Group 1 - The overall performance of the A-share market in January showed a 3.76% increase in the Shanghai Composite Index, stabilizing above 4100 points despite significant volatility [3] - The market experienced a deep V-shaped reversal, indicating strong resilience, with a notable rebound after an early morning drop [3] - Key factors for the market's recovery included the absence of panic selling in broad-based ETFs and the strength of technology and agriculture sectors [3][4] Group 2 - February is expected to be a volatile month with structural opportunities rather than broad market rallies, as performance will depend on earnings rather than just speculation [4] - Focus areas for investment include the external demand cycle, particularly in manufacturing sectors like electrical equipment and engineering machinery, which are benefiting from global recovery [4] - The AI industry is highlighted as a key investment area, with a shift towards focusing on companies with actual performance in critical segments like computing power and storage [4] - Traditional industries such as chemicals are also noted for potential gains due to improved competitive dynamics and pricing power [4] - Practical advice for February includes maintaining a position of 30-50% in the market, with key support levels identified around 4090-4100 points for potential buying opportunities [4]

Summary of Key Points from Global Energy Weekly Industry Overview - **Industry**: Thermal Coal - **Key Players**: Indonesia, China, United States, Australia, Russia Core Insights and Arguments 1. **Price Dynamics**: Newcastle thermal coal prices have shown resilience, remaining above $106/t after a significant drop to $94/t in 2025, indicating a recovery phase post the 2022 global energy crisis [11][12][16] 2. **Supply Discipline in Indonesia**: Indonesia, the largest thermal coal exporter, is considering a production cut of approximately 200 million tons (Mt) to support prices, which could lead to a potential export loss of around 90 Mt, representing about 9% of the seaborne market [16][21][28] 3. **Policy Uncertainty**: A proposed coal export duty of 5-11% could further complicate Indonesia's export outlook, potentially compressing margins for producers and affecting competitiveness [21][26] 4. **Supply Crunch in South Sumatra**: A ban on coal trucking and barging in South Sumatra is tightening supply, leading to force majeure declarations by producers and pushing buyers to seek alternative sources [29] 5. **China's Anti-Involution Strategy**: China's government is curtailing excess mining capacity, with plans to reduce 500 Mt/y of coal production approved during the 2021-2023 energy crisis, which may support domestic prices [3][41] 6. **Emerging Market Demand**: While advanced economies are seeing a decline in thermal coal demand, Southeast Asian countries are increasing imports, driven by economic growth and rising domestic consumption [4][48] 7. **US Coal Market Recovery**: In the US, coal-fired power generation increased by 12% YoY in 2025 due to high natural gas prices, with a supportive regulatory environment aiding coal's resurgence [53][59] 8. **Price Forecasts**: The average Newcastle thermal coal price forecast has been raised to $123/t for 2026 and $125/t for 2027, with risks stemming from potential production increases in Indonesia and China [5][62] Additional Important Insights 1. **Quality Differentials**: Tighter supply from Indonesia is expected to narrow discounts for higher-quality coal, impacting pricing dynamics in the market [30] 2. **Regulatory Environment**: The regulatory backdrop in the US is becoming more favorable for coal, which may slow down the retirement of coal plants and support generation capacity [53] 3. **Global Supply and Demand Trends**: The overall coal market is tightening, with forecasts indicating a potential shift into deficit by 2027, particularly for metallurgical coal due to supply disruptions in Australia [5][62] This summary encapsulates the critical developments and forecasts in the thermal coal industry, highlighting the interplay between supply constraints, regulatory changes, and shifting demand dynamics across different regions.

ab 27 January 2026 Global Research China Equity Strategy The top 10 questions about the A-share market Equity Strategy China Lei Meng Strategist lei.meng@ubs.com +86-21-3866 8939 Yu Sheng Strategist S1460524080001 yu.sheng@ubs.com +86-21-3866 4873 James Wang Strategist james-zb.wang@ubs.com +852-3712 2557 Tommy Tang, CFA Strategist tommy.tang@ubs.com +852-2971 8357 Robin Xu Analyst S1460511010012 bin.xu@ubs.com +86-21-3866 8872 1. Can overall A-share earnings growth accelerate in 2026? Optimism looks set to ...

