data can be volatile, a multi-week analysis can provide insights into tariff-related trends [3][13] Trade Volume Analysis - June saw an estimated increase of ~$3 billion in imports year-over-year, following a surge of $4 billion in April and a drop of $3 billion in May, highlighting the volatility in trade flows [5][65] - Planned TEUs into the Port of Los Angeles increased by +14% sequentially, but forecasts indicate a potential drop-off in the coming weeks [39][41] Future Scenarios and Economic Outlook - The report presents three possible scenarios for transport stocks, ranging from a significant pull-forward in demand to a potential economic downturn affecting freight volumes [11][12] - Analysts have recently upgraded truckers, citing a reduced probability of recession and resilient consumer spending [11][12] Container and Vessel Trends - The report tracks weekly data on laden container vessels and TEUs, noting a recent sequential decrease after a period of growth [21][26] - The analysis indicates that while vessels from Asia excluding Mainland China remain positive, those from Mainland China have turned negative [27][28] Port Activity and Logistics - Major Chinese ports reported a +6% week-over-week increase in throughput, indicating some recovery in port activity [32][34] - The report highlights that intermodal traffic on the West Coast has seen a decline, reflecting potential lagging effects in the supply chain [46][49]

Investment Rating - The investment rating for Kingmed is Neutral with a 12-month target price of Rmb31, reflecting a potential upside of 7.6% from the current price of Rmb28.82 [10][9]. Core Insights - The report highlights that Kingmed is a leading player in China's independent clinical laboratory (ICL) industry, facing challenges such as shrinking gross profit margin (GPM) and net profit margin (NPM), as well as difficulties in collecting accounts receivables [8][9]. - Despite these challenges, Kingmed's base in Covid testing has facilitated its entry into new markets, particularly in Tier 3 hospitals, which is expected to support the growth of its non-Covid-19 testing business in the future [8]. Industry Environment and Policy Impact - The growth of diagnostic services has been slowed by multiple factors, including DRG unbundling, medical insurance inspections, price reductions, and a decline in physical examinations [2]. - The company believes that the impact of DRG unbundling on independent clinical laboratory providers is limited, as the outsourcing rate for diagnostic services in China remains below 10% [2]. Operating Status and Strategic Response - Kingmed's primary challenge is the volume of tests, with revenue growth previously driven by increasing test volumes and rising outsourcing rates [3]. - In response to operational challenges, the company has prioritized profitability and cash flow, accelerated automation, and optimized staffing, while establishing capacity hubs to improve utilization and margins [3]. Outlook and Key Initiatives - The company maintains a cautious outlook for achieving positive year-over-year growth in the second half of 2025 due to uncertainties in policy developments [7]. - Kingmed is advancing key initiatives, such as promoting a blood-based Tau-217 protein test for Alzheimer's diagnostics, which, although currently contributing modest revenue, is seen as groundwork for future growth [7].

Investment Ratings - Advantest, Disco, and Tokyo Electron are rated as Buy, indicating strong earnings momentum and growth potential [2][15][24] - Tokyo Seimitsu is rated as Sell due to expected downward revisions in profit margin growth [3][24] - SCREEN Holdings, Kokusai Electric, and Lasertec are rated as Neutral, reflecting mixed investor sentiment [24] Core Insights - Investor sentiment in the semiconductor sector is improving compared to early June, although not as bullish as in 2023 and 1H2024 [1] - Advantest is highlighted for its strong earnings growth potential driven by increasing demand for ASICs and GPUs [3] - Disco is seen as increasingly attractive relative to Advantest, despite concerns about near-term shipment momentum [3] - Tokyo Electron is viewed as having significant earnings growth potential that may outpace the WFE market [2] Summary by Sections Investor Meetings Feedback - Over 40 investor meetings were held, indicating strong interest in a range of stocks, particularly small- and mid-cap names [1] - The sentiment in the semiconductor sector has improved, with specific interest in Advantest, Disco, and Tokyo Electron [1][2] Stock-Specific Insights - Advantest is attracting significant interest due to its high AI exposure and expected earnings growth in FY3/26 and FY3/27 [3] - Disco's share price has lagged behind Advantest, making it more attractive to investors despite shipment concerns [3] - Tokyo Electron is noted for a gap between investor expectations and earnings growth potential, which is expected to be strong [2] Market Trends - Investor expectations for the CY25 WFE market growth are converging around flat to mid-single-digit percentage growth, with a specific estimate of +3% year-on-year [4] - There is growing awareness of the upside potential in China demand, although views on the NAND market sustainability are divided [4][8] EUV and Related Stocks - Interest in Lasertec has increased as investors perceive its share price as having bottomed out, although further gains will depend on broader market recovery [9] - JEOL is rated as Buy, with expectations for increased mask writer demand aligning with Lasertec's recovery scenario [9]

