Summary of Key Points from the Conference Call Industry Overview - The report presents the **Top 10 Asia Pac Ideas for Q1 2026**, focusing on stock recommendations for companies in the Asia Pacific region that are expected to have significant market and business-related catalysts in the upcoming quarter [1][2][10]. Company Recommendations - The **10 Buy-rated stocks** identified for Q1 2026 are: - **ASX Ltd**: Target Price (TP) of AUD 64.10, representing a 27% upside [3][5]. - **Chroma ATE**: TP of TWD 1,180, with a 38% upside [3][5]. - **Damai Entertainment**: TP of HKD 1.10, indicating a 22% upside [3][5]. - **H World Group**: TP of USD 62.00, with a 28% upside [3][5]. - **LG Electronics India**: TP of INR 1,840, representing a 23% upside [3][5]. - **Mitsubishi Heavy Industries**: TP of JPY 4,900, indicating a 15% upside [3][5]. - **Montage**: TP of CNY 155.00, with a 16% upside [3][5]. - **Ping An Insurance**: TP of HKD 74.00, representing a 3% upside [3][5]. - **Singtel**: TP of SGD 5.50, indicating a 21% upside [3][5]. - **Tencent Holdings**: TP of HKD 780.00, with a 23% upside [3][5]. Investment Rationale - The selection process involved consultations with BofA Fundamental Equity Research analysts and sector heads to ensure a diversified list of stocks with strong potential for outperforming or underperforming peers [2][11]. - The report emphasizes that the stocks are chosen based on their **Buy** or **Underperform** ratings, ensuring that only high-conviction ideas are included [2][14]. Performance and Updates - The list will be published at the beginning of each quarter and will remain unchanged unless there are significant developments affecting the stocks [4][15]. - Stocks may be re-evaluated for subsequent quarters based on ongoing catalysts and market conditions [16]. Additional Insights - **ASX Ltd**: The company has seen a share price decline of over 28% since mid-June, trading more than one standard deviation below historic levels, indicating potential for recovery [34]. - **Chroma ATE**: The company is positioned well in the semiconductor capital equipment industry, with expected growth driven by demand for AI server infrastructure and system-level testing [41][56]. - **Damai Entertainment**: As a subsidiary of Alibaba, it operates in various entertainment sectors, including live performance ticketing and content production, indicating a diversified revenue stream [64]. Risks and Considerations - Potential risks include regulatory interventions, market conditions affecting revenue growth, and competition within the semiconductor equipment sector [37][60]. - The report highlights the importance of monitoring macroeconomic factors and sector-specific developments that could impact the performance of the recommended stocks [7][60]. This summary encapsulates the key points from the conference call, focusing on the companies and industry dynamics relevant to the investment recommendations for Q1 2026.

Investment Rating - The report suggests a selective participation strategy in sectors with attractive risk-reward profiles, specifically highlighting solar, chemicals, and lithium as top picks [1][6]. Core Insights - The anti-involution campaign is broadening into various sectors, including healthcare and financial services, with mixed feedback from analysts regarding its potential impact [1][2]. - Despite skepticism in the market about the effectiveness of the anti-involution initiatives, the motivations behind these initiatives are considered valid, leading to an upside skew in share price risks [3]. - The report emphasizes that the relevant sectors have not significantly outperformed the broader market, and investor expectations are generally low, indicating potential for positive surprises in future policies [3]. Sector Summaries Solar - The solar sector is characterized by very low profitability compared to other sectors, with significant long-term growth potential and external pressures to reduce excess capacity [6][8]. Chemicals - The chemicals sector faces low profitability and is close to historical troughs in valuation, with potential for cutting outdated capacities [6][8]. Lithium - The lithium sector is noted for its strong long-term growth potential and asymmetric risk-return profile, making it an attractive investment opportunity [6][8]. Auto - The auto sector is under pressure from fierce price competition and global excess capacity, with regulatory scrutiny aimed at promoting rational competition [2][8]. Healthcare - In healthcare, the focus is shifting towards non-price conditions in procurement, which may impact pricing strategies in the sector [2][8]. Food Delivery - The food delivery sector is experiencing regulatory pressure to rectify aggressive promotional practices, which may affect demand sensitivity [2][8]. Coal - The coal sector is facing production limits in certain provinces, which could lead to slight price increases [2][8]. Hog - The hog sector is under scrutiny for production capacity controls, with recent upward revisions in price forecasts [2][8].

