Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The U.S. government may issue executive orders related to housing, credit card, and financial product affordability, but the actual impact may be limited due to constraints on the government's ability to drive significant change through existing executive powers [1][2] - The Supreme Court's decision on IEP tariffs remains uncertain, with the potential for tariffs to be retained if the deliberation period extends [1][3][4] - Major U.S. banks reported steady consumer spending growth and improved loan quality, although concerns exist regarding the potential impact of credit card pricing caps [1][8][9] - The U.S. dollar is expected to trend downward in 2026, with emerging market currencies facing slightly unfavorable prospects, leading to an upgrade in ratings for cyclical G10 currencies like the Australian and New Zealand dollars [1][10] - The Japanese yen, with an implied fiscal risk premium, remains a strong hedging tool and has significant potential for appreciation [1][12] Summary by Sections Government Policy Tools - The government has three main avenues to address growth and affordability issues: legislation, executive measures, and informal pressure on industries [2] Supreme Court Tariff Decisions - The Supreme Court's indecision on IEP tariffs could lead to a prolonged uncertainty, with the possibility of tariffs being reconstructed through specific legal provisions if they are invalidated [3][4] Banking Sector Trends - Recent financial reports from major U.S. banks indicate positive trends, including a steady increase in consumer spending and improved credit quality, with expectations of a decrease in loan write-offs [1][8] - Concerns about the impact of proposed credit card interest rate caps on banks' profitability are prevalent, with potential legislative actions being monitored [9] Currency Market Outlook - The report anticipates a downward trend for the U.S. dollar in 2026, influenced by a soft labor market and ongoing monetary policy [1][10] - The yen is highlighted as a valuable hedging instrument due to its significant potential for appreciation amidst fiscal risk [1][12] European Credit Market - The European credit market is expected to see stable or slightly increased issuance of high-yield bonds and leveraged loans in 2026, driven by mergers and acquisitions and AI-related capital expenditures [16][17] - Credit spreads are currently at historical lows, with expectations of a gradual widening due to increased supply from anticipated M&A activity [17][18]

Investment Rating - The report gives a premium rating for high-quality stocks expected in 2026, particularly those that faced profit margin pressure due to tariff pass-through effects in 2025, with anticipated growth of 9.5%, significantly above the industry average [7][8]. Core Insights - Approximately 65% of indicators at the company level in the European capital goods sector show a quarter-on-quarter acceleration trend, primarily driven by the electrical equipment and related markets, as well as certain commodity-related sectors [1][2]. - The capital expenditure tracker indicates a strong outlook for the next three years (2025-2028), with a Kiger tracking data of about 7.8, approaching levels seen during expansion peaks in 2011 and 2004-2007, driven mainly by large-scale enterprises [1][4]. - There is increasing investor concern regarding the concentration of business in the electrical equipment sector, with current sector P/E ratios at a nearly 50% premium to the Stoxx 600 index, far exceeding long-term averages [1][5]. - Key focus is on high-quality stocks with expected earnings guidance for 2026, such as cable manufacturers involved in the grid transmission and distribution sector, which have backlogs extending to the end of this year and are expected to achieve double-digit growth [1][6]. Summary by Sections Capital Expenditure Outlook - The capital expenditure tracker shows a robust outlook for both short-term and medium-term, with demand growth primarily driven by large-scale enterprises, which now account for one-third of the tracking data [4]. - The overall Kiger data has increased by approximately 1.7 percentage points globally, indicating a strong demand environment [4]. Industry Performance and Key Companies - Companies like Prisma, Rexel, Vol, Vopak, and Brabant Zeven are highlighted as examples of strong performance in the electrical equipment and maritime sectors [2]. - The report emphasizes the importance of proving the sustainability of profit growth and the potential for upward revisions in earnings expectations for the electrical equipment sector [5]. Specific Company Insights - Hewlett Packard Enterprise (HPE) is viewed positively, with 15% of its revenue coming from the data center vertical, and an expected organic growth rate of 17% CAGR for its photonics business by 2030 [3][10]. - Trellisburg, valued at approximately €7 billion, focuses on engineering rubber products and is expected to benefit from cyclical recovery in key end markets such as automotive and construction [12]. - Rational Group, the largest commercial kitchen oven manufacturer, is expected to return to high single-digit or at least double-digit growth by the end of this decade, driven by market expansion in China and new product lines in the U.S. [13].

