Investment Rating - The report maintains a neutral position on equities, indicating a cautious outlook on the market [12]. Core Viewpoints - The report suggests that the current market downturn is likely event-driven rather than structural, with strong fundamentals supporting high equity valuations [5][12]. - Recent tariff announcements and trade deals have improved market sentiment, reducing recession risks and leading to upward revisions in growth forecasts [7][8]. - Despite positive developments, the report warns that risks remain, particularly with high valuations and potential economic slowdowns [12][15]. Summary by Sections Bear Market Analysis - The report categorizes bear markets into structural, cyclical, and event-driven types, with the current situation being assessed as event-driven [1][5]. - The S&P 500 and Nasdaq experienced declines of just under 20% and 23% respectively, indicating a bear market phase [1]. Economic Forecasts - The US growth forecast for 2025 has been raised by 0.5 percentage points to 1% Q4/Q4, with a reduced probability of recession at 35% [8]. - In China, GDP growth forecasts for 2025 and 2026 have been increased to 4.6% and 3.8% respectively [8]. Market Performance and Valuations - The report highlights that while US equities have rebounded, European markets have shown stronger performance, with Italy and Germany up over 27% in USD terms [20]. - The S&P 500 EPS forecasts for 2025 and 2026 are revised to $262 and $280, reflecting a year-on-year growth of 7% [8]. Risk Assessment - The report emphasizes that despite recent positive news, the effective tariff rates remain higher than pre-crisis levels, contributing to inflationary pressures [12]. - The report notes that high valuations and market concentration pose ongoing risks, particularly if hard data deteriorates [15][17]. Investment Strategy - The report advocates for diversification across sectors and geographies, suggesting that a broader mix of investments may yield better risk-adjusted returns [20][31]. - It highlights the importance of focusing on alpha rather than beta, recommending quality growth companies and value stocks that can compound returns over time [31].

China Battery Chartbook May 2025 Eric Shen Goldman Sachs (Asia) L.L.C. +852-2978-7954 eric.shen@gs.com Trina Chen Goldman Sachs (Asia) L.L.C. +852-2978-2678 trina.chen@gs.com Qiying Wei Goldman Sachs (Asia) L.L.C. +852-2978-6426 qiying.wei@gs.com Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report ...

Investment Rating - The report maintains an "Overweight" rating on Chinese stocks within a regional context, favoring domestic-oriented sectors such as Internet, Services, and Banks/Property [2][18]. Core Insights - The US and China have agreed to a 90-day truce in retaliatory tariffs, significantly reducing the effective US tariff rate on Chinese goods from 107% to 39% and on US exports to China from 144% to 30% [2][3]. - Following the tariff rollbacks, Chinese equities have fully recovered from a 13% drawdown, with major indices trading 2-4% above early-April highs [2][6]. - Goldman Sachs has revised its GDP growth forecasts for both the US and China, increasing China's real GDP growth expectation for 2025 from 4% to 4.6% [10][12]. - The report projects MSCI China and CSI300 indices to reach targets of 84 and 4,600 respectively over the next 12 months, indicating potential upside of 11% and 17% [12][13]. Summary by Sections Tariff Developments - The US and China announced a significant rollback of tariffs, with the US effective tariff rate on Chinese goods now at 39% [3][4]. - The extent of the tariff de-escalation was larger than anticipated, with China still facing the highest tariff rates among major US trading partners [3][4]. Market Reactions - Following the tariff announcements, both US and Chinese equities saw positive reactions, with the S&P 500 and MSCI China rallying over 3% [6][10]. - Chinese stocks have outperformed other global markets year-to-date, returning 17% compared to 6% for MSCI EM ex-China and 3% for DM indices [6][10]. Economic Forecasts - Goldman Sachs has adjusted its economic forecasts, raising the US GDP growth forecast for 2025 by 0.5 percentage points to 1% and reducing recession odds to 35% [10][12]. - For China, the real GDP growth forecast for 2025 has been increased to 4.6%, with a slight upward revision for the next year as well [10][12]. Investment Themes - The report emphasizes investment trends that are likely to persist, including a focus on Domestic Stimulus Beneficiaries, EM exporters, and AI proxies [2][18]. - The report suggests that self-help mechanisms have been activated in China to counteract external demand uncertainties, reinforcing the preference for domestic-oriented sectors [18].