Summary of Key Points from the Conference Call on China's Economic Outlook for 2026 Industry Overview - The report focuses on China's economic outlook as it enters the 15th Five-Year Plan (FYP) in 2026, emphasizing growth targets, manufacturing advancements, export dynamics, fiscal policy, and geopolitical considerations. Core Insights and Arguments 1. Growth Targets - Policymakers are expected to target "around 5%" growth for 2026 and "at least 4.5%" for the remainder of the 15th FYP period, with an anticipated real growth of 4.7% in 2026 amid ongoing deflation [4][6][18]. 2. High-End Manufacturing - The 15th FYP emphasizes advanced manufacturing and AI development, with progress noted in green technology and heavy industry. However, technological gaps remain, particularly in high-tech sectors [4][29][30]. 3. Export Dynamics - Nominal export growth is projected to slow to approximately 3.4% in 2026, with net exports contributing about 1.0 percentage point to GDP growth. Rising trade barriers and stricter enforcement are significant challenges, although China's cost advantage supports exports [4][70][54]. 4. Fiscal Policy and Consumption Support - The central government's budget deficit is projected at around 4% of GDP, with total deficits (central plus local) at approximately 11%. Fiscal support for consumption is expected to increase modestly to about 0.5% of GDP, focusing on subsidies for various sectors [4][9][80]. 5. Deflation and Economic Adjustments - CPI is expected to average 0.7% in 2026, with persistent PPI deflation due to excess supply. A shift in policy support towards consumption and services is necessary for durable reflation [4][10][6]. 6. Housing Market Correction - The housing correction is likely to continue without decisive measures to stabilize prices or stimulate demand. A comprehensive approach is needed to address the ongoing downturn in housing activity [4][11][78]. 7. Currency Appreciation - Modest, managed appreciation of the CNY is expected, influenced by a high current account surplus and capital outflows. Claims of undervaluation are considered overstated, with competitiveness driven more by efficiency and deflation [4][12][69]. 8. AI Adoption and Technological Development - China's AI+ initiative aims for broad integration across industries, focusing on mature-node silicon and advanced packaging. However, productivity gains depend on effective workflow integration and governance to manage labor market disruptions [4][13][46]. 9. Geopolitical Landscape - Elevated geopolitical risks characterize the start of 2026, with potential shifts in regional relationships. The response from China has been muted, but changes in ties with neighboring economies are anticipated [4][14]. Additional Important Insights - The report highlights the challenges posed by Western tech export controls and the need for China to enhance its self-sufficiency in critical technologies. The ongoing geopolitical tensions may further complicate China's economic landscape [4][50][68]. - The report also notes the importance of balancing fiscal support between consumption and investment, as weak income gains and high savings rates hinder consumer spending [4][83][80]. This summary encapsulates the critical points discussed in the conference call regarding China's economic outlook for 2026, providing insights into growth targets, manufacturing advancements, export dynamics, fiscal policy, and geopolitical considerations.

Market Review - In the past five trading days (January 16 to January 22), major indices showed mixed performance; the Shanghai Composite Index rose by 0.24%, while the ChiNext Index fell by 1.17% [5] - The trading volume significantly decreased, with a total turnover of 13.80 trillion yuan, and the average daily turnover dropped to 2.76 trillion yuan, a decrease of 683.69 billion yuan compared to the previous five trading days [10] Economic Growth and Investment - In December 2025, fixed asset investment decreased by 3.8% year-on-year, a decline of 1.2 percentage points compared to the period from January to November 2025; infrastructure investment (excluding electricity, heat, gas, and water production and supply) fell by 2.2% [26] - The manufacturing investment grew by 0.6% year-on-year, while real estate investment saw a significant decline of 17.2% [26] - Overall, the economic growth rate for 2025 showed a pattern of high growth followed by a slowdown, with the annual target being successfully achieved [26] Policy and Strategy - The government is focusing on strengthening domestic circulation as a key macro policy point, with plans to develop a strategy for expanding domestic demand from 2026 to 2030 [31] - The fiscal policy for 2026 will see an increase in total expenditure, with a focus on boosting consumption and ensuring necessary spending intensity [31] - The market is expected to continue its oscillating adjustment, with ETF experiencing continuous net outflows; however, overall trading enthusiasm remains, and market sentiment may fluctuate [32] Industry Opportunities - Investment opportunities are identified in the TMT sector and robotics, driven by the expansion of AI capital and domestic substitution processes [32] - The non-ferrous metals industry presents investment opportunities supported by rising prices of certain commodities [32] - Continued attention is warranted for banking and insurance sectors due to the management's push for long-term capital inflows and a low-interest-rate environment [32]

