Seeking Certainty Amid Change

Market Performance - Year-to-date, MSCI China, Hang Seng, and CSI300 have delivered returns of 11%, 12%, and 6% respectively, outperforming S&P (11%), Topix (18%), MSCI ACWI (10%), and MSCI EM (8%) [18] - The trajectory of Chinese equity indices has experienced significant volatility, with severe outflows and index drawdowns in January before a recovery starting in February [30] Market Outlook - The current index levels are believed to have priced in improvements in macro stabilization, flows, and government policy pivots, leading to expectations of a range-bound market in the coming months [2][6] - The bull/bear scenarios for June 2025 indicate a wide range of performance outcomes for MSCI China, with a bear case showing a potential decline of 31% and a bull case showing an increase of 21% [7][50] Sector Preferences - Selective overweight positions are maintained in Materials and Consumer sectors, while a less cautious stance is adopted for Banks due to government initiatives aimed at stabilizing macro and property risks [8][21] - An underweight position is retained in Real Estate due to weak fundamentals [21] Investment Strategy - A recommendation is made to overweight A-shares within China allocations, expecting their outperformance against offshore markets to resume [3][20] - Key trades for the second half of 2024 include increasing A-shares in portfolios and focusing on thematic investing, particularly in SOE Reform Beneficiaries and China Going Global [4][28] Earnings Growth Forecast - Earnings growth for 2024 has been revised upward, reflecting better-than-expected macro stabilization trends, but is expected to remain below historical levels due to persistent deflationary pressures [19][35] - The forecast for MSCI China's earnings growth is projected to recover to 13% by 2026, following a challenging macro environment [41][61]