Investment Rating - The report indicates a negative long-term impact on US real income due to higher tariffs, estimating a decline of 1.5-2% if current tariff policies become permanent [2][73]. Core Insights - The effective tariff rate in the US is expected to rise by approximately 13 percentage points (pp) this year, reaching its highest level since the 1930s, with elevated tariffs likely to persist in the foreseeable future [2][5]. - A 13pp increase in tariffs is projected to reduce US real income by around 1% in the long run, with additional long-term effects potentially leading to a total income loss of 1.5-2% [2][73]. - The report highlights that higher tariffs may discourage investment, raise equipment costs, and negatively impact innovation, leading to a drag on GDP over time [2][51][74]. Summary by Sections Tariff Impact on Economy - The anticipated increase in tariffs will likely shift resources away from successful firms engaged in international trade, resulting in efficiency losses [2][17]. - Reshoring production back to the US is deemed unlikely due to lower production costs in alternative supplier countries [2][33]. Long-Term Economic Effects - Higher tariffs are expected to raise equipment costs, discourage investment, and lower the capital stock, contributing to a long-term GDP drag of approximately 0.75 percentage points [51][57]. - The report suggests that tariffs could lead to slower productivity growth and innovation due to reduced access to export markets and increased input costs [60][61]. Historical Context and Comparisons - The report draws parallels with the economic impacts observed in the UK post-Brexit and countries that liberalized trade in the 1990s, suggesting similar long-term output effects from increased trade barriers [68][72].

Investment Rating - The report indicates a cautious stance on the market, with a focus on the potential for near-term relief but acknowledges the risks associated with economic deterioration and labor market conditions [4][5][35]. Core Insights - The reduction in tariffs between China and the US has led to an upgrade in the US growth forecast for 2025 and a decrease in recession odds from 45% to 35% [2][3]. - Markets have already incorporated the new growth outlook, which may leave them vulnerable to a recessionary outcome if economic conditions worsen significantly [3][8]. - The report emphasizes that while the market's ability to overlook short-term economic weakness has improved, risks remain, particularly related to the labor market and potential upward pressure on bond yields [5][30][31]. Summary by Sections Economic Outlook - The sharp reduction in tariffs has prompted a significant upgrade in growth views, with markets reflecting this change [6][21]. - The report suggests that the market has fully unwound the growth damage priced after previous tariff announcements, indicating a potential overpricing relative to baseline growth expectations [8][12]. Market Dynamics - The report highlights that the market may be more willing to look through periods of economic weakness if investors believe the worst of the tariff and uncertainty shocks are behind them [24][25]. - It notes that a stabilization in soft data could further support this outlook, making it easier for the market to judge that hard data damage will be limited [25][28]. Risks and Challenges - The report identifies the labor market as a critical factor, with rising unemployment posing a significant risk to market confidence [29][30]. - It warns that renewed upward pressure on bond yields and potential re-escalation of tariff policies could challenge market recovery [31][32][33]. - The report concludes that while there is room for market relief, the potential for deeper economic downturns remains a concern, suggesting the need for protective strategies against downside risks [35].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - Foreign private investors have become the dominant holders of US debt, with their holdings growing significantly since 2010, now totaling approximately $8.5 trillion, surpassing official holdings by $1 trillion [4][11] - The US external debt has surged 1.5 times since 2020, now nearing $10 trillion, indicating a growing reliance on foreign private creditors to service this debt [2][6] Summary by Sections Foreign Holdings of US Debt - Foreign investors hold around $8.5 trillion of US treasury debt, with private creditors holding $4.7 trillion and official creditors holding $3.8 trillion [4][11] - Over 60% of these foreign holdings have maturities within 5 years [4] Maturity Distribution - The weighted average maturity of US debt portfolios for foreign private investors is 10 years, compared to 8 years for foreign official investors, reflecting differing investment priorities [5][21] - Most foreign-held treasury securities with maturities longer than 20 years are held by private investors, with private holdings at $450 billion versus $130 billion for official investors [15][16] Short and Long-Term Debt - Private foreign investors exhibit greater exposure to both short-term (less than 1 year) and long-term (more than 15 years) maturities compared to official institutions, holding approximately $1 trillion in short-term debt [24][25] - The report highlights that the US external debt service payments (principal + interest) have increased significantly, indicating potential challenges in refinancing and servicing this debt [29][31]