Summary of Key Points from the Conference Call Industry Overview - The focus is on the **Chinese economy** and its projected performance in **2026**. Core Economic Forecasts - **GDP Growth**: Expected to slow to **4.5%** in 2026 from around **5%** in 2025, primarily due to a reduced contribution from net exports [2][6][25]. - **Exports**: Anticipated to decelerate, with a forecasted growth of **2.5-3%** in 2026, influenced by global demand slowdown and US tariff impacts [6][7][40]. - **CPI Inflation**: Expected to rise to **0.4%** in 2026, while PPI is projected to narrow its decline [2][16][21]. - **RMB Exchange Rate**: Anticipated to appreciate against its currency basket but stabilize against the USD, with a forecast of **7.0/6.9** for USDCNY by end-2026/2027 [20][23]. Key Themes and Policy Support - **Policy Tone**: A modestly supportive and balanced policy stance is expected, with a stable budget deficit at **4%** and fiscal expansion of **0.5-1%** of GDP [3][25]. - **Interest Rates**: A **20bps** cut in policy rates is anticipated by the end of 2026, along with a **25-50bps** reduction in RRR [3][25]. - **Innovation Focus**: The government aims to boost innovation, with R&D spending expected to rise from **2.7%** of GDP in 2024 to over **3.2%** by 2030 [26][27]. Sector-Specific Insights - **Property Market**: The downturn is expected to continue, with property sales and investment projected to decline by **5-10%** in 2026 [8][39]. - **Consumption**: Growth is expected to remain modest but softer, influenced by reduced trade-in subsidies and a normalization of auto purchase taxes [14][39]. - **Fixed Asset Investment (FAI)**: A modest recovery is anticipated in 2026, particularly in infrastructure, supported by delayed project kick-offs and special financing tools [15][39]. Risks and Uncertainties - **US-China Relations**: Ongoing trade tensions could pose risks, with potential for new disputes despite a current truce [41][42]. - **AI Development**: The trajectory of AI investment and its impact on productivity remains uncertain, with potential upside or downside risks depending on market conditions [42][39]. Additional Considerations - **Structural Changes**: The government is focusing on anti-involution measures and market opening, aiming to enhance property rights and streamline market access [28][39]. - **Fiscal Measures**: The new Five-Year Plan will emphasize household consumption and social safety net improvements, indicating a shift in consumption policy [14][25][39]. This summary encapsulates the key points discussed in the conference call regarding the Chinese economy and its outlook for 2026, highlighting both opportunities and risks.

Summary of Conference Call Notes Industry Overview - **Industry**: Food Delivery Platforms in China - **Key Players**: Alibaba Group Holding (BABA), Meituan Core Points and Arguments 1. **Government Investigation**: The General Office of Anti-Monopoly and Anti-Unfair Competition Commission has initiated an investigation into food delivery platforms to ensure fair competition and reasonable pricing, addressing issues like excessive subsidies and aggressive price wars [2][3] 2. **Response from Companies**: Both BABA and Meituan have committed to cooperating with the investigation and adhering to relevant laws to promote orderly industry development [2] 3. **Intensified Competition**: Competition in the food delivery sector has escalated, with BABA expected to increase investments to capture market share, leading to significant cash burn concerns [4] 4. **Projected Losses**: BABA's quick commerce losses are projected to reach RMB 90 billion in fiscal year 2026 and RMB 60 billion in fiscal year 2027, raising market concerns about cash burn [4] 5. **Meituan's Financial Outlook**: Meituan is expected to incur an on-demand loss of RMB 27 billion in fiscal year 2025, followed by a profit of RMB 5 billion in 2026, although competitive pressures may impact margins [5] 6. **Investment Preferences**: The preference ranking for investments is BABA > PDD > Meituan > JD, with BABA's cloud services (Alicloud) expected to grow significantly [6] Additional Important Content 1. **Market Sentiment**: There is a growing concern regarding the cash burn of major players in the food delivery sector due to intensified competition, contrasting with earlier expectations of a more gradual competitive landscape [4] 2. **Regulatory Environment**: The investigation by the State Council is seen as a strong stance against the ongoing price wars and competitive involution in the food delivery sector [3] 3. **Future Growth Potential**: Alicloud is highlighted as a key growth driver for BABA, with expectations of revenue growth accelerating to over 35% in fiscal Q3 2026 and 40% in fiscal 2027 [6] This summary encapsulates the critical insights from the conference call regarding the food delivery industry in China, focusing on the competitive landscape, financial projections, and regulatory developments affecting key players.