Investment Rating - The report indicates a positive outlook for the industry, with a projected GDP growth of 2.5% year-on-year for 2026, significantly above market consensus [2]. Core Insights - The report highlights that AI is expected to automate approximately 25% of work hours, primarily in routine and repetitive tasks, which will lead to a productivity increase of 15% [6][7]. - It is anticipated that around 6% to 7% of employees may face job displacement due to AI, but new job opportunities created by AI advancements are expected to offset this impact [7][8]. - The Federal Reserve's interest rate cuts are now expected to occur in June and September 2026, with a potential reduction of 25 basis points each time, influenced by labor market conditions and AI-related risks [3][5]. Economic Growth Outlook - The economic growth outlook for the first half of 2026 is optimistic, driven by factors such as the reduction of tariff barriers and significant tax refunds amounting to approximately $100 billion for households [2]. - The financial environment is projected to contribute about 30 basis points to GDP growth [2]. Labor Market Dynamics - The report suggests that the unemployment rate may rise by approximately 0.5 percentage points under a scenario of orderly AI adoption over ten years, but this could increase to 2-3 percentage points if the adoption cycle is compressed to 2-3 years [4][8]. - In 2026, the labor market is expected to improve, with an estimated monthly addition of about 70,000 jobs and an unemployment rate stabilizing around 4.5% [9]. Federal Reserve Policy Expectations - The report expresses optimism regarding the Federal Reserve's future interest rate cuts, with a long-term neutral rate projected between 3% and 3.25% [5]. - The core PCE inflation is expected to decline to 2.1% by the end of the year, providing justification for the Fed to lower rates to the indicated long-term neutral level by 2026 [5].

Investment Rating - The report maintains a positive outlook on emerging markets, particularly in Asia, indicating a favorable investment environment due to strong economic growth and declining inflation [4]. Core Insights - The report highlights two main themes in the Asian emerging markets: the gradual appreciation of the Renminbi and the end of the Asian interest rate easing cycle, driven by strong economic growth and export performance [5]. - The report suggests that the market is currently in a "Goldilocks" state, characterized by good economic growth and declining inflation, which is favorable for risk assets [4]. - The report emphasizes the importance of monitoring geopolitical risks, technology bubbles, and the independence of the Federal Reserve as potential risk factors [4]. Summary by Sections Economic Data and Trends - U.S. December CPI data was slightly below expectations, while China's December PPI inflation rate was slightly above expectations, with exports growing by 6.6% year-on-year [1][2]. - The People's Bank of China has lowered several structural loan tool rates by 25 basis points and increased their quotas, indicating a credit expansion [1][2]. Currency Strategies - The report recommends a bearish options strategy on USD/SGD, targeting a move towards the 6.80 range in the next 3-6 months, as policy signals indicate Renminbi appreciation [5]. - The report notes that the Renminbi's appreciation has limited spillover effects on low-yield currencies, as it is driven by a significant trade surplus rather than domestic demand [5]. Market Outlook - The report suggests that the current low-volatility environment is an opportune time for establishing risk hedges, particularly in the foreign exchange market [4]. - The report anticipates strong industrial value-added data from China, while retail sales and fixed asset investment may show weakness [8].