Investment Rating - The report indicates a weaker-than-expected performance in loan and credit data for April, suggesting a cautious outlook for investment in the sector Core Insights - Total social financing (TSF) flows and new RMB loans in April were below market expectations, primarily due to a slowdown in corporate loan demand, with bill financing indicating soft demand [1][4] - M2 growth increased significantly in April, influenced by a low base from the previous year, while M1 growth moderated, reflecting substantial funds held in the fiscal account [3][10] Summary by Sections Loan and Credit Data - New RMB loans reported at RMB 280 billion in April, significantly lower than the Bloomberg consensus of RMB 695 billion and GS forecast of RMB 600 billion [2] - Outstanding RMB loan growth was 7.2% year-on-year in April, a decrease from 7.4% in March, with corporate loans showing a notable decline [9] Social Financing - Total TSF flow was RMB 1163 billion in April, below the Bloomberg consensus of RMB 1397 billion and GS forecast of RMB 1350 billion, indicating weaker loan extension [2][4] - TSF stock growth accelerated to 8.7% year-on-year in April, compared to 8.4% in March, with a month-on-month growth of 8.8% [3][8] Monetary Aggregates - M2 growth reached 8.0% year-on-year in April, surpassing the Bloomberg consensus of 7.2%, while M1 growth slightly decreased to 1.5% year-on-year [3][10] - Fiscal deposits showed a significant increase, accumulating an RMB 1190 billion surplus year-to-date, compared to an RMB 187 billion deficit last year [10]

Investment Rating - The report maintains a "Buy" rating for Alibaba Group (BABA) with a 12-month price target of $159.00, indicating an upside potential of 18.6% from the current price of $134.05 [10][15]. Core Insights - Alibaba reported strong results with Customer Management Revenue (CMR) growth of 12% year-over-year (yoy) and EBITA growth of 8% yoy for the Taobao-Tmall Group, exceeding expectations. Cloud revenue grew by 18% yoy, and non-GAAP EPS increased by 23% yoy, aligning with forecasts [1][10]. - The report highlights the focus on AI capital expenditures and cloud strategies, particularly in light of recent AI model advancements and the implications for revenue growth and margin outlook for Alibaba Cloud [2]. - The report notes a slight decline in cloud EBITA margin to 8.0% quarter-over-quarter (qoq), attributed to reinvestments aimed at expanding scale leadership [1][2]. Summary by Sections Financial Performance - Total revenues for 4QFY25 were reported at Rmb 236,454 million, reflecting a 7% yoy increase. CMR reached Rmb 71,077 million, up 12% yoy, while cloud revenue was Rmb 30,127 million, growing 18% yoy [12][14]. - Non-GAAP EPS for 4QFY25 was Rmb 12.52, a 23% increase yoy, although it fell short of the Visible Alpha Consensus Data by 5% [12][14]. Segment Performance - Taobao-Tmall Group revenue grew to Rmb 101,369 million, a 9% yoy increase, with CMR growth contributing significantly [14]. - The Alibaba International Digital Commerce Group reported revenue of Rmb 33,579 million, up 22% yoy, with a narrowed EBITA loss of Rmb 3.6 billion compared to Rmb 5.0 billion in the previous quarter [13][14]. - The Local Services Group saw revenue growth of 10% yoy, reaching Rmb 16.1 billion, with a narrowed EBITA loss of Rmb 2.3 billion [13]. Future Outlook - The report anticipates continued growth for Taobao-Tmall, driven by a stabilizing eCommerce competitive landscape and the impact of the software service fee introduced last September [2][9]. - There is an expectation for narrowing losses in international eCommerce, with a trajectory towards quarterly breakeven over the next 3-4 quarters [9].

