Core Viewpoint - TH International Limited, the exclusive operator of Tim Hortons in China, has launched an eco-friendly straw developed in collaboration with Tencent's CarbonXmade program, aiming to promote sustainability in consumer choices [1][2][10]. Product Launch and Features - The new straws will be introduced in Tims stores across major cities including Beijing, Shanghai, and Shenzhen, encouraging sustainable consumer behavior [2]. - The straws are produced using Carbon Capture Utilization (CCU) technology, which converts industrial CO₂ emissions into biodegradable materials [4][6]. - Each 100 straws contains 3.185 grams of captured CO₂, showcasing an improved life-cycle performance [6]. Sustainability Initiatives - The launch event featured a "low-carbon fashion show" with designs made from the new straws, emphasizing creativity in sustainability [7][8]. - Tims China has previously initiated the "Bring Your Own Cup — Save RMB 8" program, furthering its commitment to sustainability [10]. - The company has opened a "Green Innovation Lab Store" in Shenzhen, focusing on coffee-ground recycling and circular design [11]. Global Responsibility - Tim Hortons promotes responsible sourcing through its "Coffee for Communities" program, which has supported over 18,000 farmers by 2023 [12].

Summary of Key Points from the Conference Call Industry Overview - The China internet sector has shown strong performance in 2025, with a year-to-date return of +36.5%, outperforming Southeast Asia (+18.3%), India (+17.6%), Japan (+16.8%), the US (+16.2%), and Korea (+12.8%) [1][16] - Geopolitical tensions and AI supply-chain issues are expected to keep China's internet companies trading at discounts compared to global peers [1][2] Core Themes and Insights - **AI Competition and Productivity Gains**: The competition among AI players in China is anticipated to intensify in 2026, focusing on AI cloud infrastructure, chatbots, and applications [1][2] - **Monetization Lag**: Monetization of AI technologies is expected to lag behind user traffic growth, particularly when compared to global peers [1][2] - **Top Picks for 1H26**: Recommended stocks include Tencent and Alibaba as core AI plays, Trip.com and NetEase for stable earnings growth, and Century Huatong among A shares [1][2] AI Market Dynamics - **AI Chatbot Penetration**: ChatGPT leads globally with 800 million monthly active users (MAUs), while Bytedance's Dola and Doubao combined rank third with approximately 250 million MAUs [3] - **User Traffic Competition**: Major internet players are competing for user traffic through AI chatbots, which is crucial for future ecosystem monetization [2] Consumer Behavior and Spending - **Leisure and Entertainment Spending**: The adoption of AI tools is expected to enhance consumer productivity, leading to increased spending on leisure and entertainment, particularly in travel and online gaming [4] - **Stable Earnings Growth**: Online travel agencies (OTAs) and gaming companies are projected to benefit from resilient consumer spending [4] Investment Risks - **Geopolitical and Economic Risks**: Risks include geopolitical tensions, AI supply-chain constraints, muted consumer sentiment without stimulus policies, and intensified competition in AI applications [5] - **Profitability Concerns**: The potential for profit lock-in through membership investments and a slowdown in capital returns are highlighted as significant risks [5] Financial Performance Insights - **3Q25 Results**: Among 44 internet companies, 18 reported revenue beats, and 27 reported earnings beats. The guidance for 4Q25 showed mixed results, with some companies exceeding expectations while others fell short [6][10] - **Year-to-Date Share Price Performance**: Alibaba leads with an 86% return, followed by Tencent at 47%. Meituan has underperformed with a -32% return [16][28] Conclusion - The China internet sector is poised for growth driven by AI advancements, but faces challenges from geopolitical risks and competitive pressures. Companies like Tencent and Alibaba are positioned as key players in this evolving landscape, while consumer spending trends indicate resilience in leisure and entertainment sectors.