Investment Rating - The report maintains an "Overweight" (OW) rating for several key financial companies including AIA, CCB, CMB, Ping An Insurance, Futu, and CITIC Securities [5][6][9]. Core Insights - The report suggests that China may be on the verge of a 1998-1999 Japan-style beta rally, with potential gains of up to 80% as indicated by strategist Wendy Liu [2][3][6]. - The Jinke case, involving a holistic reorganization of a distressed developer, is seen as a significant step towards addressing China's property oversupply and improving recovery rates [2][3][6]. - The report highlights the importance of focusing on "financial survivors" in the current market environment, which includes companies with strong local economic presence [2][3][6]. Detailed Highlights - The Jinke Real Estate debt reorganization, which occurred on May 10-11, is expected to yield a recovery rate more than seven times higher than liquidation [2][3]. - The report emphasizes that if China implements substantial financial sector reforms, it could mirror the conditions that led to the TPX's 80% beta rally in 1998 [6]. - The report notes that long-term money is becoming less optimistic about Chinese banks, with concerns about the sustainability of the current rally and rising questions regarding asset quality risks [6]. Sector Key Newsflow - In Japan, global mutual funds have begun to increase their positions in banks, indicating a potential bear-squeeze rally in the auto sector that could benefit banks [9]. - The report mentions that the MSCI ACWI is near an all-time high, supported by CTAs building long positions across various sectors, particularly in machinery and banks [9]. - The ECB is expected to cut rates by 25 basis points, with no clear signal for future cuts, indicating a cautious approach to monetary policy [13].

Investment Rating - The report maintains a positive outlook on the market with a base case index target for MXCN at 67 by the end of 2025, with a preference for sectors such as Energy, IT, and Utilities [36][38]. Core Insights - The report indicates a recovery in the MXCN index, driven by sectors like IT and Healthcare, with expectations of a market reversal by late January 2025 [9][11]. - The report highlights a cautious approach towards Consumer Discretionary and Staples, recommending a rotation into quality laggards and large caps over small and mid-caps [36][38]. - The anticipated GDP growth for China in 2025 is projected at 4.1%, slightly below the consensus of 4.2% [10]. Market & Sector Performance - MXCN sectors performance shows Consumer Discretionary up by 3.2% week-on-week, while Information Technology leads with an 8.3% increase [6]. - The MSCI China index has shown a year-to-date increase of 9.0%, with a notable recovery in sectors impacted by US tariffs [7][12]. Catalyst Calendar - The report outlines key upcoming macroeconomic indicators and sector-specific data releases, including PMIs and housing transactions, which could influence market movements [14]. Consensus Macro Forecasts - The consensus forecasts for China's GDP growth in 2025 are 5.1% for Q1, declining to 3.9% by Q4, indicating a gradual slowdown [16]. Index Targets - The MSCI-China index target for 2025 is set at 71, with a bull case of 80 and a bear case of 70, reflecting a potential upside of 13% from current levels [18]. - The CSI-300 index target for 2025 is projected at 3,787, with a bull case of 4,150, indicating a 10% upside potential [19]. Investment Recommendations - The report recommends overweight positions in Energy, IT, and Utilities, while advising underweight positions in Consumer Discretionary, Materials, and Staples [39]. - A barbell strategy is suggested, focusing on high-yielders and selected thematic plays in Internet and AI sectors [36][38]. Trading Statistics - Recent trading statistics indicate a net outflow of US$796 million from China equities, primarily driven by passive fund outflows, although there has been a positive development with resumed offshore ETF inflows [79][80].