Investment Rating - The report indicates a positive sentiment towards the market, suggesting opportunities for adding exposure, particularly in short-dated topside volatility strategies [2][3]. Core Insights - Volatility has decreased, allowing systematic investors to take a more bullish stance [2]. - Retail demand remains strong despite May typically being a month of outflows, indicating robust market support [3]. - Liquidity and market sentiment have improved, signaling a healing market environment [4][5]. - CTAs are projected to flip to a net long position in US equities, with expected purchases of approximately $14 billion over the next week [9]. - The report highlights significant short covering in US-listed ETFs and single stocks, particularly in large-cap equity and tech sectors [20][21]. Summary by Sections Liquidity - S&P Top of Book liquidity reached $9.83 million, significantly higher than April lows of $1.1 million and 28% above the year-to-date average [5]. CTA Positioning - CTAs have increased their long positions in US equities, with a projected net purchase of $14 billion, indicating a shift in market dynamics [9]. Retail Demand - Retail flows have remained strong, supporting the market post "Liberation Day" frenzy, with confidence bolstered by the absence of negative economic data [39][40]. Sentiment - Overall market sentiment has improved but remains at low levels compared to historical data, suggesting potential for growth [27]. Volatility Control Strategies - Volatility control strategies are expected to add length due to lower realized volatility, which is currently around 15, aligning with the one-year average [42][43].

Investment Rating - The report maintains a "Buy" rating on Tencent Holdings with a 12-month sum-of-the-parts (SOTP) based target price of HK$590, indicating an upside of 13.2% from the current price of HK$521 [12][24]. Core Insights - Tencent reported a solid performance in 1Q25, with total revenues increasing by 13% year-over-year (yoy) to Rmb180.022 billion, surpassing the consensus estimate of Rmb175.629 billion [13][21]. - The company's earnings per share (EPS) grew by 25% yoy, reaching Rmb6.58, which also exceeded the expected growth of 20% [13][21]. - Key growth drivers included a 24% yoy increase in gaming revenues and a 20% yoy rise in advertising revenues, both outperforming expectations [11][15]. - Gross margin expanded to 55.8%, the highest level since 2Q16, driven by a favorable mix shift towards higher-margin businesses [11][17]. Summary by Sections Revenue Performance - Total revenues for 1Q25 were Rmb180.022 billion, reflecting a 13% increase yoy, with gaming revenues at Rmb59.5 billion (+24% yoy) and advertising revenues at Rmb31.853 billion (+20% yoy) [13][15]. - FinTech and Business Services (FBS) revenue grew by 5% yoy to Rmb54.907 billion, aligning with expectations [17]. Profitability Metrics - Adjusted operating profit increased by 18% yoy to Rmb69.320 billion, exceeding the consensus estimate [13][17]. - Gross profit reached Rmb100.493 billion, with a gross margin of 55.8%, up 3.2 percentage points yoy [17][19]. Capital Expenditure and Cash Flow - Capital expenditure was Rmb27 billion in 1Q25, down from Rmb37 billion in 4Q24, contributing to a free cash flow of Rmb47.1 billion [11][22]. - The company continued its share repurchase program, executing HK$17.1 billion in buybacks during the quarter [11]. Strategic Focus Areas - The report highlights the sustainability of gaming revenue growth, particularly with the performance of evergreen titles and the potential contribution from VALORANT Mobile [2]. - Progress in AI applications and capital expenditure on AI technologies is also a focal point, with recent upgrades enhancing Weixin's capabilities [3][8]. - The implications of AI-driven advertising technology upgrades and revamped eCommerce strategies are expected to bolster marketing services growth [8][9]. Market Positioning - Tencent's unique WeChat ecosystem and global gaming assets are viewed as key strengths that will enable the company to deliver compounding earnings through macro cycles [11]. - The company is positioned as a significant beneficiary of AI applications, particularly with its WeChat super-app and Tencent Cloud's standing as a top player in China's public cloud market [11].