Currency Market Overview - The Indian rupee closed 32 paise lower at 88.13 per dollar, compared to the previous close of 87.8150 [1] - The rupee had previously gained due to broad weakness in the dollar amid anticipation of a rate cut by the US Federal Reserve [2] - The US Fed cut interest rates by 25 basis points to a range of 4.00-4.25%, aligning with market expectations, but provided mixed forward guidance [5] Economic Implications - Fed Chair Jerome Powell indicated that future decisions would be made "meeting by meeting," leading to a temporary rebound of the dollar after an initial decline [2] - There is an expectation that dollar weakness may persist, with potential for a deeper rate cut cycle in 2026 than currently projected [4] - The impact of tariffs on growth and inflation is anticipated to become more pronounced as companies pass higher costs to consumers, which could negatively affect consumer demand [4] Trade Relations and Tariff Outlook - Investors are focusing on US tariff issues and weak foreign inflows in the equity market, which have negatively impacted the rupee [5] - Chief Economic Advisor V Anantha Nageswaran expressed optimism that the tariff dispute between India and the US may be resolved within two months, with potential withdrawal of penal tariffs [5] - Discussions are ongoing to reduce the reciprocal tariff from 25% to approximately 15%, which could benefit exporters [5]

Investment Rating - The report indicates a positive sentiment towards Chinese equities, suggesting a better chance of inflow upside than downside due to measured macro and earnings drag from tariffs compared to peers [2][3]. Core Insights - The report highlights that new developments in trade talks and domestic policy easing by the PBOC and CSRC have led to a rapid shift in market dynamics, with a record-high attendance at the MS China BEST conference indicating rising investor interest in China [3][4]. - Despite potential headwinds on corporate earnings starting from Q2, the overall setup for Chinese equities remains relatively stable compared to other major economies, with a smaller magnitude of negative change expected [4][7]. - The report emphasizes that the listed Chinese equity universe is less exposed to the tariff dispute due to limited foreign revenue exposure, which is less than 15% [7][19]. Summary by Sections Market Dynamics and Investor Sentiment - Investors expressed a strong willingness to diversify their asset allocation towards China, driven by a weakening US dollar and ongoing tariff uncertainties [8][9]. - The report notes that China presents the largest underweight gap within existing global EM equities, with over 80% of investors indicating a likelihood to increase their Chinese equity exposure in the near term [9][19]. Economic Forecasts - The report revises down the 2025 annual real GDP growth forecast for China from 4.5% to 4.2%, a 6.7% cut, which is less severe than the 60% cut for the US and 9.1% for Asia [4][7]. - Earnings growth forecasts for MSCI China have been revised down from 7% to 5%, while the broader MSCI EM index forecast has been cut from 11% to 3% [4]. Sectoral Insights - The report identifies AI, technology, and new economy sectors as emerging equity market champions, with increasing investor interest amid tariff uncertainties [19][20]. - The report highlights the resilience of Chinese internet companies in enhancing shareholder returns and adapting to new business models, which are less susceptible to ongoing macro challenges [20][21]. Trade Talks and Tariff Outlook - The report anticipates prolonged US-China trade talks, with expectations of elevated tariff rates persisting in the near term, despite potential de-escalation [21][24]. - A balanced investment approach is recommended, focusing on high-quality, large-cap internet names and selective high-tech players, while also considering dividend yield plays to mitigate market volatility [25][26].