Investment Rating - The report indicates a cautious outlook for the payment industry, with a focus on potential recovery in 2026 due to fiscal stimulus and a lower base effect from 2025 [1][3]. Core Insights - Consumer spending in the U.S. is expected to stabilize in 2026, driven by fiscal stimulus and positive responses from low-income groups, although high borrowing costs remain a challenge [1][5]. - The payment industry is experiencing valuation compression despite revenue and margin growth, attributed to concerns over increased competition and long-term sustainability [1][4]. - The introduction of the Credit Card Competition Act is anticipated to reshape the credit card market, potentially lowering merchant transaction fees and impacting the payment ecosystem significantly [1][9][8]. Summary by Sections Consumer Spending and Fiscal Stimulus - U.S. consumer spending is projected to grow steadily in 2026, with fiscal stimulus contributing approximately 20 basis points to this growth [3][5]. - Low-income consumers are expected to benefit from tax refunds, which may improve their financial situation in the first half of 2026 [5][6]. Payment Industry Valuation and Performance - The payment industry has faced a comprehensive valuation compression, with median stock prices declining by double digits despite revenue growth [4]. - Major banks have benefited from regulatory relaxations, while companies like Visa and Mastercard have not seen similar advantages, indicating a shift in market dynamics [4]. Innovations in Payment Ecosystem - Generative commerce, utilizing AI for shopping experiences, is emerging but remains in its infancy, facing significant fraud and security risks [7]. - Visa and Mastercard have introduced universal token solutions, but substantial growth in this area is not expected until 2026 [7]. Legislative Developments - The Credit Card Competition Act aims to enhance competition in the credit card sector by requiring banks to connect their cards to multiple networks, potentially lowering transaction fees for merchants [9][10]. - The act's passage is likely to have profound implications for the payment ecosystem, although the actual reduction in fees remains uncertain [9][10]. Market Outlook for Credit and Financing - The non-bank consumer finance sector is expected to stabilize in terms of funding availability, with companies like Klarna showing promise due to their low capital dependency [12][13]. - The report highlights a positive outlook for Klarna, which has recently secured significant funding and is positioned well in the market [13][16]. Preferred Stocks - The report identifies several preferred stocks, including Chime, Klarna, and Block, with Chime focusing on direct deposit services for low-income consumers and Klarna expanding its presence in the profitable U.S. market [16][17]. - Block is noted for its ongoing transformation and growth in transaction volumes, particularly through its Cash App platform [17].

Investment Rating - The report emphasizes a focus on reliability and essential services as core themes for investment, indicating a positive outlook for sectors that address these needs [2][3]. Core Insights - The report identifies a shift in sustainable investment towards risk mitigation and long-term returns, highlighting the importance of reliability, affordability, and security in the current investment landscape [2][3]. - There is a significant increase in electricity demand, reaching levels not seen since the 1990s, driven by aging infrastructure and the need for reliable energy sources [1][3]. - The report anticipates a substantial growth in data center electricity demand, projected to increase by approximately 175% by 2030 compared to 2023, necessitating significant infrastructure investments [6][9]. - The energy sector is expected to see a diversification in electricity procurement strategies, focusing on natural gas, nuclear energy, and renewable sources to ensure reliability and cost-effectiveness [9][12]. Summary by Sections Sustainable Development and Investment - Sustainable investment is increasingly centered on risk mitigation and long-term profitability, with a focus on identifying risk drivers and companies that can benefit from risk mitigation investments [2][3]. - The narrowing global trust circle has heightened the priority of reliability, affordability, and security, leading to a renewed focus on traditional sustainable development themes beyond just climate and decarbonization [2][3]. Energy Policy and Market Trends - The U.S. Energy Secretary emphasized the need to utilize domestic resources to maintain pricing advantages in natural gas and electricity, while cautioning against over-reliance on intermittent power sources [4][5]. - Despite challenges, renewable energy capacity is expected to grow healthily, supported by government incentives, although concerns remain regarding its reliability in achieving decarbonization goals [5][12]. Artificial Intelligence and Infrastructure - The development of AI is still in a phase of evaluation, with significant infrastructure investments required to support its growth and address increasing data processing demands [6][7]. - The report highlights that efficiency improvements in AI technologies have not negatively impacted overall R&D budgets, indicating continued investment in this area [7][11]. Supply Chain and Resource Management - The concentration of critical mineral supply chains poses significant risks, with China dominating the refining capacity for many strategic materials, prompting a push for diversification in supply sources [13][14]. - The report notes that the need for supply chain diversification is driving investments in local production capabilities, particularly in the U.S. and Europe [13][14]. Labor Market and Demographic Changes - The aging population and advancements in AI are expected to create labor market mismatches, with potential solutions including increased female workforce participation and skills retraining initiatives [14][15]. - Investment opportunities are identified in sectors addressing the needs of an aging population, including healthcare and education [14][15].