Summary of Key Points from the Conference Call Industry Overview - The focus is on the **China Internet and AI industry**, particularly the competitive landscape of AI chatbots and their global aspirations. Core Insights and Arguments 1. **AI Adoption and Competition**: The rapid adoption of AI is expected to intensify competition among Chinese AI players in 2026, covering areas from AI cloud infrastructure to chatbots and applications [1][3] 2. **Global Market Penetration**: Chinese Internet and AI companies are increasingly looking to penetrate global markets to export AI technology and explore monetization opportunities, as direct-to-consumer monetization in China is challenging [1][5] 3. **ByteDance's Position**: ByteDance's AI assistant, Dola, along with Doubao, has achieved a combined total of approximately **250 million MAUs**, ranking it as the **3 AI chat globally** [1][3][11] 4. **Dola's Growth in Emerging Markets**: Dola has shown significant growth in emerging markets, with MAUs in Indonesia rising from **7.8 million** in July 2025 to **17.4 million** in November 2025, and in the Philippines from **9 million** to **12.5 million** in the same period [4][31] 5. **Competitive Landscape in China**: In China, Doubao leads with **197 million MAUs** and **54 million DAUs** as of October, followed by DeepSeek and Tencent's Yuanbao [2][8] Additional Important Insights 1. **Challenges in Monetization**: Many AI chatbots face difficulties in charging subscription fees directly from consumers, prompting a shift towards global markets [5][48] 2. **Potential Threats to Local Services**: If Dola becomes a dominant AI gateway in emerging markets, it could challenge the relevance of local e-commerce platforms like Shopee and superapps like Grab [5][48] 3. **Dola's Compliance Issues**: Dola, which was previously known as Cici, faces compliance challenges due to its need to access local content and understand cultural nuances, leading it to utilize widely accepted overseas models like GPT and Gemini instead of Doubao's LLM [47][45] 4. **Future Monitoring**: Continuous monitoring of the progress of Doubao and Dola is essential to assess their impact on the competitive landscape in both China and global markets, particularly regarding their potential challenges to major players like Alibaba, Tencent, and Baidu [49]

ASIA EX-JAPAN | Quantitative Strategy Equity Research China: What's in Style for 2026? Under the 15th five-year plan, China is transitioning from common prosperity to AI & high-tech mfg dominance. This will be an era of the private sector, with attractive growth opportunities. With most of the PE-driven returns behind us, some market consolidation is expected. However, China remains attractive on PE/G, and earnings momentum is poised to accelerate. We list five key investment themes for 2026 and present our ...

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the **China Internet** industry, particularly developments in **AI** and **chatbot applications**. Core Insights and Arguments 1. **AI Model Developments**: - US AI models have regained top positions in rankings, with Google releasing **Gemini 3 Pro** and **Nano Banana Pro**, showcasing superior capabilities compared to existing models despite concerns about diminishing returns in AI scaling laws [1][8][29]. - Chinese AI models are expected to catch up within 3-6 months after US releases, indicating a competitive landscape [1][8]. 2. **Consumer AI Applications**: - **Alibaba** launched the **Qwen App**, achieving **10 million downloads** in the first week, aiming to be a productivity assistant that supports shopping and local services [1][9]. - **Ant Group's LingGuang App** reached **2 million downloads** in 6 days, focusing on AI coding capabilities [1][11]. - **Tencent** integrated AI assistant **Yuanbao** into **WeChat Pay**, enhancing operational efficiency for SMEs [1][11]. 3. **AI Infrastructure Demand**: - There is a growing demand for AI inference, with Chinese data centers expected to see a demand upcycle starting in **2026**. **Alibaba** noted that new AI demand is outpacing infrastructure capacity, leading to an optimistic capex outlook [1][12]. - **Bytedance's Volcano Engine** serves a significant portion of top brands and institutions, indicating strong market penetration [1][12]. 4. **Capex Trends**: - **Alibaba's** capex increased by **80% year-over-year** to **Rmb 32 billion**, while **Tencent's** capex declined due to chip availability issues [1][8]. - Alibaba's positive capex outlook is attributed to its AI infrastructure capabilities, contrasting with Tencent's more cautious approach [1][8]. 5. **AI Model Releases**: - **Xiaomi** introduced the **MiMo-Embodied model**, integrating autonomous driving and embodied AI capabilities [1][12]. - **Tencent** released **HunyuanVideo 1.5**, a video generation model with competitive performance metrics [1][12]. 6. **Market Dynamics**: - The Chinese AI market is characterized by a mix of open-source models and competitive pricing, with **80% of AI startups** utilizing open-source models from China [1][12]. - The gap in multi-modal capabilities between Chinese and global players is narrowing, with Chinese models differentiating through cost and speed [1][12]. Additional Important Insights - **Valuation Comparisons**: Tencent and Alibaba are trading at lower valuations compared to global peers, suggesting potential upside for investors [1][8]. - **Engagement Trends**: Domestic AI applications have seen a **15% month-over-month increase** in engagement, driven by platforms like **Doubao** and **DeepSeek** [1][17]. - **E-commerce and Local Services**: E-commerce engagement grew by **11% year-over-year**, with platforms like **JD** and **Taobao** showing strong performance [1][16]. - **Regulatory Environment**: Cross-border e-commerce faces increasing regulatory pressure, particularly affecting platforms like **Temu** [1][16]. This summary encapsulates the key developments and insights from the conference call, highlighting the competitive landscape and growth potential within the China Internet and AI sectors.