Investment Rating - The report raises the 2025 Southbound flow forecast from US$75 billion to US$110 billion, indicating a positive investment outlook for Southbound flows [4][39][41]. Core Insights - Southbound investors have shown strong net buying activity, with US$78 billion in net purchases year-to-date, representing 75% of the expected full-year inflows for 2024 [1][9]. - The performance of the Hong Kong market is increasingly correlated with Southbound flows, suggesting that these investors are gaining pricing power [2][11]. - The report identifies key drivers for Southbound inflows, including attractive H-share profiles, increased domestic institutional investment, and hedging demand against potential RMB depreciation [10][41]. Summary by Sections Southbound Flows and Market Impact - Southbound investors currently hold US$577 billion of HK-listed stocks, accounting for 13% of the market cap of eligible stocks, up from 10% a year ago [2][11]. - The turnover contribution from Southbound investors has increased from 17% in 2024 to 21% year-to-date [2][11]. - The report notes that the Southbound flows have become a significant influence on the Hong Kong market, with a notable increase in ownership and turnover [11][12]. Investor Composition - Both onshore retail and institutional investors are participating in Southbound trading, with institutional investors estimated to account for at least half of the Southbound ownership [3][25]. - Domestic mutual funds have raised their equity allocation to historical highs, contributing to the Southbound inflows [28][39]. Forecast and Drivers - The report forecasts that Southbound flows could reach US$110 billion in 2025, driven by factors such as the attractiveness of H-shares, increased dual-primary listings, and potential dividend tax exemptions for Southbound investors [4][39][43]. - The report highlights that the home-coming of US-listed Chinese companies could further boost Southbound buying, with Alibaba's dual-primary listing serving as a precedent [41][50]. Investment Opportunities - A refreshed Southbound Favorite Portfolio includes 50 companies identified for their scarcity value, valuation discounts, and high sensitivity to Southbound flows, expected to outperform if inflows remain strong [5][49]. - The report also screens for 33 ADRs eligible for HK dual-primary listing, which may benefit from Southbound buying post-inclusion [5][50].

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the performance of the **China/HK equity market** and various sectors within it, including **Consumer Discretionary**, **Communication Services**, **Financials**, **Information Technology**, **Industrials**, **Consumer Staples**, **Health Care**, **Real Estate**, **Materials**, **Utilities**, and **Energy** [5][6][10]. Market Performance - The **MXCN index** fell by **1.7%** week-over-week, with a defensive shift observed in the market [7]. - **Utilities** (+2.1%) and **Energy** (+0.9%) sectors outperformed, while **Real Estate** (-7.5%), **Consumer Staples** (-2.6%), and **Communication Services** (-2.3%) lagged [10]. - The **MSCI China** index has a year-to-date performance of **17.7%**, while the **HSI** has **18.0%** [6]. Sector Insights - **Consumer Discretionary** sector showed a year-to-date increase of **27.4%**, but experienced a weekly decline of **1.9%** [5]. - **Information Technology** sector has a year-to-date performance of **30.8%**, but also faced a weekly decline of **1.3%** [5]. - **Financials** sector saw a year-to-date increase of **7.5%**, with banks performing slightly better than insurance [5]. Earnings and Guidance - **Tencent** reported 4Q24 earnings that beat expectations, but its capital expenditure guidance was underwhelming [8]. - **CR Beer** and **Anta** indicated an uptick in sales momentum for the first two months of 2025 [8]. Economic Indicators - The **DXY** index rose by **0.4%** week-over-week to **104**, indicating a stronger dollar [9]. - The **China QMI** reading softened, indicating a borderline contraction in January and a return to borderline expansion in February, influenced by Lunar New Year seasonality and early impacts from higher US tariffs [7]. Investment Recommendations - The **2025 MXCN index target** is set at **67**, with a base case implying a **12% downside** from current levels [18]. - The **CSI-300 index target** for 2025 is set at **3,915**, with a potential upside of **7%** [19]. - Recommendations include rotating into quality laggards and focusing on large-cap stocks over small and mid-caps [36]. Flows and Positioning - Recent fund flows indicate a net outflow of **US$230 million** from active funds, while passive funds saw a net inflow of **US$853 million**, primarily into offshore listed China equities [76]. - The **87 US/HK listed China equity ETFs** tracked by JPM recorded a net outflow of **US$463 million** over a recent period, reversing previous inflows [81]. Macro Forecasts - Consensus macro forecasts for **China** predict GDP growth of **4.9%** in Q1 2025, slightly down from previous estimates [14]. - CPI forecasts for **China** indicate a modest inflation rate of **0.3%** in Q1 2025 [16]. Additional Insights - The call highlighted the importance of monitoring US trade policy, especially with upcoming reciprocal tariffs starting on April 2 [9]. - The **property cycle** in China is also a focus, with trends in residential property sales being monitored closely [39][40]. This summary encapsulates the key points discussed in the conference call, providing insights into market performance, sector dynamics, economic indicators, and investment recommendations.