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **Chinese economy** and its outlook for **2026**, highlighting significant changes in trade and the property market, as well as the challenges of finding new growth engines in the economy [3][6][11]. Core Economic Insights - **Export Growth**: - China's export volume is expected to grow by **5%** in **2026**, following an **8%** growth in **2025**. This growth is supported by strong goods exports and policies promoting services exports [3][4]. - The current account surplus is projected to widen from **3.6%** of GDP in **2025** to **4.2%** in **2026**, exceeding consensus expectations [3][4][12]. - **Property Market**: - The property market is anticipated to continue its decline in **2026**, but its negative impact on GDP is expected to lessen as the sector's share of the economy has significantly decreased [3][4][35]. - New housing starts and property investment have dropped **50-80%** from their peaks in **2020-21**, indicating a prolonged downturn [35][37]. - **Labor Market**: - The labor market remains weak, with structural challenges such as job displacement due to AI and cyclical issues from the property downturn [3][4][42]. - The unemployment rate has not changed significantly, but hiring has been depressed, leading to a slowdown in urban nominal wage growth to **3.8%** in Q3 [42][44]. - **Consumption Trends**: - Household consumption growth is expected to moderate to **4.5%** in **2026**, down from **4.8%** in **2025**, due to a weak labor market and declining house prices [53][54]. - Government consumption is projected to increase to **5.0%** in **2026**, offsetting weaknesses in private consumption [54][55]. Investment Outlook - **Investment Growth**: - Gross fixed capital formation growth is expected to rebound from **1.5%** in **2025** to **3.5%** in **2026**, supported by government policies aimed at stabilizing investment [3][4][64]. - Infrastructure and services-related investments are likely to see significant growth, while property investment may continue to contract by **12%** in **2026** [64][65]. Inflation and Monetary Policy - **Inflation Projections**: - CPI inflation is expected to rise from **0%** in **2025** to **0.6%** in **2026**, while PPI inflation is projected to improve from **-2.6%** to **-0.7%** [5][72]. - The gradual reflation process is anticipated, with inflationary pressures expected to remain subdued [69][70]. - **Monetary Policy**: - The People's Bank of China (PBOC) is expected to adopt a cautious approach to monetary easing, with potential rate cuts and fiscal measures to support economic growth [77]. Additional Insights - **Current Account Dynamics**: - The current account surplus is expected to increase, driven by structural growth in high-tech manufacturing exports and a focus on self-reliance amid geopolitical tensions [27][30]. - **Long-term Economic Transition**: - The transition from a property and infrastructure-driven economy to one focused on consumption and services is still in its early stages and may take years to fully realize [11][12]. - **Government Initiatives**: - Recent government policies, including a consumer goods trade-in program, aim to stimulate consumption but may only provide short-term support [57][58]. This summary encapsulates the key points discussed in the conference call regarding the outlook for the Chinese economy in 2026, highlighting both opportunities and challenges across various sectors.