Key Takeaways from the China 2H25 CIO Survey – Renewed Optimism Industry Overview - **Industry**: Technology in Asia Pacific, specifically focusing on China - **Survey Focus**: CIOs' IT spending expectations and trends for 2025 and 2026 Core Insights - **Optimism in IT Spending**: CIOs have raised their 2025 IT budget growth forecast by 160 basis points to 7.4%, with expectations for 2026 indicating a robust growth of 12.6% YoY, surpassing the average growth of 11.7% from 2020-2025 [7][39] - **AI and Cloud Migration**: Significant optimism is driven by advancements in Generative AI (GenAI) and cloud migration, with 62% of CIOs expecting a substantial impact from AI in 2026 [7][50] - **Budget Allocation**: 57% of CIOs plan to allocate an average of 3.8% of their IT budgets to physical AI investments, projected to increase to 7.8% over the next three years [7][52] Sector-Specific Insights - **Software and IT Services**: The sector shows the highest growth expectations, with 9.9% for 2025 and 13.1% for 2026. The industry view has been upgraded to In-Line from Cautious due to normalization of budgets and potential steady growth recovery [25][39] - **Semiconductors**: Structural growth is anticipated from AI, with a preference for foundry, OSAT, and memory sectors over chip design. Localization trends are expected to benefit companies like SMIC and Naura [25][26] - **Hardware**: Expectations for spending are less optimistic, particularly for PCs, while AI-related hardware is expected to see growth due to increased demand for AI workloads [30][68] - **Internet Sector**: Favorable outlook for Alibaba and Tencent due to potential AI upside, with public cloud spending expected to stabilize and regain momentum in 2026 [31][69] Investment Implications - **Preferred Stocks**: Companies such as Beisen (software), TSMC (semiconductors), and various hardware manufacturers are highlighted as preferred investments due to their strong positioning in AI and cloud trends [34][70] - **Cautious Outlook on Traditional Tech**: Traditional tech sectors, particularly the PC supply chain, are viewed with caution due to margin pressures from rising memory prices and less defensive nature [25][68] Additional Observations - **CIO Confidence**: The up-to-down ratio for budget revisions improved to 3.2x, indicating increased confidence among CIOs regarding IT spending [39][49] - **Long-term Growth Factors**: 47% of CIOs expect IT spending to grow as a share of revenue over the next three years, with business expansion cited as the primary reason for increasing IT budgets [15][42] - **AI Prioritization**: AI/ML remains the top priority for CIOs, despite a slight decrease in immediate spending expectations, with a focus on customer-facing applications for revenue growth [61][62] This summary encapsulates the key findings and implications from the China 2H25 CIO Survey, reflecting a renewed optimism in technology investments driven by AI and cloud migration trends.

