Summary of Conference Call Notes Industry or Company Involved - The discussion primarily revolves around the Hong Kong stock market (港股) and the A-share market (A 股), focusing on their recent performance and outlook. Core Points and Arguments 1. **Market Weakness Factors** The recent weakness in the Hong Kong stock market is attributed to multiple factors, including concerns over the overseas AI bubble, performance divergence in global growth stocks, tightening global liquidity, and seasonal weakness in southbound capital. These factors collectively exert pressure on the market [1][2][4]. 2. **Sentiment Indicators** Current sentiment indicators suggest that the market has entered a pessimistic zone, with indicators around 40, but have not reached panic levels below 30. This indicates a potential for further adjustments before a recovery [5]. 3. **Future Liquidity Expectations** It is anticipated that liquidity in the U.S. may improve in December, with the potential release of approximately $100 billion from the TGA account and a halt in balance sheet reduction, which could alleviate pressure on reserves [5]. 4. **Sector Performance in Q3 Reports** The Q3 reports for Hong Kong stocks show that around 40% of Hang Seng Index constituent companies have reported earnings, with a year-on-year growth rate of 2.4%, exceeding expectations by 3%. However, excluding the financial sector, earnings expectations have been revised down by 0.7% [8]. 5. **Sectoral Earnings Adjustments** Earnings expectations have been revised upwards for sectors such as non-bank financials, pharmaceuticals, financial dividends, and new consumption, while downward revisions were noted for real estate, automotive, technology hardware, and internet sectors [8]. 6. **A-Share Market Trends** The A-share market has shown a lackluster performance, with defensive value stocks outperforming growth stocks. The market is expected to experience wide fluctuations due to declining interest rate expectations and concerns over the overseas AI bubble [9]. 7. **Investment Strategy Recommendations** A balanced allocation strategy is recommended, focusing on sectors with potential for recovery, such as service consumption, construction, housing services, and home appliances. This approach is suggested due to the lack of strong fundamental support for current market styles [6][7]. 8. **Capacity Cycle Insights** The capacity cycle is expected to stabilize in the first half of next year, with a focus on industries that significantly expanded capacity between 2021 and 2023 but currently have low utilization rates. Industries are categorized based on their proximity to capacity cycle inflection points [13]. Other Important but Possibly Overlooked Content 1. **Market Behavior Influences** The current market behavior is driven more by capital flows and future expectations rather than fundamental data, indicating a speculative trading environment [6]. 2. **Potential for Small-cap Stocks** There are signs of relaxation in private equity securities registration, which may support small-cap stocks, suggesting a potential area of focus for investors [9][10]. 3. **Trends in Q3 Financial Reports** The Q3 financial reports indicate a positive trend with revenue and profit growth showing upward inflection points, suggesting a recovery trajectory that may continue into the future [12]. 4. **Investment Style Adaptation** Historical data suggests that October is typically a period where performance factors are less effective, indicating that a "barbell" strategy, which includes both dividend and small-cap stocks, may be more suitable during such times [11].

Core Viewpoint - The upcoming tariff "storm" is expected to impact China the most, but the country is also the most prepared for it. The focus of domestic policy in the second quarter is becoming clearer, emphasizing supply control and demand support [2][3]. Group 1: Tariff Impact and Preparation - The investigation results of the "America First Trade Policy" memorandum are anticipated to lead to the highest tariffs and the broadest scope for China. However, Chinese companies have diversified their global presence over the past few years, making them better prepared compared to the shocks experienced in April 2018 [3]. - As of the end of 2023, 49% of Amazon's best-selling sellers are from China, indicating a strong presence in the U.S. retail market. The diversification of U.S. retail has increased, making it unrealistic for retailers to pass on tariff costs entirely to overseas suppliers [3]. Group 2: Domestic Policy Direction - Fiscal spending in the first two months of the year has shifted towards social welfare, with social-related projects increasing by 5.6% year-on-year, while infrastructure spending decreased by 5.6%. This marks the first negative growth in infrastructure spending since 2021 [5]. - The proportion of infrastructure spending is expected to rise from 22.2% to 23.3% by the end of 2024, while social spending will decrease from 43.7% to 42.1% [5]. - The monetary policy is waiting for synchronization with the U.S. to avoid significant currency fluctuations and financial risks. The central bank has indicated potential interest rate cuts to calm the market [6]. Group 3: Market Recovery Expectations - Following the tariff "storm," A-shares are expected to recover, while Hong Kong stocks may undergo a correction. The overseas market's recent volatility is primarily driven by tariff concerns and recession expectations, rather than actual economic downturns [7][8]. - The core operating indicators of major U.S. companies are showing improvement, suggesting that the market may recover after the tariff situation stabilizes [8]. Group 4: Core Asset Resilience - Core assets have demonstrated strong operational resilience, with many companies in the "new core assets" category showing improved performance. As of March 28, 2025, the revenue growth rate for these companies increased to 13.9% in Q4 2024, up from 8.4% in Q3 2024 [10][12]. - The overall revenue growth for non-financial A-shares was only 2.7%, highlighting the relative strength of core assets [12]. Group 5: Investment Strategy - The current investment strategy emphasizes technology-driven growth, supply-side initiatives, and consumption recovery. The focus remains on sectors like AI, domestic computing power, and innovative pharmaceuticals [15][16]. - There is a recommendation to maintain positions in technology while also considering sectors that benefit from insurance capital allocation, such as Hong Kong dividend stocks [16].

Key Points - The report from CITIC Securities highlights two critical time points in the year: the first is the external risk landing in early April, which is expected to create trading opportunities, and the second is the synchronization of the economic and policy cycles between China and the U.S. around mid-year, which will provide allocation opportunities for core assets [1][2][3] Group 1: Key Time Points - The first key time point is the external risk landing in early April, including the results of the U.S. trade policy memo and the clarity on "reciprocal tariffs." This is expected to lead to trading opportunities in the technology sector due to its weak macroeconomic correlation and strong industrial catalysts [2][3] - The second key time point is the synchronization of the economic and policy cycles between China and the U.S. in mid-year, which may lead to the fourth round of economic stimulus in China since 2013, as the U.S. faces economic weakening and increased tariff pressures [2][8] Group 2: Trading Opportunities - Following the external risk landing in early April, the technology sector is anticipated to experience new trading opportunities, particularly in the context of the U.S. trade policy developments and the expected adjustments in the macroeconomic environment [3][4] - The report emphasizes that edge AI is likely to be a significant catalyst for market movements, with upcoming product launches, particularly from companies like Xiaomi, expected to boost market sentiment [4][10] Group 3: Investment Focus - The report suggests focusing on core assets in both A-shares and Hong Kong stocks, particularly in sectors such as domestic computing power, edge AI, lithium batteries, military industry, and innovative pharmaceuticals in Hong Kong [10] - Additionally, it recommends paying attention to sectors that may experience potential earnings surprises in Q1, including wind power components, engineering machinery, automotive electronics, and service consumption [10]