Summary of Hengli Petrochemical Conference Call Company Overview - **Company**: Hengli Petrochemical - **Industry**: Chemicals, specifically focusing on polyester fibers and petrochemical products - **Capacity**: Largest PTA plant globally with a capacity of 16.6 million tonnes per annum and a crude-to-chemicals project of 20 million tonnes per annum [11] Key Points Industry Dynamics - **PX Fundamentals**: Improved since late October 2025, with PX prices and gross profits rising approximately RMB 650 and RMB 1,000 per tonne respectively as of December 25, 2025. This improvement is attributed to: 1. Increased PX demand from overseas blending components 2. Tighter supply due to maintenance at facilities in China and abroad 3. Low inventory levels in China [2] - **PTA Profitability**: The PTA industry has seen notable improvements in self-discipline, leading to a decrease in market-wide inventories, now at a three-year low. PTA prices increased over RMB 500 per tonne to RMB 5,040 per tonne as of December 25, 2025, with a gross profit increase of nearly RMB 100 per tonne [3] Financial Projections - **2026 Earnings Outlook**: Positive projections for the aromatics value chain in 2026, with expectations of continued strong PX profitability due to tight supply in the first half of 2026. No new capacity launches are anticipated for 2026, which, combined with low inventories and industry self-discipline, is expected to support PTA profitability recovery. An estimated improvement of RMB 200 in per-tonne gross profit for PX/PTA could add approximately RMB 700 million to RMB 2 billion to Hengli's earnings [4] Valuation and Ratings - **Price Target Adjustment**: The price target has been raised from RMB 22.7 to RMB 25.6, reflecting a 2-4% increase in earnings estimates for 2026 and 2027. The new price target implies a 2.4x price-to-book value (P/BV) and a 15.2% return on equity (ROE) for 2026 [5][6] Market Metrics - **Current Stock Price**: RMB 21.27 as of December 26, 2025 - **Market Capitalization**: RMB 150 billion (approximately USD 21.4 billion) - **Average Daily Volume**: 24,455,000 shares - **Debt Metrics**: Net debt to EBITDA ratio projected at 5.1x for 2025 [6] Earnings Estimates - **Earnings Per Share (EPS)**: - 2025E: RMB 0.99 - 2026E: RMB 1.53 (up 4% from previous estimates) - 2027E: RMB 1.67 (up 2% from previous estimates) [7] Risks - **Downside Risks**: 1. Declining PX industry fundamentals could impact profitability 2. Falling refinery fundamentals amid high oil prices 3. Ineffective sales channels leading to declining refined oil sales and profits [12] Additional Insights - **Forecast Returns**: Anticipated stock return of 22.5%, with a forecast price appreciation of 20.4% and a dividend yield of 2.1% [10] This summary encapsulates the key insights and projections regarding Hengli Petrochemical's performance and the broader industry context, highlighting potential investment opportunities and risks.

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the **Chinese economy**, focusing on various economic indicators and trends, particularly in the **retail, property, and investment sectors**. Core Insights and Arguments 1. **Retail Sales Performance**: - Retail sales growth slowed to **1.3% YoY** in November, down from **2.9% YoY** in October, which was weaker than market expectations of **2.9%** [110] - Sales of household appliances and automobiles contracted significantly, with household appliances down **19% YoY** and autos down **8% YoY** [110] - The overall consumption growth is expected to remain soft in 2026 due to high base effects and ongoing property downturn [110] 2. **Fixed Asset Investment (FAI)**: - FAI growth remained weak, with a **YoY decline of -11.1%** in November, slightly better than the previous month [85] - Manufacturing FAI saw a modest improvement, narrowing its decline to **-4.5% YoY** [85] - Infrastructure FAI continued to contract sharply at **-11.9% YoY** [85] - The deployment of special financing tools from policy banks may provide some support for FAI components in the future [85] 3. **Property Market Dynamics**: - The property market continues to face challenges, with property sales growth falling by **17.3% YoY** in November and new starts down **27.6% YoY** [70] - The average new home sales price in 70 cities declined by **0.4% MoM** in November, indicating ongoing price pressures [70] - The government has implemented various measures to support the property sector, but the recovery is expected to take time [70] 4. **Economic Growth Projections**: - Q4 GDP growth is anticipated to decelerate to around **4.2% YoY**, with full-year 2025 GDP growth averaging **4.9%**, aligning with the target of "around 5%" [4] - The Central Economic Work Conference (CEWC) is expected to set a GDP growth target of **4.5-5%** for 2026, although achieving this may be challenging due to anticipated slowdowns in exports and the property market [6] 5. **Monetary and Fiscal Policy**: - Modest policy easing is ongoing, with expectations of a **20bps cut in policy rates** by the end of 2026 [5] - The government plans to increase consumption subsidies to **RMB 400 billion** in 2026 from **RMB 300 billion** in 2025, aiming to support consumer spending [110] Other Important Insights - **Inflation Trends**: - November CPI inflation increased to **0.7% YoY**, driven by a rebound in food prices, while PPI recorded a slight decline of **-2.2% YoY** [125] - The inflation outlook suggests a potential rebound in CPI to **0.4%** in 2026, while PPI may only turn positive by late 2026 or early 2027 [125] - **Credit and Liquidity Conditions**: - Total social financing (TSF) growth stabilized at **8.5% YoY** in November, with new RMB loans totaling **RMB 390 billion** [140] - The PBC is expected to continue accommodative monetary policy, with further RRR cuts anticipated [150] This summary encapsulates the key points discussed in the conference call, providing insights into the current state and future outlook of the Chinese economy, particularly in retail, property, and investment sectors.