Core Viewpoint - Baidu is intensifying its focus on artificial intelligence (AI) chips as China aims to reduce its dependence on Nvidia technology amid global chip shortages and export restrictions [4][5][6]. Group 1: Baidu's AI Chip Strategy - Baidu's semiconductor division, Kunlunxin, is central to China's strategy for enhancing its AI infrastructure and is increasing investments and product plans [6][7]. - The company has outlined a five-year roadmap for Kunlunxin, introducing the M100 chip expected in 2026 and the M300 in 2027, aimed at supporting Baidu's ERNIE models [8][9]. - Baidu is positioning itself as a full-stack AI technology provider, integrating chips, servers, data centers, models, and applications [9]. Group 2: Market Dynamics and Demand - The demand for domestic AI hardware is projected to rise as Chinese hyperscalers shift towards local suppliers, reflecting a broader trend in the technology sector [10]. - China's AI sector is currently facing significant shortages in advanced chips, with major companies like Alibaba and Tencent reporting supply constraints impacting their capital spending [11][12]. - The combination of restricted imports and strong domestic demand is creating a larger market for companies capable of producing competitive AI chips [16]. Group 3: Competitive Landscape - Baidu is not the only company developing in-house semiconductors; Alibaba and other firms are also adapting their infrastructure to manage supply constraints [15]. - Analyst estimates suggest that Kunlunxin could see substantial valuation growth, supported by optimistic revenue forecasts for the upcoming years [15].

Summary of Conference Call on Greater China Semiconductors Industry Overview - The conference call focused on the Greater China Semiconductors industry, particularly the cloud and AI segments within the technology sector [1][2]. Key Insights - **Positive CIO Survey Results**: The China CIO Survey for the second half of 2025 indicates overall positive results, with a year-over-year growth of external IT spending on hardware, communication, and network equipment at 3.4% in 2025, up from 1.7% expected in the first half of 2025. This growth is projected to accelerate to 8.1% in 2026 [3][16][18]. - **CIO Spending Priorities**: AI/ML/PA is the top priority for CIOs, followed by digital transformation and data center build-out. The focus on AI is expected to increase its share of IT spending to 13% in 2026, despite a reduction in the 2025 estimate from 11.2% to 7.7% [3][22][25]. - **Public Cloud Migration**: There is an anticipated acceleration in public cloud migration, with 38% of CIOs planning to speed up their adoption in 2026, a 9 percentage point increase from the previous survey [3][32]. Company-Specific Insights - **Capital Expenditure Trends**: The three major Chinese cloud service providers (CSPs) reported a combined capital expenditure of RMB 47.9 billion in the third quarter of 2025, reflecting a 34% year-over-year increase but a 22% decrease quarter-over-quarter. Alibaba (BABA) reported a significant increase in capex of 86% year-over-year, while Tencent's capex decreased by 24% year-over-year [4][10]. - **AI and Cloud Demand**: Despite varying capex trends, all major CSPs remain optimistic about AI and cloud demand. Alibaba's management noted that current capex guidance may not meet customer demand, while Tencent attributed its lower capex to GPU supply chain constraints [4][10]. - **Server Demand Projections**: Aspeed Technology has revised its total addressable market (TAM) for general servers to a compound annual growth rate (CAGR) of 6-8%, up from the previous expectation of 4-5%, driven by a replacement cycle and AI demand [5]. Additional Noteworthy Points - **AI Infrastructure Investment**: Baidu has invested over RMB 100 billion in AI since launching its ERNIE model in March 2023, indicating a strong commitment to AI infrastructure development [11]. - **AI Cloud Revenue Growth**: Baidu's AI Cloud revenue reached RMB 6.2 billion, marking a 21% year-over-year growth, with subscription-based revenue from AI accelerator infrastructure surging by 128% year-over-year [11]. - **Long-term AI Demand Confidence**: GDS expressed confidence in the long-term growth of AI infrastructure, with 65% of new bookings this year being AI-related, primarily focused on AI inferencing [11]. Conclusion - The Greater China Semiconductors industry, particularly in the cloud and AI sectors, is experiencing robust growth and investment. Companies are adapting to changing market demands and are optimistic about future developments, despite some challenges in capital expenditure and supply chain constraints. The focus on AI and cloud migration is expected to drive significant growth in the coming years [2][10][11].