Investment Rating - The report maintains a Neutral rating for WuXi AppTec, WuXi Biologics, and WuXi XDC, with specific target prices set at HK$122.5, HK$33.5, and HK$71.2 respectively [10][9][11]. Core Insights - The Chinese CDMO market sentiment is improving, with share prices for key players up by an average of 21% year-to-date [1]. - Preliminary FY25 results for WuXi AppTec, WuXi XDC, and Pharmaron were broadly in line or slightly ahead of expectations, with capacity expansion progressing well in key modalities and overseas [1]. - For FY26, WuXi AppTec expects similar growth to FY25, while WuXi Biologics anticipates accelerating revenue growth [1]. - Investors are expected to focus on backlog and new order trajectories for FY25, as well as more specific guidance for FY26 regarding revenue, margins, and capital expenditures [1]. Company Summaries WuXi AppTec - FY25 preliminary revenue reached Rmb45.5 billion, representing a 15.8% year-over-year increase, exceeding prior guidance of 13%-17% [4]. - Adjusted net profit for FY25 was Rmb15.0 billion, up 41.3% year-over-year, driven by strong contributions from the TIDES segment [4]. WuXi Biologics - FY25 saw record project additions, with expectations for FY26 revenue growth to accelerate [2]. - The company reported a significant increase in new D-segment projects, reaching a record 209, with a notable contribution from bi- and multi-specific antibodies [7]. WuXi XDC - FY25 revenue was in line with expectations, and net profit was slightly above estimates [5]. - The company announced an acquisition of BioDlink to enhance capacity expansion [7]. Pharmaron - FY25 preliminary revenue was at the upper end of guidance, with adjusted net profit slightly above expectations [6]. - The company expects faster revenue growth in FY26, supported by its integrated model [7].

Investment Rating - The report maintains a positive outlook on the cyclical sectors and anticipates a strong growth trajectory for the S&P 500 index, targeting a level of 7,600 points by 2026 with a total return rate of 12% [1][3]. Core Insights - The S&P 500 index is expected to achieve a total return of 18% in 2025, driven primarily by earnings growth, with a projected 12% earnings growth leading to an EPS target of $305 [3]. - The report highlights the importance of healthy economic fundamentals, strong profitability of large-cap stocks, and the incremental profits from AI applications as key drivers of market performance [1][3]. - Despite high current market valuations, the report argues that high-profitability stocks deserve higher valuations, and there are no significant signs of speculative bubbles [1][4]. Summary by Sections Economic Outlook - The U.S. economy is projected to grow at nearly 3% this year, with a slight slowdown expected in the second half of the year [3][6]. - The report emphasizes that while there may be fluctuations due to interest rate changes, the overall economic cycle is unlikely to end soon [5][6]. Market Valuation - Current market valuations are high, but the report suggests that this is not a barrier to future performance, as high-profitability stocks are justified in their valuations [4][7]. - The concentration risk in the market is deemed manageable, with the top ten stocks accounting for 31% of earnings, and their valuations, while above average, remain below historical peaks [7]. Sector Recommendations - The cyclical sectors are expected to benefit from favorable economic conditions, with particular attention on the middle-income consumer segment and non-residential construction [1][8]. - The report suggests that healthcare and consumer staples are undervalued and recommends allocating defensive assets to balance risk [2][11]. AI and Capital Expenditure - AI-related transactions are anticipated to continue evolving, with significant capital expenditures expected to rise to approximately $540 billion in 2026, despite a slowdown in growth rate [9][10]. - The report categorizes AI-related investments into four stages, highlighting the potential for differentiation among companies within the AI space [9]. Specific Investment Strategies - The report outlines three specific investment strategies: focusing on companies that have demonstrated AI productivity gains, targeting cyclical sectors benefiting from infrastructure investments, and identifying consumer companies likely to benefit from tax refund spending [13][14].