Investment Rating - Buy: Hon Hai, Wiwynn, Wistron, Gigabyte, ASUS, AVC; Neutral: Quanta, Inventec [8] Core Insights - The average year-over-year revenue growth for ten companies in the AI servers and AI PCs supply chain is expected to be +37% in June 2025, +27% in July 2025, and +18% in August 2025, driven by the ramp-up of AI servers and new product launches [1] - Rack-level AI servers are transitioning models, which may impact revenue growth in the second half of 2025 [1] - Geopolitical uncertainties are causing changes in end market demand, leading to a slower month-over-month growth forecast of -6% in June, -8% in July, and +2% in August 2025 [1] Company Summaries Hon Hai - Expected 2Q25 revenues to grow 17% YoY to NT$1,813 billion, driven by AI server demand and tariff-related consumption pull-ins [13] - May revenues were 6% below estimates, affected by slower customer pull-in momentum and negative exchange rate impacts [13] - Maintain Buy rating with a target price of NT$242 based on a 14.9x 2026E P/E multiple [15] Quanta - Anticipated 2Q25 revenues to grow 57% YoY to NT$488 billion, supported by AI server ramp-up [20] - May revenues were 13% below estimates, with a decline in notebook shipments [20] - Maintain Neutral rating with a target price of NT$273 based on a 12.8x 2026E P/E [23] Wiwynn - Expected 2Q25 revenues to grow 161% YoY to NT$202 billion, driven by strong demand for ASIC AI servers [38] - May revenues were 34% higher than estimates, reflecting continued strong demand [39] - Maintain Buy rating with a target price of NT$3,838 based on a 20.5x 2026E P/E [42] Wistron - Expected June revenues to grow 123% YoY to NT$198 billion, driven by AI server demand [47] - Strong revenue in May, up 162% YoY, supported by new product cycles [44] - Maintain Buy rating with a target price of NT$152 based on a 14.8x 2026E P/E [49] Gigabyte - Expected 2Q25 revenues to grow 32% YoY to NT$97 billion, supported by AI servers and VGAs [50] - May revenues were 79% above estimates, reflecting tariff-related pull-ins [51] - Maintain Buy rating with a target price of NT$344 based on a 14.0x 2026E P/E [55] AVC - Expected 2Q25 revenues to grow 67% YoY to NT$27 billion, driven by liquid cooling business [27] - May revenues were higher than estimates, reflecting the rising trend in liquid cooling [27] - Maintain Buy rating with a target price of NT$878 based on a 20.0x 2026E P/E [37] ASUS - Expected 2Q25 revenues to grow 21% YoY to NT$175 billion, supported by AI and gaming PCs [57] - May revenues were up 41% YoY, exceeding estimates [62] - Maintain Buy rating with a target price of NT$849 based on a 14.6x 2026E P/E [63] Inventec - Expected June revenues to be similar to May, supported by AI server ramp-up [65] - Maintain Neutral rating with a focus on AI server revenue contribution [65]