Summary of Key Points from the Conference Call on AI's Growing Thirst for Water Industry Overview - The conference call focuses on the intersection of artificial intelligence (AI) and water consumption, particularly in the context of data centers and their operational risks related to water usage [2][8]. Core Insights and Arguments 1. **Water Constraints in Risk Frameworks** - Investors are beginning to assess water constraints as potential bottlenecks for scaling AI and data centers, alongside traditional risks like energy and chip shortages. Localized water risks have been highlighted, such as the rejection of Amazon's Project Blue in Tucson, Arizona, due to water and electricity demands [8][9]. 2. **Breakdown of Water Consumption** - AI's water footprint is categorized into three main areas: - Direct on-site cooling (Scope 1) - Off-site electricity generation (Scope 2) - Semiconductor manufacturing (Scope 3) - Scope 2 (electricity generation) accounts for the largest share of water use, followed by cooling (Scope 1) and chip manufacturing (Scope 3). Investors perceive Scope 1 and Scope 3 as the primary bottlenecks due to operational risks associated with data center siting and semiconductor manufacturing [9][10]. 3. **Emerging Cooling Technologies** - Investors are interested in new cooling technologies that can reduce water consumption. Examples include microchannel cold plates and Google's seawater cooling system in Finland, which minimizes potable water use while enhancing energy efficiency [14][15]. 4. **Investment Implications** - Key investment areas include: - Companies providing desalination and water recycling solutions, which may benefit from increased demand as hyperscalers aim for Water Positive targets by 2030. Relevant stocks mentioned include Ecolab, Toray Industries, Veolia, and DuPont de Nemours [19]. - Engagement with value chain players on water stewardship practices, including adherence to standards like the International Water Stewardship Standard and CDP Water Disclosure [19][16]. 5. **Regulatory Developments in APAC** - Regulatory frameworks are evolving in the Asia-Pacific region, with Singapore and Malaysia targeting water use standards for data centers. China's National Green Data Center Evaluation Indicator System includes water use efficiency (WUE) as a criterion for green ratings [17][18]. 6. **Chinese Data Centers' Water Consumption** - Chinese data centers are subject to water use regulations, with leading players scoring well on WUE metrics. Companies like Tencent and Baidu are implementing water-saving projects, and emerging data centers in Northern China may leverage cooler climates for free cooling options [18][19]. Additional Important Insights - The discussion emphasizes the need for investors to consider water risks in their investment strategies, particularly as AI and data centers continue to expand and face increasing scrutiny over their environmental impact [8][9][17].

Core Insights - The letter discusses the ongoing exploration of intriguing investment opportunities for the upcoming year, emphasizing a proactive and opportunistic investment approach [2][3] - The firm expresses a long-standing bullish stance on AI, particularly in companies like Nvidia, while acknowledging a more selective investment strategy due to recent market developments [6][7] Investment Performance - The fund's annualized return since inception in November 2020 stands at +21.30%, significantly outperforming the South African Consumer Price Index (CPI) of +10.44% [4] - The fund's performance over the years shows fluctuations, with a notable recovery in 2023 at +30.82% after a decline of -34.25% in 2022 [4] AI Infrastructure and Market Dynamics - There is a growing skepticism regarding the AI infrastructure investments, particularly concerning the balance between capital expenditure and actual returns, leading to questions about over-capacity and potential market bubbles [5][7] - The current profit pool in the AI industry is unevenly distributed, with companies like TSMC and Nvidia capturing most of the value, while the overall industry returns on capital remain respectable [8][9] Credit Market Insights - Credit markets are seen as a crucial source of capital for AI infrastructure development, with major tech platforms tapping into these markets, indicating that the cycle is still in its early stages [14][15] - The firm notes that despite equity investor skepticism, credit investors remain optimistic, which may signal a favorable environment for continued investment in AI infrastructure [15][16] Currency Impact - A strong South African Rand is identified as a headwind for reported returns, as the fund has approximately 80% of its assets offshore, which could negatively impact returns when converted back to local currency [17] Administrative Changes - The fund administrator has undergone consolidation, but the investment strategy and philosophy remain unchanged, with only operational adjustments being made [18][19]