Investment Rating - The report suggests an overweight position in equities while maintaining neutral allocations in bonds, commodities, and cash, with a low allocation to credit [2] Core Insights - Despite high market valuations, macro fundamentals are expected to support the current levels, and high valuations alone do not constitute a bearish signal [3] - Economic growth in 2026 is anticipated to be diversified, driven by fiscal policy, regulatory easing, and AI penetration, while political and geopolitical risks should be monitored [4] - The importance of diversification in asset allocation is emphasized, particularly in the late economic cycle, with a recommendation for alternative strategies and diverse investment styles [5][6] Summary by Sections Economic Outlook - The macro outlook for 2026 is positive, with strong performance expected in the first half, but potential slowdown in the second half. Growth will be more diversified, supported by fiscal policy and AI integration [4] Market Valuation - Current valuations are high, with the S&P Shiller PE ratio at its highest level since the tech bubble, but macro factors support these valuations, indicating that high valuations alone do not signal a market downturn [3] Asset Allocation Strategy - The asset allocation strategy for early 2026 favors risk assets, particularly equities, while maintaining neutral positions in bonds and commodities. Credit is underweighted due to low credit spreads [2] - The report highlights the need for selective and cautious approaches in spread trading and credit investments, recommending an overweight in equities to navigate the current economic environment [7] Sector and Regional Trends - Different regions are driven by various factors, with the U.S. led by technology, while value stocks are recovering in Europe. The report notes a balanced dynamic across sectors, creating opportunities for alpha generation [8] Commodity Market Outlook - The commodity market is expected to see a divergence in returns, with gold projected to rise to $4,900 per ounce by year-end, while Brent crude oil prices are expected to decline to an average of $56 per barrel [18]

Investment Rating - The report indicates a positive outlook for the U.S. economy with a projected GDP growth rate of 2.5% for Q4 2026, suggesting an investment rating that leans towards optimism for the U.S. market [1][3]. Core Insights - Goldman Sachs predicts that the U.S. economy will benefit from reduced tariff impacts, tax cuts, corporate fiscal support, and potential further interest rate cuts by the Federal Reserve, leading to a GDP growth forecast that exceeds market consensus [1][2][3]. - For China, the economic growth forecast for 2026 is also above market consensus, driven by export growth that offsets negative impacts from the real estate sector, with an expected current account surplus reaching about 1% of global GDP [1][6]. - The report anticipates a continued weakening of the U.S. dollar in 2026, primarily due to the Federal Reserve's potential for larger rate cuts compared to other developed markets [1][8]. Summary by Sections U.S. Economic Outlook - The U.S. GDP growth is expected to be 2.5% in Q4 2026, supported by factors such as reduced tariffs, tax relief for consumers, and corporate fiscal support [1][3]. - The labor market is projected to remain stable with an unemployment rate around 4.5%, despite rising productivity levels [4]. China Economic Forecast - China's economic growth is anticipated to surpass market expectations, with export growth compensating for real estate sector weaknesses [1][6]. - The current account surplus is expected to expand, reflecting strong performance in export-oriented industries [6]. Currency and Inflation Trends - The report forecasts a continued decline in the U.S. dollar, influenced by the Federal Reserve's monetary policy [1][8]. - Inflation in developed countries is cooling, with expectations that it will approach central bank targets by the end of the year [11][12]. Market Dynamics - The report suggests that the stock market may continue to perform well, although at a diminishing rate, due to a favorable macro environment [13]. - Credit markets are viewed as less favorable compared to equity markets, with narrowing spreads limiting upside potential [14].